With all the news of tweets, memes, and pieces of art turning into NFTs, it is virtually impossible for anyone using the Internet to avoid the term anymore. Regardless of your choice of social media platforms and news outlets, you are bound to run into something that refers to an NFT at least once a day (make it once a week, if you are lucky).
This also brings about a lot of questions to mind: What is an NFT? How can something on the web turn into an NFT? Why are NFTs so expensive? And what exactly do you do with an NFT?
The inquiries are far and wide. Thankfully, the answers are easy to discover. If you have a couple of minutes at hand, this lowdown on everything about NFTs can answer all your burning questions.
What is an NFT?
NFT is an acronym for a non-fungible token that is created through blockchain technology. As its name suggests, the non-fungible token is unique in its form and not replaceable by another duplicate unit. You can also look at the non-fungible token as a distinctive digital property that does not have another copy in the world.
This makes an NFT different from its blockchain predecessor called cryptocurrency, which holds the exact value with other identical cryptocurrency tokens in a manner similar to actual currency.
Sounds tricky? It’s because it is a bit confusing at first. After all, if an NFT does not exist in physical form and cannot be replaced by an identical token, how are real-world assets such as art pieces sold as NFTs?
While that’s a very good question, it holds a significantly straightforward answer.
An NFT does not exist in physical form, but it can represent tangible assets in a digital capacity. Taking the above example of an art piece that has supposedly been turned into an NFT, the physical asset itself isn’t molded into a tangible token in that case. Instead, it just has unique digital representation in the form of a non-fungible token on the blockchain.
When a physical asset is offered or sold as an NFT, it means that the associated non-fungible token holds unique digital attributes that represent that asset on the blockchain. Since NFTs for physical assets go through rigorous compliance by credible platforms, anyone who holds the respective NFT can determine ownership of the related asset.
As a result, the person who owns a physical asset and has turned it into an NFT can sell it through blockchain. The person who buys it next can be determined the owner of the NFT as well as its associated physical asset. This ownership also holds true in situations where digital assets are involved; they are just void of the physical ownership part.
Now comes the part about the irreplaceable quality of NFTs and their ability to be bought and sold despite this distinction.
How Can You Buy an NFT?
You might still be wondering that if the NFT is such a unique token, how is someone able to buy it in the first place?
Once again, the answer is not that complex.
While NFTs are highly distinctive and not directly replaceable with an identical token, the owner of an NFT can decide to sell it against regular cryptocurrency. This is similar to buying a rare collectible item through regular currency. While you cannot complete your transaction by giving the seller a copy of the exact item, you can pay the price they have set against it to become the owner of the collectible.
Due to this mechanism, NFTs are being sold left, right, and center through cryptocurrency transactions. If the potential buyer’s offered price matches the seller’s projection, the latter can accept it and receive the respective amount in cryptocurrency. The sale completes once the seller has transferred the NFT to the buyer's blockchain wallet.
If the NFT is the representation of a digital asset such as a tweet or a meme, the new owner can lay claim to it as a collectible item. Now, suppose the NFT is representing a physical asset that exists in the real-world, the new buyer may also choose to utilize the asset in its physical setting.
Contrary to the misconception of some people, NFTs did not gain their popularity through the Bitcoin blockchain. While Bitcoin is the world’s first and most popular cryptocurrency, it does not hold the distinction of bringing NFTs to the mainstream market.
Instead, NFTs gained momentum through the Ethereum blockchain, which happens to be home to the world’s second-largest cryptocurrency in value. But given that Ethereum is not just a cryptocurrency generator but also a blockchain application platform, it makes it easy to create non-fungible tokens that are highly unique. Other platforms such as Tezos also make it possible to create NFTs for a wide variety of digital and physical assets.
There are certain marketplaces that deal in NFT listings. Anyone interested in selling their NFT can go through the process to list their asset in the form of a non-fungible token on the platform. If a buyer likes the offering, they can purchase the NFT, have the token transferred to them, and make their payment in the seller’s required and specified cryptocurrency.
What Type of Assets Can Be Turned Into an NFT?
As mentioned above, various digital and physical assets can be turned into NFTs. The choices are virtually endless and depend upon the respective platform’s support and guidelines for creating, selling, and buying NFTs.
In terms of digital assets, some items that can theoretically be turned into NFTs include the following.
- Social Media Posts
- Digital Art
- Digital Trading Cards
- Digital Articles
In terms of physical assets, various pieces of property can also have an NFT attributed to their name. These options include but are not limited to the following.
- Residential Real Estate
- Commercial Real Estate
- Vinyl Records
As described earlier, the options to turn any digital or physical property into NFTs are virtually endless. As long as the item can be traced back to the creator or original owner, there are high chances that it can be represented through an NFT via a credible blockchain platform. However, support for physical asset NFTs is quite a niche service as compared to the more widespread digital asset NFT transactions.
What Happens When You Buy an NFT?
Once an NFT is bought, the new buyer holds ownership rights to the token as well as the asset that it represents. But that’s where another tricky part comes in.
In case of NFTs representing a digital property such as a tweet or a meme, the non-fungible token typically gives the buyer bragging rights of holding digital ownership of the social media post or meme. But it doesn’t mean that one has to delete the tweet or meme and hide it from public view. Similarly, anyone who is retweeting the post or sharing the meme is not infringing the copyright to it.
