Introduction

A Non-fungible token (NFT) is a cryptographic token that represents the ownership of digital items such as music, art, sports-card. Non-fungible means something which is unique and cannot be exchanged for anything else.

A $1 bill is a fungible item, as it can be exchanged with a similar $1 bill since both bills share the same value. However, your favorite musician’s music album is a non-fungible item as it does not share the same value as another musician’s album.

Each album is unique and is non-exchangeable. Thus, an NFT is a non-exchangeable and non-divisible unit of data that is stored on a blockchain. Now, think of a blockchain as a book on the internet (virtual register) in which you create an ‘ID card’ of your artwork to ensure your work has a unique identity number and does not get stolen.

Anyone can write on the ‘virtual book’ but no one can delete any record. All the drawing information stored in the book is contained in a ‘token’. To access your drawing, you need to have the token which will point to the address of the drawing i.e. where the drawing is hosted e.g. a website.

A blockchain is a public, digital ledger (database) that keeps record of all transactions happening across the network of computers on that blockchain.

Since an NFT is stored on a public database, its authenticity and ownership can be publicly verified. Similarly, one NFT can only have one owner and the ownership record can not be modified.

The ownership is assigned using a unique ID and metadata that is unique to each NFT.

What Makes NFT so Valuable?

The value of an NFT stems from the asset it represents, usually something that exists in the digital world like an original piece of art or a music album.

The NFT itself does not necessarily contain the digital item, but points to its location on the blockchain. An NFT is similar to a concert ticket, as it represents the value of the item it represents/contains.

One of the main benefits of owning a digital collectible versus a physical collectible like a sports card or rare minted coin is that each NFT contains distinguishing information that makes it both distinct from any other NFT and easily authenticated.

Many see an NFT as a certificate of authenticity, or a  deed or proof confirming you own the right to display the above art on your wall or in your digital wallet. 

Since all NFT data is stored on the blockchain each token cannot be destroyed, removed or replicated. Ownership of these tokens is also immutable, which means gamers and collectors actually possess their NFTs, and not the companies that create them.

As opposed to purchasing music from Spotify where users don't actually own the music, and just purchase the license to listen to the music.

How does NFT work?

As mentioned previously, NFTs are stored on a blockchain known as ‘Ethereum’ which is also a cryptocurrency like bitcoin. To start working with NFT, you would primarily need 2 things: Metamask Wallet and Ether (ETH).

Metamask is the digital wallet via which you make transactions, whereas Ether is the currency you need to make those transactions. NFTs are executed through smart contracts, which assign ownership and transferability of the tokens.

Items Popularly sold as NFT

Artwork

As an artist, Non-Fungible tokens will provide you the platform to sell your artwork. NFTs also have a feature that pays you a percentage every time your item is sold further.

Both digital and physical artwork such as paintings and drawings are being sold as NFTs, giving the buyer exclusive ownership over the digital file of the artwork.

As a buyer, you may choose to set the image as your profile picture, post it online, or set it as your gaming character on virtual reality games such as Decentraland. Beeple, a renowned American digital artist, sold his artwork ‘The first 5000 days’ for $69 million. Art NFT has not only financially aided artists, but also helped preserve street art

Music

NFTs have turned out to be a popular option among singers looking for innovative ways to customize the ways their music is being distributed. Celebrities like John Legend and DJ 3Lau have jumped on the bandwagon and the latter sold their NFTs for a whooping $12 million.

Depending on the terms of the contract, the NFT may give the buyer ownership of the unique musical work. Or it may give access to customized versions of an existing song or access to music never released before.

Sport Collectibles

The ‘NBA topshot’ consists of tiny video clips of famous NBA plays and its NFT allows buyers to digitally ‘own’ those tiny moments. NBA Topshot digital collectible card of star Basketball player LeBron James sold for $100,000.

Other sport collectibles include trading cards and digital collectibles of famous athletes. Dapper Labs, which is the largest sports NFT marketplace, saw its sales rise from $361 million in 2019 to $700 million in 2020.

Memes

Yes, you read that right! Memes are a popular digital item in the NFT marketplace.

The famous Pakistani meme ‘Friendship Ended with Mudassir’ which went viral all over the globe in 2015, sold for over $49,000 last August. The ‘disaster girl’ meme, in which she poses for the camera as a house burns, sold for a whooping $500,000.

Future of NFTs

You might be wondering why should I pay hefty amounts of money for an NFT that I can have a physical copy of in real-life for much less money?

Well, since NFTs are indivisible, and their ownership is traceable, you become an owner of a digital file and can prove its authenticity. This is the exact reason why NFTs have gained so much popularity over the last few years.

While NFTs have been around since 2014, they have only picked up pace in the past two years. Since NFTs are stored on a blockchain, their use may extend beyond digital art and music to automobiles and even real estate.

It has turned out to be a popular avenue for artists to get their work across in a transparent and efficient manner (via smart contracts). However, the future of NFT does not rely on the inherent value of the items, but the amount people are willing to pay.

Also, since NFT is a new technology all the aspects of ownership and security are yet to fully be discovered. It is with the passage of time that we will see how the future of NFT unfolds.