This article takes a shot at explaining NFTs
Why would anyone pay millions for an image that can be downloaded from the internet for free? If you have wondered about this, then welcome to the arcane world of NFTs. What is it? Why is it making waves? This article takes a shot at explaining that.
The world of NFT includes an auction, an item which is being auctioned, a creator who created that item and a buyer who buys the items.
The only difference between the auction of NFTs and every other type of auction is that there is no banging of gavel or the raising of bid paddles. Yet, bids are placed and items sold.
Auctions have been happening for centuries. The auction of t-shirts, bats, balls, football signed by sports’ heavyweights is a common practice around the world. People willingly dole out millions to get their hands on these valuables and antique items.
There is always a news about a painting, books, clothes, even tissue papers being sold for millions at auctions. People pay the money because the items are rare. They are one of a kind in the world. The thought of having a painting or an artifact, and being the only person in the world to possess it, is what drives the auction industry.
But, spending millions on something – no matter how outrageous the price is – which you can at least touch is still understandable by some stretch of imagination.
But, why would anyone pay a dime, let alone millions, for something that is only the amalgamation of a few pixels? This is a question which perplexed people all over the world. Those who couldn’t fathom the reason are left scratching their heads.. Those who can, had only one thing to say: it’s NFT.
To understand NFT or Non-Fungible Token, break it into three parts: non, fungible and token.
Every item in the world can either be fungible ( Something that is replaceable by another identical item; mutually interchangeable) or non-fungible. The Rs100 currency note issued by the State Bank of Pakistan in your pocket is fungible. All 100 rupees notes are the same. You can also trade them for two Rs50 notes. So, they are fungible.
But, if you have the bat with which Javed Miandad hit that famous Sharjah six, or you have the ball with which Wasim Akram took three wickets in the 1992 cricket world cup final, it is non-fungible. Because these items are one of their kinds.
The “N” and “F” of NFT are understood, let’s talk about the “T”.
To understand T or token, you have to have a little understanding of how blockchain works. The buying and selling on NFTs is done through blockchain and the item being traded is called a “token”. The auction for these tokens is done online. After you pay for the token, it gets registered on the blockchain network in your name.
But, the token was originally created by someone else. It can be the artist who painted the picture or the creator who made the meme for the first time. They get an amount for their creation, which is now a token and converted into a digital asset. Every time that token is traded, they will a royalty.
NFT started in 2014. The first token was named “Quantum,” which was a simple geometric animation. Till 2017, NFT was in an evolutionary phase. In 2018, NFT began collecting millions in sales. But, the pace was not really picking up.
Then came 2021 when all hell broke loose. In terms of the numbers of NFTs sold and the price at which they were sold, 2021 was the best year ever. Experts estimate that the NFT market is now worth $22 billion.
How invested people are in NFTs can be gauged from the fact that at least 22 NFT auctions will begin simultaneously on December 22. In the upcoming days, at least a dozen auctions are scheduled every day.
Now, tech companies and billionaire are also jumping on the bandwagon. Twitter’s founder and former CEO Jack Dosey converted his first ever tweet on the platform into a NFT and sold it for $2.9m. Wikipedia’s founder Jimmy Wales’ first ever edit – “Hello, World” – on the platform is also being auctioned as a NFT.
NFT has different meaning for everyone. For some, it is a new avenue to make money. Others see it as commodity which they can convert into assets. But there are skeptics too. For them it is a giant bubble waiting to burst.
The biggest downside of NFTs, like cryptocurrency, is the lack of regulatory framework.
As things stand, NFT has taken the world by storm. Those who understand it, say this will reshape the future. Those who don’t, say, “Why would I pay for something which I can’t even touch?”