So you’ve been hearing about NFTs lately, and probably know that it stands for ‘Non-Fungible Token.’ I image that never have there been so many people interested in defining the word ‘fungible.’ I think you can substitute ‘exchangeable’ and pretty much have it. The lack-luster name probably stems from an attempt to distinguish this blockchain-based asset from others, such as crypto currency, that are exchangeable. After all, a dollar is a dollar is a dollar (substitute your favorite crypto coin for ‘dollar.’)
Anyhow, if you’ve been outside the space, it may have caught your attention that digital images of monkeys are selling for jaw-dropping amounts. You may have thought what you would do with that money. Buy an apartment? Put the kids though college? How about this:
Divorce Settlement, 2022-Style
Her: the house, the cars, the savings
Him: Bored Ape # 2387
Let’s think about this for a second. Have pictures of primates suddenly become all the rage and worth millions? I don’t think so. Someone / Some-bot recently dropped this into my crypto wallet.
It’s not an actual BAYC (Bored Ape Yacht Club), instead something called Trippy Ape. Today it’s trading at about 0.0016 ETH (about $4). It’s a gif with the rainbow rotating around. Even with this tantilizing feature, we still couldn’t sell it to finance our morning Trenta.
So if monkey-ness isn’t enough to boost the value of an NFT, what can?
Is it all about the digital image, or are there deeper levels to the NFT idea?
Is an NFT purely an investment vehicle, or does it offer something more?
I recently read an opinion piece from a non-English-speaking market that I follow (anonymous to protect the guilty) written to explain the NFT concept. I was disappointed to see that it contained some misleading statements. I mean, it’s okay, we are all learning. But my disappointment was due to the great opportunities that blockchain technology in general, and NFTs specifically, can bring. These can only be unlocked if we understand what we are dealing with. Let’s take a few steps back and start with some basics.
So what is an NFT? (Please don’t say the word ‘fungible’ again)
While NFTs are certainly innovative and groundbreaking, they do share some features with ownership items we are already familiar with. It’s worthwhile to point out that, while many people (including me) use the term NFT to refer to, say, a piece of digital art, the NFT is actually not the art itself, but the record of ownership. The idea is similar to the deed you might have for a piece of real estate, or the title for a car. The NFT is like the deed or the title, linking the item to the owner. Just as cars can be uniquely identified using their VIN number and real estate through its property survey description or track number, the NFT is identified through its ‘hash,’ or a unique code. As a property deed or a vehicle’s title links the relevant identifiers to the owner’s name, the NFT record links the hash to a digital wallet address. So while the idea of recording unique ownership is not a new concept, the NFT innovation of storing this information on the blockchain paves the way for all sorts of interesting applications beyond the digital images that many people are associating them with now.
What are the advantages of storing information on the blockchain?
Blockchain technology is the underlying force behind cryto currencies, decentralized finance platforms and NFTs, with the potential for much more. The basic idea is that, instead of storing information about what’s happening (i.e. transactions) in a central place, it is stored on a vast network of computers that all have an identical record of the information that is publicly available. Essentially then it would be extremely challenging for rogue actors to counterfeit or manipulate this data, because it would be refuted by the vast array of copies that contain accurate information. Regarding the NFT as an ownership record, usually what’s stored on the blockchain is not the NFT digital file but only its hash number and the wallet address of the owner. This is for efficiency; you can imagine that storing too much on the blockchain with so many copies gets expensive computationally. In the case of digital file-associated NFTs, the picture generally is stored off-chain in a secure place such as IPFS (Inter Planetary File System).
Aren’t digital assets different from physical ones? Can’t they be copied more easily?
This is a great question. The answer naturally is yes; you can copy a .jpeg file more easily than you can copy your neighbor’s sports car. Most people know that you can just right click on an image on a webpage to download it. With the current state of technology it is really impossible to avoid a file being copied by others, at least in some form. Which is why I’d like to challenge you to think about the NFT experience and its possibilities in a different way. While files may be copied, only legitimate members who hold the NFT will be able to enjoy the community benefits, which can extend far beyond financial rewards, depending on how the group is structured and what its goals are.
Which begs the next question.
Why join an NFT community? Is it just to make money?
Being part of an NFT community gives you a chance to do more than pay dues to an organization to participate in its activities. Instead, it’s possible to have an ownership stake that shares characteristics with owning stock in a public company. You can benefit if the visibility, reach and desirability of membership in the community grows. While it may be possible to structure such an entity without using NFTs, one significant advantage to creating it in the blockchain space is the ability to operate seamlessly throughout the world, irregardless of national borders.
Regarding NFTs as investment vehicles, it’s natural for people to think this way with the price appreciation that a small number of NFT series have experienced. But for the vast majority of NFT projects, this has not been the case. That’s why it’s better to think about any NFTs that you buy in terms of their utility and community benefits. If you choose this way, you will want to hold on for dear life (HODL) because if you sell you will lose the benefits that you’re enjoying.
What are some other benefits of NFT ownership?
Besides the benefits of direct ownership for the NFT holder, this model of community participation also allows content creators, artists, musicians and others to sell a direct stake in their work to their supporters and fans, generally eliminating layers from the middle and increasing (often greatly) their share of profits. Buying an NFT directly from the producer is a great way to show support for individuals whose work we want to see continue to grow and thrive. Other NFT projects represent causes that you may want to support, so this framework provides a direct way of participating in that also.
I hope this has given you a taste of the possibilities represented by the NFT model. We have barely scratched the surface. I’ve recently started participating in some of the amazing women-led and -focused communities that have an emphasis on increasing NFT / blockchain / Web3 awareness among females globally, as well as supporting women as they continue to blaze new trails in coding, science, analytics and business.
A bonus has been spending time with the gorgeous art. Move over monkeys, there’s a new sheriff in NFT town. She may have a baby on her hip or curlers in her hair, but she packs a wallop. Underestimate her at your peril. 😉 😘