Recently, art enthusiasts bought a painting named “Morons” from street painter Banksy. They bought the paint from Banksy for 100k dollars. Then, in a Twitter live streaming, they burnt the artwork from a page named “Burnt Banksy.” This live streaming video then sold in the digital market, worth $400k dollars. Why is this worth this much? The answer is due to NFT.
What is NFT? NFT stands for Non Fungible token. To understand the non-fungible token concept, let’s start with fungibility. Fungibility term is used for fungible products. Fungible products have similarities that can be exchanged, and exchangeable products bear the same value. In simple words, in fungible products, there is no differentiation.
Dollars and other fiat money are fungible products. Carrying one 100 dollar note or carrying two 50 dollar notes will give the same buying power to the buyer. But, if any products can’t be exchanged or that do not have the same value, what happens then?
Here comes the concept of Non-Fungibility. If anyone owns the first edition of the Romeo and Juliet book by Shakespear, then its value will not be the same as who owns the modern edition of this book. Products that mostly have antique value and are found in a too-rare case are non-fungible products. They are different from others due to authenticity or some other conditions.
Now let’s get to the token word. When people buy or sell a house or land, a medium is required to make the process smooth and authentic. For an authentic approach, someone needs help from bankers and lawyers. They are working as a medium here to help people in completing paperwork. After working with these mediums (third parties, Brooker house, bank, lawyers), the buyer becomes the property owner legally, and the seller gets his money after verifications. But, when this buying and selling takes place in the digital world with the help of cryptocurrency, then the authentic medium is named Token.
So, NFT is a Non Fungible token that takes place digitally and has an authentic value similar to any other form.
What to Do With NFTS?
NFT is a digital platform used to buy or sell goods, arts, music, videos, or other forms digitally by using cryptocurrency. To buy and trade in the world of NFTs, one needs to exchange using cryptocurrencies like Bitcoin, Ethereum, etc.
NFTs give the digital product authenticity and give the buyer ownership status. Digital code has been used to verify the product’s authenticity before giving it an NFT product tag.
Digital artists, popular persons are now coming to the NFT marketplace with their masterpiece or their creation and provide a chance to anyone to own the product to make an emotional attachment or upgrade the future worth of the creation. This makes NFT more popular with tech-savvy people.
How to Process NFT
Using blockchain, musicians, models, gamers, and artists can turn their art or creations into NFT. The use of blockchain to convert art into NFT is known as minting. To mint a product, creators and buyers need a marketplace. The general steps of processing NFTs are:
1. Finding a Suitable Marketplace
There are different markets where marketers mint NFT. Some well-known digital markets are open sea, Nifty gateway, Rarible, Mintable, and Makersplace. Marketplace mint the blockchain into your art after verifying some stages and making it ready to place in the NFT marketplace.
Different markets have different terms and conditions. The pay rate for minting is also varied in different markets. Most markets also provide the opportunity to buy and sell the NFTs. These trading charges are also different. So before entering the NFT marketplace, it is better to do proper research about different markets.
2. Cryptocurrency Based Wallet
Cryptocurrency can’t be bought and sold through fiat money. Fiat money indicates dollars or different forms of standard money as blockchain is mint on an NFT, so cryptocurrency like Bitcoin, Ethereum is used for minting.
ERC 721 is an Ethereum wallet that is the most popular in minting. ERC 721 is mainly an Ethereum based Non-Fungible Token standard where digital Ethereum crypto coins are stored. So miner uses equivalent Ethereum from ERC 721 Ethereum wallet to do the minting.
3. Authenticity Verification
NFT checks the authenticity of the art. Anyone can’t turn art into NFT by copying from other places. Digital code found out the actual owner of the art, and with artists, permission, and verification, art turned into NFTs.
4. Value and Uniqueness Verification
Any random things can’t be an NFT. For example, a mere video of someone climbing a tree has no value or uniqueness. Does anyone climb a tree, make a video, and put it up on the marketplace for minting? No, if the art doesn’t possess any creativity or quality that makes it different, it usually does not pass the NFTs uniqueness verification.
Artists can hike a huge price for their art. Hiking a huge price by artists for his art is not unusual in real-world auctions. In real-world auctions, sometimes artists determine the base value of the art. But, In the NFTs world, any kind of asking rate is not acceptable. The marketers determine the initial value of the NFTs after verifying their significance. Marketers verify the value of the art and provide a price quotation. If the artists agree with the price quotation and the art has value on the marketplace, the art is verified for minting into NFTs.
5. Blockchain Verification
The verification process is fully done using blockchain technology. Blockchain ledger comes into play as a third party to verify everything without manipulation. The process is done by using digital data so that sellers can trust the process completely. The trusted way is the key to this blockchain verification.
6. Smart Contract
Nick Szabo first invented the smart contract term. Here, negotiation is done between the buyer and seller digitally. It is not comparable to people’s negotiation in a real marketplace.
