As more companies embrace NFTs and the opportunities they offer, you've probably stumbled across this term. NFTs are so-called 'non-fungible tokens' – that is, non-exchangeable tokens that act as certificates of authenticity or ownership of assets. But what exactly does that mean for you as a user and how do you differ from other certificates?
NFTs relate to digital content
In the world of the Internet, companies have long faced a problem. People love to collect physical things, like figurines or special sneakers that they add to their collection as individual pieces. Such an equivalent was previously missing for the digital market. This is where NFTs come into play. They enable people to claim ownership of digital content. This is a key point when dealing with digital content that differentiates it from physical collections. Then, because NFTs involve an individual's ownership claims, the digital file itself can still be replicated at will. So the owner of a digital work of art could share copies of it with other people without affecting their ownership of the work of art itself. Conversely, in the event of a dispute, it would be possible to clarify more precisely who owns the relevant rights to exploit digital content.
How do NFTs work?
NFTs are part of a blockchain similar to cryptocurrencies. So far they are part of the so-called Ethereum blockchain, which is not just designed for one currency alone. This distinguishes them from other blockchains such as bitcoin, which is limited to cryptocurrency trading. In the broadest sense, these blockchains are databases of individual blocks of data, which gave them their name. In addition to the stored data, these also contain so-called unique hash values. These ensure that each block is inserted unadulterated at exactly the row of the blockchain for which it is intended. Because in addition to its own value, each block in the chain also knows the hash value of its predecessor block. The system can thus authenticate itself independently, since the chain would break if a hash were to change at any point.
Tokens are part of the blockchain
Due to the fact that these are decentralized databases that are not solely on a single server, they are difficult to compromise. That is why content that is allocated via the blockchain, such as cryptocurrencies and NFTs, is considered to be more tamper-proof than databases on central servers. A purchase of an NFT is therefore also linked to the use of the blockchain. What makes NFTs different from other content like our money or cryptocurrency is that they cannot be exchanged at will.
It makes no difference to the user whether someone has two five-euro bills or one ten-euro bill. The monetary value would remain the same and the owner would not lose anything if they were exchanged for any other bill of equal value. NFTs, on the other hand, are unique and therefore cannot be exchanged at will. Just as there is only one land register for a property, there can only be one NFT for a digital counterpart.
What type of content will be available through NFTs?
The most well-known example is the so-called crypto art. Many artists are benefiting from the NFT boom by selling the ownership rights to their digital works through NFT auctions. Buyers can then boast of owning the original file. Even if it can still be reproduced as a file on the Internet. So far, crypto art has aroused the greatest interest among young and tech-savvy people. Many interested parties are not only concerned with the crypto art itself, but also with a possible increase in money. Because, as is the case with many collector's items, the collector's items receive a certain equivalent value through their limitation. One could therefore view crypto art and digital collectibles as an artificial scarcity of content that aims to increase the value of the individual item.
Some examples of NFT content are:
Theoretically, an NFT can be made from almost any content in the digital world. This is shown by an example of a tweet sold as an NFT, which was initially decried as absurd. Contrary to the expectations of the online portal theverge.com in March 2021, one tweet was actually sold as an NFT. In the form of the first tweet that Twitter founder Jack Dorsey sent when he founded his company. The tweet sold for around $2.9 million. This tweet provides a good illustration of the differences between a claim of ownership and digital content. The tweet itself can still be found unchanged on Twitter and can be viewed by all kinds of people.
Where is digital collectible content traded?
According to the company, OpenSea is the largest NFT marketplace in the world. In addition to OpenSea, Binance, FTX, SuperRare, Rarible and Nifty are also well-known NFT marketplaces. However, when dealing with most of these trading venues, an Ethereum wallet is required in order to participate in corresponding auctions. But official auction houses such as Christie's have long since entered the NFT trade. The first NFT traded there achieved an auction value of over US$69 million. In this case, too, it was crypto art, namely the work “Everydays” by Mike “Beeple” Winkelmann.
The thought of getting something unique seems to drive buyers to spend large sums of money. The background thoughts here should be of a similar nature as with other prestige items or collectibles. Anyone who can afford it likes to show it.
Sensible investment or short-term hype?
Whether NFTs will turn out to be a sensible investment to make money or just a short-term hype is difficult to say at this point. The ability to sell digital content as unique items around the world is relatively new. The interest in it has been correspondingly high. However, as NFTs fill the gap in digital ownership that has always remained open, they are unlikely to disappear entirely. As more TV models are announced with access to NFT purchase options, the tokens are likely to make a lasting impression in the digital world. However, like all equivalent values, regardless of whether they are cryptocurrencies, standard currencies or precious metals, NFTs will also be subject to certain fluctuations in the future.