More On: NFTs
Non-fungible token (NFT) is a term I'm familiar with. The question is, what does it signify in the real world?
Let's begin by looking at the words. The term "fungible" is used in economics to describe something that may be traded for another item of the same type exactly. In other words, you and a friend can trade $1 bills and still have the same amount of purchasing power in the US dollar. If you have one Bitcoin, it doesn't really matter which one; it's all the same currency.
The vast majority of physical goods, such as automobiles and houses, are, by definition, nonfungible, which means that you can't merely swap one for another of their kind. Assuming you're willing to sell your 2020 Honda Civic for another 2020 Honda Civic, you'd want to know how well the other vehicle is taken care of first.
Tokens, in crypto parlance, are units of value that are kept on a blockchain. Coins like Dogecoin and Dogecoin can be used as currency but not all tokens are created for that purpose. This might include actual products like Nike's experimentation with a crypto token that is tied with the ownership of physical shoes; but tokens could also represent intangible things like cloud storage space and the ability to participate in private chat rooms.
There are some similarities between nonfungible tokens and cryptocurrencies, however they are not necessarily used as money and have unique properties. What's the big deal?
Non-fungible things weren't really available on the internet until lately.
Digital files can be replicated an unlimited number of times over the internet, and each copy is precisely the same as the one before it.
The internet's ability to make endless copies of digital objects was a significant benefit. However, it was a disaster for reducing their supply. As an artist or professional athlete, your options were limited if you wanted to produce just 100 "first editions" of your digital artwork or to sell digital trading cards that would hold their worth like actual trading cards would.
This discovery was made a few years ago when people realized that blockchains (the shared, decentralized databases that underlie Bitcoin and other cryptocurrencies) might be used to create unique, uncopyable electronic files. In addition, since these files were merely entries in a public database, anyone could verify who owned them or follow the transfer of ownership of these files.
As a result of this insight, the first NFTs were conceived.
Aren't the vast majority of NFTs simply JPEG files that you can copy and save to your PC by right-clicking? How does this address the issue of copying files?
As a comparison, you may think of NFTs as a proof of authenticity for a pricey piece of art. Because you have the certificate of authenticity, you can prove that you are the rightful owner of the sculpture, even if it is copied or falsified.
I'm getting the hang of it. A digital file's ownership can be asserted by NFTs?
Yes. That may not seem like a huge thing, but it is. (Maybe it won't turn out to be, either!) NFT proponents, on the other hand, view the concept of claiming ownership of digital files as a game-changing one.
They assert that a large portion of the value of physical goods is derived from their rarity. NFTs, they hope, will open a whole new market for rare digital items by bringing this quality to the internet.
NFTs intrigue me because of their potential applications in various fields. The question is, why would someone spend so much money for a single one? At the very least, you can enjoy a Picasso picture on the wall and drive a beautiful car, but not a JPEG.
Although most NFTs are useful, this doesn't make them valuable. When it comes to high-end collectors, like the Bored Ape Yacht Club and Sotheby's NFT auctions, much of the value comes down to speculation and bragging rights.
NFTs, on the other hand, have been defended by professionals in the industry, or at the very least, their popularity is explained by the fact that NFTs aren't unique in their ineffectiveness. There are many reasons why people spend money on things that have no practical value, such as to feel better, to show off to their friends, or even to indicate that they belong to a certain group. Our purchases include both tangible (such as fancy clothing and pricey jewelry) and intangible (such as music and movies) (Fortnite skins, short Instagram usernames). If all NFTs represented was a new class of luxury digital good, it would still be worth looking into as an emerging business. Empires have been established selling meaningless luxuries to rich people.
As for Twitter avatars, why do so many crypto enthusiasts choose cartoon apes and penguins?
In the gaming community, these are called "community" or "pfp" (profile photo) NFTs. They're a set of one-of-a-kind yet thematically connected NFTs that were only made in small numbers.
These NFTs become a type of digital collectible and a membership card to an exclusive club once they are issued or "minted." On the Discord messaging program, many NFT groups have their own chatrooms, where owners can meet up and speak. These offline events and parties are only open to those who own a specific NFT.
