NFTs open up a new sphere of opportunities

This rise of Non-Fungible Tokens, or NFTs, has been one the most exciting development in crypto space recently. Although, NFTs existed since 2014, it was only in the last few years that they shot to popularity and took the world of art and gaming by storm, especially after the sale of certain NFTs at astronomical prices.

While many believe the future of NFTs to be bright, few understand their value and potential. Some consider this to be a ‘fad’, while some see it as a great new possibility for artists. Several brands like CocaCola to sports leagues like NBA and even several celebrities have hopped on this NFT bandwagon lately. So let’s break this down and understand what this hype is all about.

What are NFTs?

NFTs are, in technical terms, digital assets that are bought and sold online, often using cryptocurrency and encoded using blockchain. In simpler terms, NFTs are similar to physical art as they represent collectible assets, but only in a digital format. While one can argue that such files can be easily downloaded or copied from the web, why would someone spend millions of dollars in purchasing them? This is because an NFT allows the buyer to own the original item.

There is a unique and non-interchangeable unit of data stored on a digital ledger, like a built-in authentication system, that uses blockchain to establish proof of ownership, and that’s where the non-fungible starts to make sense. NFTs are unique in the sense that they cannot be exchanged like-for-like, again similar to physical art. For example, a US$ 100 note is fungible, i.e. it can be exchanged for another note, and you will have exactly the same value. However, a note with a celebrity autograph is non-fungible because the note then becomes unique and has a higher value. This note can then be converted into NFT and sold.

In other words, NFTs can be made from almost anything that can be stored digitally and holds value, like photography, art, music, and videos. So, instead of getting an actual oil painting to hang on the wall, the buyer gets a digital file.

How does an NFT work?

An NFT can be created or minted from any digital object, tangible or intangible, including art, GIFs, video/sports highlights, collectibles, virtual avatars/video game skins, music and even tweets (Twitter co-founder Jack Dorsey sold his first ever tweet as an NFT for more than $2.9 million.) Similar to cryptocurrencies, NFT exist on blockchain, the underlying process which acts as a distributed public ledger that records transactions. While most of the NFTs are a part of the Ethereum blockchain, other blockchains such as FLOW and Bitcoin Cash have started to support them as well. This helps in making NFTs unique in the sense that the blockchain makes it easy to verify its ownership by giving exclusive rights to the owner. The creator/owner can also store specific information inside them, such as including their signature in an NFT’s metadata.

Therefore, the original file, whether it is a JPG, MP3 , GIF or anything else, is the NFT that identifies its ownership and can be bought and sold like any other type of art, with its price largely set by market demand.

What are NFTs used for?

NFTs are providing artists and content creators a unique opportunity to monetise their work by selling their art directly to the consumer. By skipping their dependence on art galleries and auctions, the artists can get a chance to keep more profits. Additionally, the artists can also program in royalties to receive a percentage of sales whenever their art is sold in the future. Some NFT art has sold for astronomical prices. Beeple's Everydays – The First 5000 Days holds the record for being the most expensive NFT ever sold at US$ 69.3 million at Christie's in March 2021, followed by Beeple's Human One that was sold for $28.9 million in November 2021. More than a dozen NFTs have been sold for over $1 million from popular artists including Bored Ape Yacht Club and CryptoPunks.

The scope of NFTs is not limited to art and artists. Recently, a toilet paper manufacturer auctioned off themed NFT art to raise funds for charity. Several celebrities like Snoop Dogg and Lindsay Lohan are using NFTs to release unique memories, artwork and moments. NFTs are also creating new opportunities in the space of in-game purchases in video games. The digital assets purchased inside a game continued to be owned by the game company. But NFTs are now making it possible to shift the ownership of such assets to the actual buyer. Entire games are now being built around NFTs. Separately, NFTs are also being utilised by brands as an attractive revenue stream. For example, Taco Bell launch 25 taco-themed GIFs and images with each NFT containing a $500 gift card which added to their initial popularity and sold out in just 30 minutes. The TacoCards are now selling on the secondary market for up to $3,500. Similarly, NBA - the US basketball league – launched Top Shot collectibles in the form of digital cards with iconic basketball moments embedded in them. This is likely to expand to include accessories and clothing.

Musicians are also selling the rights and originals of their work, as well as short videos to clips of their music as NFTs. Pushing the limits slightly further, you can even buy digital real estate and 3D assets like furniture as NFTs. A Canadian artist named Krista Kim built ‘Mars House’, the first digital house in the world, and sold it for a whopping $500,000. It was created with the help of an architect and video game software, and allows the owner to explore the mansion on Mars using virtual reality and can sunbathe outside the house (in the Mars atmosphere).

Where can one buy NFTs?

NFTs can be bought on a variety of platforms such as OpenSea, SuperRare, Nifty Gateway, Foundation and Rarible. But first, you need to get a digital wallet that allows you to store NFTs and cryptocurrencies, and then fill it with some cryptocurrency. The choice of cryptocurrency, however, depends on what currency the NFT provider accepts. Apart from the purchase price, several fees are also added to the cost, depending on the platform used. The high demand for NFTs is also leading to many NFTs being released as ‘drops’ , similar to events where tickets are released at different times.

Despite several systems being in place, some artists have fallen victim to impersonators who have listed and sold their work without their permission. The verification processes also vary significantly across platforms. For example, OpenSea and Rarible do not require owner verification for NFT listings. This makes it necessary for creators and collectors to be cautious before buying.

How to make and sell NFTs?

Shailesh Dash is a serial entrepreneur, ideator and mentor. Views expressed are his own and do not reflect the newspaper’s policy