What are NFTs and how do they work?
We discuss NFTs, what they are and how they work as well as the controversy surrounding them.
In the real world when we purchase – for example – an original painting, we own the painting. We can take it home, mount it on our wall and proclaim ourselves the owner. A painting is a tangible one-of-a-kind item. Yes, there may be copies out there, but only one original.
It’s a bit differentonline. In the digital world, anything can be duplicated across the Internet numerous times, leaving the concept of “the original” as a rather obscure notion.
And this is where NFTs come in. Previously, if someone wanted to sell the “original” of their digital creation (be it an image, meme, video or even programming code) they couldn’t. Because it doesn’t exist in the same way the original of a painting exists. However now they can sell a digital asset called an NFT, which stands for non-fungible token. It’s a digital token unique to a digital creation that can be purchased by another person, allowing that person to – in theory – own the “original” of that digital creation.
When someone purchases the NFT of a digital creation, such as a piece of digital artwork, they become the owner of the “original”. Their name gets entered into a secure ledger confirming that they are indeed the owner, and just like buying and selling real-world items, NFTs too can be purchased and subsequently sold on.
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A grift?
But there is controversy over the idea of NFTs. The most notable is that when you purchase an NFT, you don’t actually receive anything tangible. There is no physical painting switching hands. While you may in theory be purchasing the “original” of a digital property, that “original” doesn’t actually exist. At least, not outside the confines of its unique NFT.
Having your name entered into a blockchain ledger as the owner acts in a similar way as a “certificate of authenticity”. Only its just the certificate – there is no physical item by which the certificate is authenticating.
Many argue that it’s a largely symbolic gesture since the only thing that actually happens is the buyer’s name gets entered into a blockchain ledger that no one is probably ever going to read.
And since many NFTs are being sold for hundreds of thousands and even millions of dollars, these symbolic gestures of making some people a lot of money.
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In fact, purchasing an NFT doesn’t even necessarily make you the copyright holder. So if you purchase the NFT for a piece of digital artwork, the creator is still free to sell copies of that artwork and profit from doing so.
This has led to many calling the whole concept a grift or a bubble that will soon burst. They claim its essentially a way of making money out of something that doesn’t exist.
However proponents of NFTs claim this is a unique way for creators to profit from their hard work even if their work has been shared widely across the Internet for free.
There are also environmental concerns with NFTs. NFTs are typically purchased with the Ethereum cryptocurrency since they are part of the same technology. The increased popularity of NFTs is likely to see an increase in Ethereum mining which consumes large amounts of electricity.
As it stands, the popularity of NFTs is increasing, with many iconic digital items being sold off in this manner, including the original source code for the World Wide Web and the first ever tweet on Twitter. Whether selling digital items via NFTs will continue this upward trend remains to be seen.
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