So how is this negotiation done? In smart contract technology, sellers set some of their terms and conditions. It can be the starting price of the bid, how the art will be sold, or who is eligible to buy the art. In the same way, the buyer also sets some terms and conditions from his ends. When both terms and conditions match, the art and cryptocurrency are ready to be handed over. During minting, the smart contract is generated to process the NFTs.
7. Open for Business
When the above-stated conditions are matched, a minting is done successfully, and the NFTs are ready for business.
Why Are NFTS So Expensive?
A performance artist created art where a banana was duct-taped. The art was titled “Duct tape banana.” This art was later converted into NFTs and was sold for $120,000.
Mike Winkelmann is a digital artist known in the NFT world as Beeple. He has created one digital art every day for 14 years and created 5000 digital art. Then Beeple made a collage picture with all his digital arts. He converted this digital art into NFT, and this NFT sold for 69 million dollars. This is the third most expensive art in the world.
Why are NFTs so expensive when people can find them free on the internet? The reasons why NFTs are so expensive are below:
1. Certificate of Authentication (Coa)
An art becomes NFT when verified with a Certificate of Authentication or COA. This means the art will hold authenticity by itself. The pictures or art found free on the internet all hold the copyright. When this copyright is handed over to the buyer with a certificate of Authentication, it gives a status of ownership to the buyer.
The certificate of Authentication holds some instructions. The art creator itself writes these instructions. The instructions explain how to handle the piece of art, what to do and not to, and many more important tips. This authorization by the creator itself makes it unique and valuable.
If compared with the real world, the last work by an artist with the artists’ signature makes the artwork valuable. As this is the artist’s last work, it is impossible to generate the same art again. The same goes for the NFTs in the digital world.
NFTs are designed to be rare, and this is the main reason why NFTs are so expensive. An NFTs workpiece can only have one piece in the digital world without sacrificing its value. In the internet world, codes are not scarce. New codes to generate a new or previous program are always available. The sources to find these codes are also available. Anyone can copy, paste or modify a code anytime and improve it. So, owing these codes don’t give a status of ownership feelings. But the ball of the century by Shane Warne authorized by cricket Australia is scarce.
Another reason for the scarcity of NFT is that Certificate of Authentication (COA) can’t be made without degrading the value of the previous COA’s. Through smart contracts, terms and conditions are applied on NFTs, so making more COA’s than the agreed terms is impossible. Personal commitment also plays a role sometimes here, as art is an emotion to the creator.
Without copyright, NFTs can’t be used. All the NFTs are digitally monitored, so there is less chance of duplicating NFTs. People who tried to duplicate the NFTs will immediately be caught.
3. High Demand
Digital NFTs are becoming popular day by day. They carry high demand. But why these high demands are generated is a question.
Buying an art of banana duct-taped with $120,000 is not worthy in a general sense. But, when NFT buyers buy these for a high amount, they do that by calculating their future worth.
The banana duct tape became a popular meme worldwide when this news came out. These memes added to the popularity of the banana duct tape art. And, popularity increases the future value of the banana duct tape art.
Emotion is also a driving factor behind the high price of the NFTs. Selling top shot moment pictures in NFTs by NBA shows a business stunt. The NBA sold the NFTs of LeBron James’ NBA Top Shot moment of a dunk in an auction for $3,87,000. The NBA knows that it has a huge community that wants to carry the memory of the NBA. With this thinking, NFTs are now the NBA’s third incoming source.
So, Emotions, popularity, and future value calculations are mainly raising the values of NFTs.
The Most Expensive NFTs Sold in 2021
- CyptoPunk #3100 — $7.67 million
- CyptoPunk #7523 — $11.75 million
- Beeple’s Human One — $28.9 million
- Everydays: the First 5000 Days — $69.3 million
- Pak’s “The Merge” — $91.8 million
Different Types of NFTS
Any digital content can be authenticated as NFTs. Digital content such as music, art, games, characters, cartoons made from popular characteristics, collectibles, and game objects are the different types of NFTs. Anyone can make a digital form of these using digital media and claim ownership of the work.
Cryptocurrency vs. NFTS
For trading, NFTs cryptocurrency is a must. People sometimes find them similar. But there are significant differences between NFTs and Cryptocurrency.
- Two Bitcoins or Ethereum can be similar and possess the same value, but two NFTs are never similar.
- NFT is not a currency. NFTs can be bought through cryptocurrency, but one NFT cannot be exchanged.
- With Fiat (Dollar), NFT can’t be bought, but Bitcoin or Ethereum can be bought by fiat.
- NFTs don’t have any small portion, but the cryptocurrency has small parts. Bitcoin can break down into satoshis, and Ethereum can be broken down into Wei.
Advantages of NFTS
The world is becoming more digital every day. Digital platforms are also becoming popular with human beings. NFT is also not left behind to show its advantages to the world.
Digital Art Has Become Popular
People are thinking about creating a meta-universe where everyone will wear Virtual reality goggles and visit other virtual reality places. In that time, people can use digital art to show their ownership status proudly. Mainly, this concept makes people more interested in buying unique digital art products for their future.
