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  • Writer's pictureAlexander Matambo

What are NFTs? And Why Should You Care?

In just 30 minutes, Logan Paul, a famous American YouTuber, made $1,000,000. By the end of the day, he had accumulated $5,000,000 off selling three thousand digital copies of his custom Pokemon cards.


Funny enough, that's not the most exciting story. In early 2021, a digital artist called Beeple had an NFT of his artwork auctioned off for $69.3 million at Christie's first crypto art auction.

The market for NFTs ballooned in 2020, climbing to a market cap of at least $330 million from about $41 million in 2018. From art to music, digital assets are selling like hotcakes- and for incredible prices.


So what's with the hype? This article aims to decipher NFTs and point out the potential benefits they carry for digital content creators.


What is an NFT?


A non-fungible token (NFT) is a digital asset representing a real-world object such as music, art, videos, and in-game items. They can be thought of as a certificate of ownership for virtual or physical assets. Owning the NFT of an asset gives you digital ownership rights over that content, allowing you to sell it or distribute it as you please.

They are bought and sold online, usually through cryptocurrencies, and are encoded with the same underlying code/software.

To understand how NFT works, one first has to understand fungibility, which is the ability of an asset to be exchanged or substituted by a similar asset of the same value.


In economics, an asset is deemed fungible if it has units and can be readily interchanged- like money. With money, every $1 is precisely the same and hold the same value. You can swap a $20 bill with two $10 bills or four $5 bills, and the value will be the same.


However, if an asset is non-fungible, it has unique characteristics, preventing it from being interchangeable with something else. For example, the Mona Lisa painting in Paris. You can take a picture of the portrait or buy a printed version of it, but these will never be the same as the original painting by Leonardo da Vinci, making the painting one-of-a-kind.


How Do They work?


Traditionally, beautiful artworks such as paintings were considered valuable because they were one-of-a-kind and unique. When you bought a piece from an artist, you were assured that you are the only person on the planet with that art piece.


However, this changed with the advent of the internet. In the age of the internet, digital files can easily be copied and endlessly duplicated. Once this happens multiple times, the piece of content loses its value, which hurts the creator.


With NFTs, content can be "tokenised" to create the digital certificate of ownership that can be bought and sold. As with cryptocurrencies, a record of who owns what is stored on a shared ledger called a blockchain. In doing so, they fix a complex problem for many creators, making their content both scarce and valuable. The content might still be copied and duplicated, but there will always be one original with the NFT attached to it, making it unique.


NFTs in Use


NFTs started making serious waves recently when pixelated cats began to sell for hundreds of thousands of dollars in early 2021.

Cryptokitties is a videogame based on the Ethereum blockchain where players can buy, sell, and breed digital cats. Each cryptokitty is represented as an NFT in the blockchain, meaning they are unique

and can be sold in the community using Ethereum as a currency.


Some reports suggest that some crypto kitties sold for as much as $300,000 per cat, demonstrating a promising future for NFTs.




Another recent example is Gucci's virtual reality sneakers retailing for $11.99. The shoes target tech-savvy Gen Z consumers who may not afford the physical Gucci products yet. They are selling them as part of an access pack, allowing users to try on the sneakers by taking a picture or video and unlocking the shoes on the app. Gucci aims to keep the initiative affordable and promised an unlimited quantity of shoes that will be interchangeable between users.

Researchers predict virtual shoe resellers will

pop up in the market too.


Why Should You Care?


Autonomy for Digital Creators


NFTs present digital creators with a way of "future-proofing" their content. Once content has been posted online, it becomes harder to monetise, and it is easy to lose track of the original owners/creators.

NFTs act as a non-duplicable digital certificate of ownership, giving the owner digital rights to sell, distribute, and license content as they please.


They can also be encoded with smart contracts that may have beneficial conditions for the original creator, such as getting a cut of the profits on each resale of the token.

All these present ways for content creators to monetise their content without the need for third parties such as galleries, auction houses, or even social media. They can now sell their content directly to the customer.


Decentralised Commerce


NFTs are pushing the world towards decentralised commerce, a marketplace where all transactions happen through smart contracts on a distributed ledger network like the Ethereum blockchain.

These records cannot be forged or manipulated because the ledger is maintained by thousands of computers worldwide. This is vital because big players, such as governments and corporations, cannot manipulate the market by pushing certain products onto the front page or buying fake reviews. This revolutionary technology will level the playing field.


Closing


To recap, NFTs are "one-of-a-kind" digital assets which can be bought and sold but have no tangible form. While promising significant shifts in the market, NFTs are still relatively new developments, making them risky investments.

Time will tell if this new technology will revolutionalise how content is distributed and sold online.

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