NFTs: The Complete Guide
If you’re on the internet, you’ve heard about NFTs, and if by some sorcery you’ve not, they’re popular because they’re doing stuff like this:
And this:
And this:
I’ll stop.
The point is this new “platform” for digital art is causing a stir. Some people are making life-changing profits selling pictures of monkeys, and some people are paying tens of thousands of dollars for a Logan Paul card (trading card?). Then there’s the people who think NFT-mania and crypto in general are just bubbles. I’ll let you decide where you stand. Let’s get into it.
What is an NFT?
NFT is an acronym for Non-Fungible Token. That doesn’t explain a lot, so let’s break it down.
Fungible is an adjective used to describe items that have copies of the same value.
The most fungible thing is fiat. (Fiat is fancy slang for government-issued money.)
If I asked for a hundred-dollar bill in exchange for another hundred-dollar bill, you’d most likely refuse.
The reason you’d refuse is because even though each note has a different code on it (so they’re technically different), they’re all worth exactly the same. So dollar bills and, really, most forms of money are fungible.
Potatoes are not. No matter how similar-looking two potatoes are, one will always be larger or better-shaped than the other. No two potatoes are the same, so potatoes are non-fungible.
Just to be clear, fungibility isn’t just about physical differences. It’s also about the perceived value of the items.
Take the Mona Lisa, for example. There’s just one original, and even if we designed a robot that perfectly recreates the piece, the recreation wouldn’t be worth nearly as much because it wouldn’t have the same perceived value.
And although it’s the exact same as the Mona Lisa, the Mona Lisa would still be non-fungible.
So there could be multiple copies of an item and it’d still be non-fungible, it’s really important to keep this in mind if you’ll understand NFTs.
Now that we’ve defined fungibility,
What exactly is an NFT?
An NFT is a blockchain representation of a non-fungible item.
In reality, it’s a note on a blockchain that says the item linked to this token belongs to the holder of this token.
The item can be digital, a plot of land, a real piece of art, deeds to a building, a Pontiac Fiero, or even yourself. Although you could argue that’s slavery, the point is the items linked to an NFT can be literally anything.
The point of the NFT is to assert ownership of the item and nothing else.
In the case of digital items that can be perfectly copied, you could argue that it’s the creation of the NFT on the blockchain that truly makes the item non-fungible. A blockchain ‘chicken and the egg’ story.
The closest thing to an NFT in the real world is a Certificate of Authenticity (COA).
CoAs certify the authenticity of artwork. Without a CoA, a painting is just a canvas and some ink. But because of COAs, no matter how many copies of a piece are made, we always know which one is worth something.
NFTs are blockchain versions of CoAs. The actual NFT is just a few bytes of code on the blockchain that says so, so, so item belongs to the holder of this token.
Again, the item can be anything—physical or digital. So the pictures or videos you see aren’t NFTs; they’re just pictures and videos.
What makes a monkey NFT valuable?
What makes the Mona Lisa valuable?
Sfumato?
I’m not sure either, but from my experience, the value of art comes from some French or Italian guy “appraising” the piece and attaching a price.
Then everybody goes, “Ah, this piece truly epitomizes the essence of post-modern deconstruction, don’t you think? The juxtaposition of form and chaos is simply brilliant.” or “This piece transcends the mundane, inviting those who’ve delved into the depths of art history to savor its nuanced profundity.”
Like this dude, Maurizio Cattelan (big surprise, he’s Italian), who sold the concept of a banana taped to a wall three times for 390,000 USD total.
I say “the concept” because another guy ripped the original banana off the wall and ate it, after which the museum proceeded to tape another banana to the wall.”
What does this have to do with NFTs?
NFTs are the same; they’re valuable because, in humanity’s vast and unparalleled intelligence, we decided owning pictures of a cartoon ape is worth 3 million USD.
But you can’t completely copy actual art; NFTs are not the same
Is the Mona Lisa valuable because it’s beautiful or because we think it’s the one Leonardo da Vinci painted?
I know for a fact that if someone pulled an Ocean’s 12-esque heist and replaced the Mona Lisa with a convincing replica, nobody would notice, and we’d still hear, “It’s astonishing how Leonardo masterfully subverts traditional paradigms, beckoning the select few who can truly comprehend the genius at play,” every time we’re at the Louvre.
But let’s not become preoccupied with frivolities and extravagance. The takeaway is when an item isn’t objectively valueable, its value is anything we decide it to be. (It’s hard to turn off.)
The same rules that apply to art apply to NFTs that aren’t intrinsically valuable.
Intrinsically valuable?; Wait. Aside monkey pictures, what else are NFTs good for?
A lot actually.
Like I said, the point of NFTs is to link an item to the blockchain. The current meta is about NFTs being the next evolution of art and trading card collection, but you could make virtually anything an NFT—pictures, videos, actual houses, literally anything.
But here are a few use cases that stand out for importance:
- Real Estate: In some parts of the world, land disputes are a big deal. NFTs are a great solution because if someone doesn’t own the NFT of the land, he simply doesn’t own the land. And since NFTs cannot be copied (because they’re literally notes on the blockchain linked to an address), they’re perfect for real estate. You know for certain when you’re getting the actual deed or not, and it’s impossible to steal or destroy.
- Ticketing: So many people have lost money over the last few months buying fake Eras’ tickets. If tickets were issued as NFTs, it’d be easy to verify that they’re original without needing to access them.
- Certificates and diplomas: If certificates were issued as NFTs, it’d be easy to verify if someone actually holds a diploma or not. This may not sound like a big deal, but Mike Rosses aside, a Nigerian president had to fight international legal battles over the legitimacy of his certificate. Sounds like a big deal to me.
I could go on and on, but the main idea is that NFTs are an amazing tool for establishing ownership of items. Combined with the fact that blockchains are publicly readable, they’ll probably be instrumental in establishing digital ownership in the near future.
One Small problem
If you’ve been paying attention, you’ll realize I mentioned that the items that NFTs are associated with aren’t actually on the blockchain.
It’s impossible to add a house but even the digital items are not on the blockchain. Turns out adding all those images would add too much bloat to the blockchain.
So if they aren’t on the blockchain, how will you enforce the transfer of assets?
For digital items, it’s not really a big deal because you can just get a copy, and holding the NFT usually means you own the copyright and all the social credit.
However, for physical objects like land or houses, if there’s nobody enforcing the transfer of assets, pardon my french but you could end up with “nothing but your dick in your hand”.
That unfortunately means before NFTs can be used in the transfer of real-world assets, Uncle Sam and other regulatory bodies have to be let in.
How exactly that will play out remains to be seen.
But NFTs have the potential to disrupt ownership of items, as we’ve come to know. So keep an eye out for them.
One last thing: I’m more than willing to sell this article as an NFT, so feel free to hit me up. Let’s make history together.