This makes most digital NFTs similar to collectible items that do not require the actual property to be destroyed or restricted from public use. As such, one can find crypto art, collectibles like cryptokitties, digital artwork, and various digital collectibles among other items found on a NFT marketplace. One can find that a first tweet, NFT art, gifs, a video clip, representations from video games or even a nyan cat can fetch quite a bit of money in places ranging from New York to Delhi.
The tweet buying frenzy may have an origin point with Dorsey. Indeed, this phenomenon is represented by the NFT of Twitter CEO Jack Dorsey’s 2006 tweet.
After being turned into an NFT, Dorsey’s tweet was sold in an auction for over $2.9 million that was paid in Ether (ETH), Ethereum’s cryptocurrency. The buyer received an NFT representing the tweet along with Dorsey’s autograph. However, while the transaction took place in March 2021, the tweet is still up on Twitter and can be liked or retweeted.
In a similar fashion, the famous disaster girl meme – where a small girl with a wry smile can be seen with the background of a burning house – was sold for a jaw dropping $500,000. That transaction for the original copy of the meme was completed in April 2021. But the meme is still shared on countless platforms by various users without copyright infringement. The seller retained the copyright and also made it a point to receive 10 percent of future sales.
A Banksy NFT sold for over $400,000 as part of the craze for digital items and preservation in a digital wallet.
Then there are digital NFTs that actually enforce copyright ownership. It’s because unless these rights are explicitly mentioned within the NFT, the buyer doesn’t get underlying copyright ownership by default. As a result, many NFT buyers simply purchase NFTs for the sake of ownership like a collectible. Whereas, others may want the underlying copyright to accompany their purchase. In these cases, a digital certificate or certificate of authenticity may come into the picture.
In terms of physical assets such as paintings, baseball cards, or other items, the process may require more legal processes to finalize for complete ownership transfer. First and foremost, the creator of the NFT needs to show that they are indeed the owner of the asset being sold. Once these verifications are made, the copyright ownership and intellectual property (IP) rights can be transferred to the NFTs eventual buyer.
In some cases, the buyer also gets to make the decision about what happens to the original artwork. This phenomenon was seen in a would-be NFT sale involving revered artist Jean-Michel Basquiat’s artwork ‘Free Comb With Pagoda.’
While the auction mentioned that the buyers will receive copyright and IP rights to Basquiat's famed piece, it also stated that the original artwork will be destroyed to preserve the uniqueness of the NFT. However, the sale was pulled after backlash from the art community.
As for real estate, the ability to sell NFTs is very real. A digital home NFT transaction has already gone through for $500,000 in April 2021. But due to ownership transfer, the ability to transact real-world properties is a complex and lengthy process that the real estate world is not yet ready to adopt across the board. With that being said, many blockchain experts and real estate professionals are advocating for the use of NFTs in these transactions.
Who Sets the Value of an NFT?
This is a very interesting part that directly refers to the excitement that surrounds an NFT, especially those in a digital capacity.
In terms of digital asset NFTs such as memes or artwork, the value is subject to speculation and hype. The seller can set any starting price that they want. It’s up to the buyers whether they want to pay that price for the asset.
For instance, Twitter founder Jack Dorsey and his tweet that ended up fetching multi-million dollars started its bid on $1. But as the days went by, the bidders seemed to harbor a fascination for the tweet that took its value to previously-unimaginable heights. You may also apply this speculative value phenomenon to the disaster girl meme, as well as the digital house that snagged half a million bucks.
But when it comes to physical property, the value is often set by real-world valuation and supply and demand. This makes the buyers steer clear of any confusion. With that being said, some physical pieces such as artwork can still take the auction house route and go as high as the time-limit of the action may allow.
This once again makes NFTs hugely similar to tangible collectibles, where the price of the asset mainly depends on what an actual buyer would be willing to pay for it. This creates a lucrative segment especially for digital content creators, who can now monetize their efforts into something that translates to a significant amount of money.
It enables individuals to make money from a digital file in some instances that could have minimal use cases besides visual value.
While individuals can wonder if it is a fad, various applications with smart contracts have come to the fore during the pandemic. From platforms like rarible to participants like the artist Beeple, one can find that members of the digital artist category will choose to present potential one of a-kind items to provide their fans with digital joy.
How Can You Create an NFT?
Suppose you have a piece of digital content lying around that you may want to sell, you can head to platforms such as OpenSea or Valuables by Cent. After going through a simple process, you can create your own NFT and sell it to interested buyers.
The process to create NFTs for physical property is a bit more complex. But there are some specialized platforms that are currently working to facilitate these transactions through Ethereum’s ERC721 token, which is the most popular standard for NFTs. Other platforms have similarly-planned standards to sell digital as well as physical property wherever possible.
NFTs Are Fascinating and Are Likely Here To Stay In Some Shape or Form
For now, NFTs are hugely popular for the sale of digital assets. Due to the buzz around them, they also create a highly sought after market where some people selling an NFT can amass high value offers.
With further evolution into physical asset sales, NFTs are set to attract more attention in the near future. But it still remains to be seen whether these non-fungible tokens will noticeably replace the usage of traditional currency transactions.
At the present moment, this segment of NFTs seem to be a novelty much like many of the trends present within blockchain. While speculators will always participate in a frenzied way, those who are watching on the sidelines may see that there are a few gems, creativity, and innovation components that are present within this sector that will last for a while.