With the advent of blockchain, many new use cases such as cryptocurrencies and smart contracts are coming up. One such use case is NFT, and it has taken over the world as a potential new asset class. So what is NFT anyways?
NFT stands for Non-Fungible Token. Fungibility refers to anything that can be replaced. For example, a Rs. 10 note can be exchanged for two Rs. 5 coins and the value of the two Rs. 5 coins combined will remain Rs. 10. Hence the currency we use is fungible. Non-fungible refers to unique assets. For example, the original Mona Lisa painting. Even though there are thousands of copies of the painting around the world, their value is not the same as that of the original. Hence the Mona Lisa painting is unique and thus non-fungible.
Now comes the term token. This is a blockchain-related term. So let's try to understand a little bit about blockchain. Blockchain is a technology that allows transactions to be recorded in a chain of blocks with each block holding details related to one transaction. Once a transaction is recorded in a block, it becomes very difficult to change it, thus making it secure. These blocks are stored across multiple computers over the internet over a distributed public ledger that is accessible to everyone, thus making blockchain decentralised and eliminating the need for middlemen involved in any transaction process. Token in this case is any digital asset that is using this underlying blockchain network.
Thus when we say Non-Fungible Token, it means that there is some form of a digital asset such as an image, a gif, or a video that is owned by one person and that NFT is unique in the entire world, just like the original Mona Lisa painting. Now the owner of the NFT can choose to sell it and the ownership of the NFT gets transferred and the record of this transaction is stored in the underlying blockchain network (in a public ledger). Thus everyone is aware of who the current owner of the NFT is.
Another way to look at NFTs is that they act as a digital certificate of authenticity, that can be used to prove the sole ownership of that digital asset. To give you an idea of how big some of these NFTs are, here are some real-life examples:
- The first tweet ever by Jack Dorsey, co-founder of Twitter was sold for $2.9 million.
- "Save thousands of lives" - digital art created by Noora Health was sold for $5.23 million at a charity auction to raise money for new mothers and families in South Asia.
How big is the NFT market actually and how fast is it growing? The market size of NFT has grown from $41 million in 2018 to $338 million in 2020. That's more than 8 times growth in the last 2 years. NFT has entered the world of video games, digital art, and sports. Major league basketball now has platforms like NBA top-shot selling basketball highlight clips as NFTs. Celebrities like Cristiano Ronaldo and Lionel Messi have already launched their NFTs and Indian celebrities such as Amitabh Bachchan and Salman Khan are about to launch theirs as well.
So does owning an NFT give one the right to change or alter the asset like an image? The answer is no. Even though one has ownership of this digital asset, the creator of the asset still has the copyright to the asset.
So does owning an NFT allow you the right to have the sole viewership of that art? Again no. Since it's there on the internet, everyone can see it.
So then what's the point of owning an NFT? The way real-life paintings are collected not with the purpose of altering or hiding them away, the same way NFT allows one to own that asset for any reason - it could be because that person is an art enthusiast who loves collecting digital art, or it could be because that person believes the value of that art is going to grow and wants to hold it till then and sell it to make a profit.
Since NFTs are still relatively new and finding their way into mainstream industries, there are concerns around whether this entire NFT market is a hype or a digital bubble waiting to burst. It's too soon to tell whether that will happen or not. But what NFT has done is bring out the underlying blockchain technology in front of the people, creating more awareness, allowing more people to adopt blockchain and create more use cases around it.
In essence, no one knows whether NFTs are here to stay or not. But what we do know is it has disrupted the way art has been bought and sold. The underlying blockchain technology has gained more traction allowing more use cases to be built around it. Whether the bubble bursts or not is something we have to wait and watch.
