NFT’s are essentially digital crypto currency tokens in the form of Digital Assets that can be anything from an original artwork, trading cards, music, videos or anything digital. The full form of NFT is Non Fungible Tokens and they have been the hottest topic of 2021.
What’s really interesting is the fact that NFTs have been selling for a stratospheric amounts of money making a lot of artist overnight millionaires. Beeple, who is one of the top NFT artist in the NFT community was able to sell his artwork collection called “Everydays: The First 5000 days” for a whooping $69 Million dollars. Besides, Beeple, many other artists like PAK who has made over $17 Million dollars from selling NFTs. This tells us that, NFT is something very serious and in the coming future, we could see the technology of NFT taking over the world.
What are NFT’s?
The simplest definition of NFT is basically, they are digital crypto tokens that are Non-Fungible and can be anything from an original artwork, trading cards, collectibles or anything digital that cannot be mutually exchanged with other NFTs or Digital Assets. Hence the term, “Non-Fungible” because they are irreplaceable, and cannot be duplicated or replicated.
Let’s take a real world example of Bitcoin. According to economics and its definition of a fungible asset, “A Fungible Asset is something that can be mutually exchanged with each other”. The best example would be cash, let’s say you and your friend have a $5 dollar note each. You can exchange that $5 note with your friend and the value will remain the same. That $5 note is fungible. Similarly, Bitcoin is also fungible because if you both have 1 BTC each, they can be mutually exchanged with each other having no effect on value whatsoever. Your friend will not have a unique Bitcoin that is higher value than yours.
However, a Non-Fungible asset is something that cannot be exchanged mutually. For example, Trading cards or NFTs in our case. Remember Pokemon cards, they are Non-Fungible assets too because you may posses a First Edition Charizard and your Friend may posses a First Edition Charizard but they cannot be mutually exchanged because each Charizard comes with different numbers and features that are of different Value.
NFT’s have the similar case here as each NFT is unique and different and they cannot be mutually exchanged with each other, even if both NFTs look alike. This gives NFT’s, the super power of “Rarity” and “Uniqueness”. NFT’s cannot be mass produced like Cash or other Crypt-Currencies and this is one of the reasons why they can become so expensive.
One-of-a-Kind Characteristic of Non-Fungible-Tokens or NFTs
When a NFT is created or minted, only one version of it is created. This means if you turn your artwork into an NFT. There can be only one kind of it released in the NFT marketplace.
There is a term called “Fractionization” where one kind of NFT is sub divided into several editions. However, even here, each edition is unique to each other. For example, you can release your artwork in several different editions and lets say you release 200 different editions of your artworks.
Here each edition of your artwork will be unique to each other and each 200 editions of your artwork will have a different Token ID that is special unique and can be sold at different prices, depending upon the value of it.
The same kind of phenomenon can be seen in Trading Card games like Pokemon where the company releases different versions and editions of the same Pokemon Card. For Example, The Pikachu Card can have 10 to 20 versions of it. The version may depend upon factors like when it was released in what order and what number it gets. This means the First Edition of the Card becomes extremely valuable as that is the first ever card released. While the rest of the cards will have it’s go down depending upon the edition number.
NFT’s have the similar case here and this is the reason why, many artists are able to sell their artwork for millions of dollars because people are not only after the art, but also after getting the rarest kind of it. As once an NFT is minted or created, the same cannot be minted the second time, a different version of it will be minted.
The Rarity Factor
Due to this, NFT’s have this rarity factor similar to what we find in the art industry. If we take a look at some of the top masterpiece artworks in the world like, Leonardo da Vinci’s Mona Lisa, there is only one version of it that is unique and original and today it’s value is over $860 Million Dollars in 2020.
This is the same concept that NFTs share with us and the only difference is that, today, the NFT marketplace is getting very saturated and there are probably millions of Artworks out there which are minted as a NFT.
This is the reason why Jack Dorsey, was able to quickly capitalize this trend by selling his “First Ever Twitter Tweet” for a Whooping $2.9 Million dollars. While there are others like Beeple and PAK who have made millions of dollars from NFTs.
Once an NFT is minted, the same kind of NFT cannot be created again and this unique ability of NFTs can be used in so many different ways.
While, the blockchain technology makes it even easier for us to make the full use of NFTs. As all the data about ownership and even the history of ownership is all stored in the blockchain. This means, NFTs are fully traceable and even the future owners can be traced, if the present owner decides to sell his collection to another buyer.
This advantage of NFT and it’s blockchain technology makes it extremely valuable and the fact that, the moment you create an NFT, that NFT asset cannot be duplicated or replicated by anyone.
HOW DO NFTs WORK?
By now you may have understand why NFTs are so valuable and how they can get really expensive over time. The question still arises, How do NFT’s exactly work?.
The basic answer is essentially, NFTs are no more or no less than a regular Crypto-Currency Token. However, the difference lies in the fact that they are “Non-Fungible” while other are “Fungible”.
Now the main reason why NFTs are so special and valuable is because they are based upon a particular blockchain technology called “Smart Contracts”. I won’t get into more details of this but essentially, Smart Contracts was a thing in the Ethereum Blockchain and all the NFTs we see today are actually based upon the Ethereum Blockchain.
This allows the NFT to store it’s data on the Blockchain and this data includes all the information about the NFT, the digital asset it is holding and the ownership data of the NFT.
When someone purchases an NFT, he is essentially purchasing the “Certificate of Ownership” of a particular NFT and the smart contract allows the artist or the owner to get a cut of any future sale of the NFT.
All of these things make NFTs an extremely worthy investment as if you invest in any one of the Artwork, chances are that you can sell it for a higher price.
While, the creator of the NFT benefits the most, because the moment he sells an NFT, he can charge a royalty fee for the NFT where, he can get 5% -25% of the future sales as commissions.
How much can an NFT be sold for?
Today, in theory anyone can mint their own NFT and list them on many different NFT marketplaces. And the potential to earn lots of money from NFTs is actually really high.
Take for example, the Crypto Artist and Project called Crypto Punks. The average Crypto Punk is sold for a whooping $10,000 – $100,000 dollars and there are 10,000 CryptoPunks. With the highest selling Crypto Punk #7804 $7.6 Million dollars. While there are others which are selling for more than $1 Million to $4 Million dollars. Ironically, CryptoPunks are nothing more than 24×24 pixels versions of a Punk Character. But here just adding the fact that some of the Punks can be very rare has increased their Value to a huge amount. Because some versions of the CryptoPunks like Ape Punk, there are only 24 Ape punks out of the 10,000 punk characters and only 9 Alien Punks and these sell for Millions of dollars.
Similarly, there are people in the NFT community who are regularly making between $1000 – over $10,000 dollars in NFT sales per week. While, some of the top artists are of course banking hundreds of thousands of dollars.
If there is a strong story behind the NFT artwork or collectible and the fact that, it has touched the rarity factor, you can expect to sell your NFT for a good amount of Money. This is the reason why many of the top Billboard Artists are also getting into the NFT space like Bhad Bhabie and even Akon.
The animated Gif of Nyan Cat – a flying pop-art cat meme from 2011 – was sold for over $500,000 on 19 February. A couple of weeks later, singer Grimes sold digital art for more than $6 million.
And we all know about Beeple who was able to sell his artwork collection called “Everydays: The First 5000 days” for $69 Million dollars.