For their part, owners of these community NFTs post them as their Twitter profile picture, designating themselves as a Bored Ape, Cool Cat, or whatever. There are a lot of NFTs out there that are worth millions of dollars, which is why you see superstars like Jay-Z and Snoop Dogg flaunting them on social media.
What about the digital Beanie Babies that are NFTs? Isn't it likely that the vast majority of them will be rendered useless?
What's the big deal about this? For those who believe we're on the verge of a paradigm shift in the way digital goods are purchased and sold, the $40 billion estimated market for NFTs is a decent place to start.
The NFT market, on the other hand, looks to be cooling off right now, since transaction values are declining and high-dollar NFT auctions are being canceled. The NFT market has become oversaturated, even according to some fervent advocates. On the other hand, Gary Vaynerchuk, an online marketer and NFT entrepreneur, projected that nearly all NFTs will fail.
Yeah. Even within the crypto community, NFTs have sparked debate. However, there are others who will not even consider them, while there are others who will take a chance on them merely on speculation or as a hobby investment.
"Utility" is becoming increasingly important in the NFT world as well, with bundles of other items (such concert tickets, signed memorabilia, or early access to future releases) being offered as an incentive to purchase NFTs, even if the NFT itself is worthless.
Even still, something about that smells fishy. How many NFT scams are there? Consider the issue of money laundering.
It is true that a large number of NFT scams exist. In the crypto world, "Rug pulls"—when a crypto developer unexpectedly abandons a project and flees with buyers' money—are prevalent. For example, Evolved Apes, an NFT scam whose founder vanished with $2.7 million, turned out to be just another rug pull.
The practice of "whitelisting," in which select people are invited to purchase NFTs before they are made available to the broader public, also corrupts numerous projects. As a result of whitelisting, many gains flow to well-connected insiders, who obtain their NFTs at a bargain and can sell them for more after they're released publicly. Reselling NFTs earned 75% of profit for whitelisted users, compared to only 20% profit for nonwhitelisted users, according to Chainalysis's study.
In the NFT market, you can almost likely also find cases of money laundering, wash trading, and other dubious tactics such as the sale of something to oneself in order to artificially increase its worth. Money laundering through the use of NFTs and other crypto assets may or may not occur on a regular basis, but the risk is significant enough that financial officials in various countries, including China, have expressed concern.
Scams and money laundering occur in every economy, as NFT proponents would point out. Senate investigators found evidence of widespread money laundering in the traditional art sector.) It's possible that the use of cryptography will make things simpler.
For the sake of clarity, let's take a step back and talk about NFTs for a moment. An NFT thread on Twitter recently compared NFTs to the so-called "name a star" gift collections, which only provide access to an online database of names, but no actual claim to the star itself. Are there any ownership or use rights included in NFTs?
The answer is no. Instead of the digital asset the token represents, buyers of many NFTs only receive the unique record in the blockchain database that identifies them as its owner.
So, for example, when someone purchases a renowned Nyan Cat NFT, that individual does not have ownership rights to the Nyan Cat picture or any other Nyan Cat items. Those rights were reserved by its inventor Chris Torres. It was essentially just a "official" copy of the photograph that was signed by Mr. Torres for the buyer of NFTs.
Creators of NFTs have the option to sell extra rights along with their NFTs. Then then, they don't necessarily have to. Miramax sued Quentin Tarantino last year after Tarantino announced he would be auctioning off unpublished sections from the "Pulp Fiction" screenplay as Non-Film-Title-Execution (NFT) rights.
Also, I've heard that NFTs are frequently stolen. Is that correct?
There have been a few recent thefts of NFTs, as the price of the most popular NFTs has risen significantly. Passwords to cryptocurrency wallets were recently stolen from multiple members of the Bored Ape Yacht Club, known for its NFT cartoons of bored apes that sell for up to six or seven figures each. The largest NFT trading platform, OpenSea, was recently targeted by hackers who stole $1.7 million in NFTs.
NFT theft is another widespread type of theft, one that involves using copyrighted or protected content to create NFTs. Many artists have expressed their displeasure at their work being repackaged as "official" NFTs and marketed without their consent. And despite the efforts of numerous platforms to stop the selling of stolen NFTs, some theft is almost certainly unavoidable due to the market's lack of regulation.
Why are so many people obsessed with NFTs if they are so flawed? I'm not seeing any reason to be optimistic.
