What is NFT?
NFT stands for non-fungible tokens; to understand their functioning, let’s understand the meaning of fungible. Fungibility is the ability of an asset to be substituted with identical assets of a similar value.
Non-fungible assets are the opposite. Each one is unique and can't be easily replaced for something similar. Think of the "Mona Lisa." It's an original piece of art. It couldn't be swapped for the "Mona Lisa" poster because it doesn't hold the same value. - The idea behind NFTs is that you have this digital signature that signifies you are the owner of this, and this is the original copy.
An NFT winds up having that through the blockchain where the information is recorded. NFTs are cryptocurrencies, but unlike fungible cryptocurrencies like bitcoin, they are unique. Their authenticity and security are ensured by being stored in blockchain ledgers as a string of unique numbers and letters.
Even though NFTs have a wide range of uses in decentralized finance, it is the creative arena where they are having the most significant impact.
NFTs as a new form of transaction of art-
NFTs rely on blockchain to create an official digital version of art that would otherwise be cheap or freely downloadable on the internet. In response to the growing popularity of NFTs, both businesses and individuals have begun to commercially produce NFTs as a business venture; for individual artists, this is an entirely new platform for them to showcase and generate revenue for their art.
Even NBA has begun to sell images of trademark basketball moves as "Top Shot" NFTs as a marketing tactic and to generate additional revenue.
Unlike platforms such as Spotify and Netflix, which charge a subscription fee to provide unlimited digital content, NFT platforms follow the idea that digital content can be limited in quantity — and thus can be owned or traded. These platforms utilize blockchain technology to verify the authenticity of digital content, similar to how auction houses verify if a given piece of art is original or a replica.
But the question is, how is the ownership of this token even beneficial? Given you can principally own a digital copy of given art for free anyways, given the open-source nature of the internet.
Why exactly do people even buy NFTs? What’s in it for them?
The hype for NFTs can be essentially divided into two categories- those who see NFTs as an investment and those who find some sort of hedonistic value in NFTs.
In this particular scenario, buyers don’t actually own the things they buy. They’re simply getting a signature that this particular digital asset is theirs; most people who see NFTs as an investment opportunity are betting that it will rise in value and they’ll be able to sell it off at a higher price, thus making profits.
Thus owning an NFT effectively makes you an investor; not only that, ownership of NFTs sometimes gives you entry into digital communities. Thus NFTs can be seen as a form of ‘ticket’ to other opportunities as well.
So what is the hedonistic value of NFTs? The idea is that NFTs are something that can be flexed, and you can also and display your taste in art or music. NFTs, at their very core, are a form of collectibles(think of post stamps or Pokemon cards, why do people spend money in obtaining them when they don’t provide much utility? People like collectibles because they often index important events or have some sort of cultural significance, both to the owner and the art community as a whole. The fact that the idea of collectibles can be implemented in digital spaces is a fascinating one.
NFTs are in a way an asset like fine art(think of a random abstract painting which sells for millions), people buy it either for an investment opportunity or because they see some sort of hedonistic value in it, for the general public investment into both abstract fine art and NFTs seems absurd. Still, it does have some kind of value for some people who are ready to spend money.
Most importantly, are NFTs suitable for artists?
In the age of the internet, many digital work artists make tends to become open source, which means that it is easy for someone else to utilize your artwork; what changes, although is the fact that it provides an alternate way of monetizing work for artists. Unique arts can be advertised through third-party platforms, and eventually, someone pays commission for it. Although physical art can be monetized similarly, it’s drastically different for digital assets. Legally it’s tough to separate someone who is the actual owner of the art and someone who just downloaded a copy of it. This makes the implementation of property rights difficult; it’s difficult for someone to have a right to inherent ownership. Furthermore, it is more difficult to transfer ownership which can be done with physical art. NFTs solve this by being a platform that can be utilized to represent ownership, as every NFT is coded uniquely, it is yours; it is also easy to trade NFTs through the utilization of third party platforms, the benefit is it gives you a platform to build transactions- to exchange goods that could not be sold before and by benefiting the artist in being able to monetize their work innovatively.
Furthermore, NFTs have a clause that ensures upon reselling that NFT to another party, the original owner of the NFT (usually the artist) will receive a particular share from the new sale (usually 10%), which provides a kind of long term security and stability.
In an age where everything is being relentlessly centralized by Big tech, this is also a unique opportunity for artists to reclaim control; it allows artists to directly connect with fans who are willing to pay for their creations, as opposed to using centralized platforms, which often take a chunk of your revenue and require huge advertisement costs to gain some sort of traction. Creators have several fans willing to pay them, but Big Tech owns all the platforms. So a decentralized platform that facilitates direct transactions between interested parties is a very lucrative option.
There’s also the idea of scarcity and why it is suitable for the artists. If you work a lot on a particular asset, the moment you put it out there on the internet, the future revenue you get after it is available widespread is minimal because the cost of reproducing something of the internet is zero. With this in mind, the idea of scarcity is suitable for artists. While the file will likely remain available nevertheless, the fact that someone is willing to pay a lot because they have a connection to a particular piece of art or they see it as an investment opportunity serves a dual benefit- accessibility for open internet as well as people being compensated for their efforts.
Essentially, NFTs can democratize art as it represents an extension of the “creator economy”(the trend of artists freelancing and earning income by monetizing their content on platforms)
Harms of NFTs-
Non-fungible tokens are suitable for artists, but there are still some questions over long-term feasibility. It takes massive amounts of energy to construct and maintain. Transactions on the Ethereum blockchain require vast amounts of energy; one transaction can use electricity to run various households for a few hours. Unless Blockchain can be moved into a different energy model, this clearly isn’t sustainable considering the problems of climate change and unsustainable growth.
And even though it claims to decentralize art, there is a hierarchy of who it benefits. Established celebrities and musicians benefit from existing structures (they often sell NFTs for millions). While small artists can access., some forms of traditional arts that cannot be converted into digital assets are left behind, as digital assets represent a new bubble.
There is also uncertainty over the volatile nature of decentralized transactions. The price of the cryptocurrency has been quite volatile since 2013. There are fears that this might turn into a bubble or, even worse, be subject to legislative action, which will take down all of the benefits you get from NFTs.
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