Applications and Use Cases

Learning the Basics of NFTs

October 18, 2021

NFTs are suddenly selling like hotcakes. But, what are NFTs anyway? NFTs, or non-fungible tokens, are essentially digital certificates of authentication that carry information, such as the owner and creator information. They can also contain features that will enable the original creators to receive a portion of the profits any time the NFT is sold.

In the first half of 2020, NFT sales totaled $13.7 million but, just one year later, that total had increased all the way to $2.5 billion. Considering some of the dollar amounts of individual purchases, it’s not difficult to see how NFT sales could grow at such a rapid pace.

For instance, on October 31, 2020, Pabla Rodriguez-Fraile purchased the digital work “Crossroads” for $66,666. Later, “Everydays: The First 5000 Days” was purchased by crypto investors Vignesh Sundaresan (aka “MetaKovan”) and Michael Joseph Winkleman (aka “Beeple,” creator of the digital artwork). They both wanted to drive up the price of NFTs and their purchase totaled $69 million.

Other big NFT purchases include Jack Dorsey’s digitally autographed first tweet for $3 million, and “Warnymph,” a 10-piece art series worth $6 million.

With so much of what we do, what we create, how we entertain ourselves, and purchases we make all taking place in the digital realm, NFTs can be extremely helpful to digital artists, who should be getting paid for their work. Although digital art, unlike physical art, can be replicated easily and exactly, many times over, NFTs ensure that original pieces remain uncommon and valuable with certifiable authenticity.

NFTs work through the same technology as cryptocurrencies. They’re secured through digital keys. The public key serves as the certificate of ownership, the private key authorizes change of ownership, and the blockchain keeps the “tamper proof” transactions ledger. This kind of process can work for any digital file to become an NFT.

Although most NFTs are used for digital artwork transactions, they can be used in virtually any arena. In the gaming world, players can create, use, and earn new NFT game elements. In sports, fans can purchase video “moments.” Music fans can buy NFTs instead of event tickets or use NFTs to purchase albums. NFTs can also be used to sell digital art for charity benefits.

There are some issues with NFTs, which are sure to be resolved as the technology develops. For instance, owners may simply lose their private key access by forgetting their passwords. Much like with cryptocurrencies, if a password is lost, it’s nearly impossible to retrieve. It’s estimated that 20% of all Bitcoin is owned and locked by people who just can’t remember their passwords. There’s also the potential issue of link rot, which can happen when the URL web host goes out of business. The file is simply lost, no matter how much was paid for the NFT.

Even though there are still some potential pitfalls in this new technology, NFTs are finally putting a price tag and ownership rights on digital works of art, which helps artists to monetize their works and to prevent unauthorized use. It only makes sense that digital art in our digital world should be as valuable as physical art of the same caliber.

Edited by Erik Linask



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