A lot of the time I've spent with NFT makers and collectors has boiled down to a few key points:
Decentralizing the internet could be done with the help of NFTs. Media creators including singers, painters, game streamers, and others post their work to well-known online destinations like Facebook's News Feed, YouTube, and other video sharing sites. While these channels are excellent for growing a fan base, they're not particularly effective at generating revenue. NFTs, they claim, allow creators to offer unique digital goods directly to their followers, allowing them to retain a larger portion of the earnings. For an artist like 3LAU, selling one album of NFT for $3.6 million to a superfan may net them more money than a lifetime's worth of Spotify downloads ever could. A new era is upon us, one where more of our daily interactions and experiences will take place in virtual worlds, rather than in real-world environments. A growing number of individuals who spend a large portion of their time in virtual worlds will purchase all kinds of digital items to enrich their lives, and many of those items will be in the form of NFTs. NFTs are a relatively new technology, and we don't yet know how they will be put to use in the future. We should be patient and open-minded as we wait to discover what unique digital goods can be created by the concept of digital scarcity.
Surely this "creative economy" nonsense has been around for a while now, when people were hopeful about how platforms like YouTube and Twitter will allow gamers, vloggers, and artists to make money online? No, I don't think the NFT market will become as concentrated as social media was.
There is no doubt that there are a number of significant NFT platforms. For example, OpenSea has a market value of $13.3 billion.) For their part, several crypto enthusiasts have taken issue with OpenSea's decision to remove NFTs that it considers fake or stolen from its database.
According to some estimates, only a few persons appear to control most of the high-value NFTs in the market.
But a centralized technology market is distinct from a centralized ownership market. As a result, it may be more difficult for large corporations to take over the NFT industry.
To begin with, unlike most other digital items, NFTs are owned by the user. A YouTube video is hosted on the site's servers, and YouTube decides all of the site's decisions about it, including whether or not advertisements can be served on it, whether or not the video is recommended by the algorithm, etc. It is true that NFTs are not tied to any one platform, but their owners have the freedom to use them anyway they see fit.
Interoperability is also a consideration. NFTs can be made interoperable, unlike skins in Fortnite that can only be used in Fortnite. This means that NFTs can theoretically be taken from one virtual environment to another. If you buy an NFT sword in one game, it can come in handy in another. In a virtual reality metaverse app, a cartoon animal you bought as an NFT may be your avatar. It's also possible to trade your NFTs on another platform if you're not happy with OpenSea, since they are stored in your crypto wallet, not on their server.
In social media, such kind of stuff doesn't happen. Your YouTube subscribers can't just be transferred to TikTok whenever you want.
In fact, I'm a self-taught artist. Switching to NFTs is an option, but how do I go about it? When will this be happening?
OpenSea is a good option for people who want to sell their knitwear, but it's not a guarantee that you'll make more money doing so. There is a good probability that you will not. NFTs can be created from any digital file, no matter how large or little.
Here's how it worked out for me as an e-commerce seller: To begin, I installed MetaMask as a browser plugin and used it to create a blank cryptocurrency wallet. I opened an account on Foundation, an NFT trading platform, with the help of that wallet. When I "minted," or created, my NFT through Foundation, I uploaded a copy of it to an off-site location and then established a blockchain asset to point to that location. After that, I put it up for sale.
The entire procedure, from start to finish, only took a few hours, not counting the many, many hours I spent convincing my employers that it wasn't a terrible idea.
The theoretical advantages of NFTs seem clear to me. But this isn't so complicated, is it? NFTs aren't used in video games since no one is buying them and hoping the price would rise.
"Nobody" isn't an accurate statement. These games, like Axie Infinity, allow players to win in-game combat with their NFT characters and earn real money.
If another digital asset regularly made people rich (or gave them entertaining groups of like-minded people to join), people might quit trading NFTs and start trading those products instead. That conclusion is acceptable.
In the end, NFTs aren't a game changer because they make trading digital goods easy and cheap, or because they're permanent and indestructible, or because they represent the future of intellectual property. They're a game changer because they make trading digital goods easy and cheap, or because they're permanent and indestructible, or because they represent the future of intellectual property.
For better or worse, they enable the creation and exchange of scarce digital things.
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