Digital artists are also finding a source of earning money from their creations. They become more interested in creating digital art and selling them in the marketplace. It also creates a new marketplace for tech-savvy people.
Easy and Trusted Source
In the digital marketplace, no one comes in between buyer and seller. The smart contract sets the negotiation terms and conditions, and blockchain negotiates. As soon as negotiation matches, buyers get his NFT instantly, and sellers receive his cryptocurrency instantly.
The full transaction and trading process is done without the need of any middle agency or person. So, artists can receive their full funds. Though in each transaction, the energy (gas) of the trading is raised, and it takes a fee for each transaction. But, main artists also get a royalty when each transaction takes place.
NFTs are verified by blockchain. Blockchain is a computer-coded and trusted program. So, buyers can buy an authentic product here with full trust. As soon as buyers receive the art, it is signed in his name.
Anyone Can Buy
NFTs buying and selling can’t be influenced by anything as it is occurring in the digital world, so no political or economic influence can deprive anyone of buying the product they want to buy.
Statistics show that the major collection of the American Museum is grasped by 87% males, where 85% are white male people. So, it is understood that manipulation exists in the real world.
But, NFTs give buying authority to anyone. Due to this, Democratization is nurtured properly there. All people are the same in the eyes of NFT.
Pascal Boyarti is a street artist, and he came up with art in a digital marketplace named “Liberty Leading the People.” He minted his artwork into 100 pieces, and then he set his contract to sell the art piece by piece. Later on, each piece is sold in 0.5 Ethereum.
So, in the NFT marketplace, people can share the ownership of digital art. NFTs can be bought piecewise and also in a percentage way. It gives more people the chance to take ownership of the NFT art. A level playing field is ensured in the NFT marketplace.
Downside of NFTS
NFTs have some downsides too. These downsides may create serious issues which can degrade the craze of NFTs.
There is still some minor probability where actual artwork can get into the wrong hands. If the verification fails somehow, the actual owner won’t get the money for his artwork.
Though, this chance is very rare because the verification process of blockchain is tough to break.
More Mining, More Carbon Production
When a transaction takes place, carbon is emitted due to the mining. It raises energy (gas) and carbon in the environment. Carbon is not good for the environment. So, digital NFTs are somehow not good for the environment, and Miners are trying to find the solution to reduce carbon production during transactions.
Unfair Off-Chain Transaction
NFTs come with the concept of a digital marketplace. It is obvious for some digital-focused NFT people that all the transactions and trading will be done digitally. But sometimes, exceptions occur.
The digital art auction by Beeple is done by an Auction company named christie. In the NFTs term and conditions, there is an important term that the main owner will get a royalty from the transactions every time a transaction takes place. But, if the transaction occurs off-chain rather than in blockchain, the main owner can be in danger of getting no royalty in the future. Yes, the owner can help a lawyer, but it won’t mitigate the complexity.
Present and Future of the NFTS
People, who sold his digital art as the third most expensive art in the world using NFTs, said that NFT is something like an air bubble. He also thinks that the high price of NFTs is nothing but just absurdity. But is it really a full absurd thing or valuable?
Monalisa is the famous art of Pablo Picasa. A lot of people try to copy this masterpiece. Some of them become really good where others are not. People can easily buy the duplicate Monalisa from any street park. But is this duplicate value worth the same as the original one? No.
Monalisa had been stolen from the Louvre museum a long time ago and stolen a few times. Every time it was stolen, the next day, every newspaper was covered with the stolen news of Monalisa. This media coverage upgraded the hype for Monalisa more. NFTs buyers are applying the same technique here.
Digital contents and arts are easily available on the internet. One can get the free version of digital content from anywhere anytime. But, the Monalisa duplicate doesn’t have the same value as the real one; the same goes for copyrighted NFTs. One can have free digital content but can’t own them.
When people worldwide mock normal digital content for its high price, the more it is exposed to the people. People get to know about that particular art and become interested in it. And, this interest gradually increases the present and future worth of the NFTs.
NFTs are not backed by most of the government. There is no government rule in buying and selling NFTs. So, if the price rises, private people will profit, and if the future value goes down, it is the private people who will suffer. Still, there is no chance of pointing towards the government if anything wrong happens.
It is totally up to people’s perception of what he perceived about NFTs. Some people think the presence of the NFTs gets this much hype due to the Bull run, which will be demolished shortly. And some people believe that non-tech-savvy people also say the same about the blockchain. Tech people believe that as blockchain continues its run without any occurrence, the same will happen to NFTs. NFTs will make tech-savvy people’s metaverse rooms beautiful and aesthetic where they will be the owner of digital masterpieces.
What will happen next? No one knows. Why NFTs are so expensive is a question of everyone as many people think that it is now running the Bull Run. The Bull Run creates a craze and bubble among the people, which can burst any time.
But, tech-savvy people believe that, as the world is becoming more digital every day, the NFTs will be the future form of art. The answer to the argument will be found in the future if NFTs are backed by Government law; till then, it is good to see that NFTs are becoming popular using unbreakable digital codes.