What’s the point of NFTs?
This article intends to break down the concept of NFTs in an easy-to-understand and non-technical way.
What are NFTs?
A NFT or non-fungible token is a uniquely identifiable digital asset stored on the blockchain.
In other words, a file on your computer (like a photo or video) can be uploaded onto a blockchain (a type of database). When the file is put onto the blockchain (called minting) unique metadata is created, linked with the file and this becomes the token that has been created.
The best way to think about these tokens is not that they are the file itself, but instead, they are a way to prove ownership over the file.
To interact with the blockchain you need to have a ‘wallet’, this is where cryptocurrencies and NFTS are stored, each wallet comes with a unique code. The NFT’s creator will have a wallet address that is stored within the unique metadata of the NFT. Due to the nature of the blockchain, you can therefore track the movements of this NFT, from wallet to wallet, from the day it was created up until the present day.
Non-fungible just means ‘not changeable’, for example ‘$1’ can be exchanged for any other ‘$1’ and there is no tangible difference between them. A NFT on the other hand is not interchangeable like this, it cannot be equally exchanged with anything due to its metadata making it a unique asset.
So you are paying to verify ownership
Yes. Whatever else you get as the owner depends on the exact NFT and the utility that comes with it. For example; owning a certain NFT may give you access to events or online communities, it may come with a physical print, and it may do absolutely nothing at all.
Why collectibles / art isn’t a problem
The biggest criticism of NFTs is the idea that you are paying (sometimes a huge amount) for a JPEG picture (NFTs are not exclusively pictures but they are the most common type). Usually there is either no utility offered or perhaps some sort of dubious utility (such as joining a discord group) that doesn’t really justify the price being paid.
It’s a fairly valid way of thinking, the argument usually falls into two categories; one, that the price is far too high for a JPEG. Two, you aren’t actually getting anything for your money, anyone can right-click and save it.
Most people can agree that prices can get fairly ridiculous, especially for some of the more popular collections. I doubt there are many people that think hundreds of thousands of dollars is a fair valuation for what’s essentially just a cartoon digital picture.
However, insane prices and fluctuations are part and parcel of the Web3 world at the moment, not to say it’s a good thing, but it is certainly a thing that you have to accept at this current time. There’s a huge amount of speculation, the potential for profits & new developments coming each day.
The idea that you are paying all this money and not actually getting anything is interesting, many people understandably can’t wrap their heads around why anyone would do that, here are a few reasons why:
Digital Flex — PFP or profile picture NFTs are huge since a lot of people spend many hours interacting online and are represented via their profile picture, it makes sense as an obvious way to show off what you’ve brought.
Investment — I’d say this applies to the majority, people are buying these NFTs with the idea to sell them at a higher price, hoping the demand continues and prices raise.
Support Art & Artists — Of course, some people simply buy artwork to support the artist and because they really like the art.
For the Artists
NFTs gives artists a whole new way to create a business and sell their work. A huge advantage of selling art as an NFT is that you can decide how much of a royalty you’d like to take from each subsequent resell and this will be done automatically. Simply automating this process is a fairly solid great aspect of NFTs.
In-game items
A huge subset of NFT enthusiasts sees incredible potential in the gaming industry. Ideas such as in-game items being owned as NFTs to be traded across games, and in-game items having value outside of the games. The plenty of skepticism about how this may actually work, but the idea I think is there.
Utility
Aside from the reasons above, many NFTs promise some sort of utility (or use case). Some examples of those:
Access to digital communities — Anything from private telegram groups, discord groups, mailing lists, etc.
Access to IRL events — Show your wallet containing the NFT to gain access.
To fund projects (e.g. films)— contribute to the creation of projects that would otherwise be impossible via their NFTs (Calladita Film)
Any amount of individual uses — From car NFT holders being offered rides in a sports car (Car Collective), to collectors of camel NFT’s being offered a camelback ride in the desert (Arabian Camels).
Usually, the majority of utility for the owner of a NFT is in the form of ‘access’, whether that is to events, experiences, or digital spaces.
Real-world examples (EU ID card NFT, poaps)
Some larger more “official” organizations are also utilizing NFTs:
The EU is working on issuing ‘European Digital Identity as NFTs, these will be replacing the physical identity cards and are expected to be easier to use and safer from identity thefts.
POAPs (proof of attendance protocols) are types of NFTs given out at certain events (and only then) to prove your attendance. These can be collectible items but also incentivized through rewards, subsequent event tickets, community stature, etc.
This is just scratching the surface of the NFT world, hopefully if you went into this article not knowing what the point of a NFT is, now you have a slightly better idea about it all.