Non-fungible tokens (NFT) are a type of digital asset where each token can’t be exchanged with another token. NFTs are tokens that are unique and cannot be copied or replicated. This means that they have unique features and qualities about them. For example, in CryptoKitties, there are no two kitties with the same genes or genome.
The non-fungible tokens or NFTs as they are referred to in blockchain are a new type of asset class. They have been designed for the digital era and provide more benefits than traditional commodity based assets. They are used to identify, certify and track digital ownership of items. NFTs can be identified by their digital properties and can be transferred between users without any need for an intermediary. NFTs can really only exist on the blockchain thanks to smart contracts. The Ethereum network has its own programming language called Solidity which lets coders create these smart contracts for NFTs.
The first recorded sale of an NFT was in 2015 where a user on the Ethereum network sold “one rare pepe” for 0.2 ETH which was about $1,000 at that time. Imagine that ! And we thought it’s a new thing.
For an artist, NFT can be very critical. Apart from opening up the world as potential buyers instead of a local gallery, it has several other benefits. Any NFT can be traced back to the artist. It in a way provide receipts to the artist to prove her creation & ownership at all points of time. The smart contracts can be applied by artist to protect themselves & their art being misused. NFT has a royalty feature as well by which the artist can earn a percentage of the resell amount. Reselling provides further exposure to artist (remember, art can be traced back to the artist !)
For a buyer, it provides you an opportunity to support artists whom you believe to have great potential. Imagine owning a Picasso before Picasso became a well known artist. Now imagine the value of that art in today’s market ! Congratulations, guess you just won a lottery. Owning an NFT provides bragging right to the collector. It gives you basic rights – use it online, showcase it to the world online. But this can be further configured based on your use. If the artist agrees, you can modify the art and sell a version of that image. But the smart contracts need to highlight these complexities well in advance. For my fellow investors, you can view it as a speculative asset.
NFT volume for the first half of 2021 was an impressive $2.5 billion. Both artists & collectors have realized the potential of NFTs and it is only going to grow further with general acceptance of blockchain.