NFTs (Non-Fungible Tokens) may sound like a form of currency that an alien species with 3 heads uses, but non-fungible means that whatever is tokenised into an NFT is unique and cannot be replicated. For example, if you swap a bitcoin for another bitcoin you will still end up with a bitcoin in your possession. However, each NFT is completely unique meaning each one is one of a kind. NFTs can come in a range of different forms including:
- Art: Everything from pixelated art to abstract art that you would normally find in an art gallery are examples of how art pieces can be turned into NFTs.
- Collectables: NFT collectables tend to focus on a particular theme, such as the Bored Ape Yacht Club which has a series of NFTs focusing on an ape pulling different poses in different scenarios. Examples include a royal chimp, a chimp in army fatigues and a zombie chimp. Other examples of NFT collectables include Crypto Punks and Pudgy Panda.
- Virtual Worlds: Virtual world NFTs can grant you ownership of things such as avatar wearables and digital property.
- Music: Musicians can tokenise their music, where they can give away certain rights of their music to individuals. They may want to do this as part of a social media competition to hopefully gain more followers.
- Domain Names: Domain names are the string names within the URL of web pages, it is best practice for websites to choose a domain name that accurately describes who they are, and the best way to do this is to put their business name as their domain name. Domain names can be tokenised so that the ownership of the domain name is an NFT and can be traded, given or sold to other individuals.
But How Do NFTs Actually Work?
Most NFTs are part of the Ethereum blockchain network within this network there is an NFT marketplace where people can buy, sell and trade NFTs. However other cryptocurrency blockchains such as Solana and Cardano also have NTF marketplaces. Blockchains are responsible for keeping track of who owns each NFT. Blockchains are a way to store data on a decentralised online database, where no company or entity is responsible for keeping things secure and accurate. This can be an answer against corruption, which can occur when individuals within companies and governments have the power to influence the ownership status of things. With blockchains this cannot happen. There is however a range of scams out there that target people in the cryptocurrency space, not only stealing cryptocurrency but also NFTs. If you think you may have become a victim you should contact Investment Fraud Attorneys who provide the best chance at getting your assets back.
NFTs = Big Money?
NFTs can be sold for eye watering amounts of money like Pak’s ‘The Merge’ which sold for $91.8m, however 30,000 people each bought a share of this NFT. The next most expensive NFT was $69.3 million and was sold to an individual owner. NFT prices fluctuate and keep in step with the rest of the cryptocurrency market, so if the cryptocurrency market is experiencing extreme highs or lows the value of NFTs can be quite drastically affected.
Why Are People Who Have Not Bought The NFT Still Allowed To Look At It?
Yes, it is true, you can copy any digital file you want. You can even go to the extent of making it your desktop background if you want. You aren’t going to get the FBI breaking down your door for this, but why? Well, what people are paying for in regard to NFT is not the ability to see or use the NFT, it is in fact purely for ownership purposes. So you can let out a belly laugh and proclaim to the world that the art on that specific NFT is yours and nobody else’s on this planet.
Blockchain art is probably among the first things you will think about when someone mentions NFTs, at least along with Bored Ape Yacht Club collectable ape images. Blockchain art has a number of differences from traditional art including:
- Storage: To store a traditional art piece you would have to secure it in a physical location. Picking a poorly suited physical location could contribute towards damage to your art piece, either reducing the value of the art piece or making it worthless.
- Selling Venues: You can sell traditional art in auction houses, online and in art galleries but at the moment NFTs are only sold on NFT marketplaces.
- Audience: It can be difficult for artists to promote traditional art online and promoting the art in galleries and auction houses has a limited audience. However, NTF marketplaces have a wider range of audiences, theoretically increasing the amount of people who may be interested in buying your art seeing the art in the first place.
- Market Value: NFTs value can be affected by not only economic factors but also social climate and relevancy.
Advantages of NFT Art
- Upfront Costs Are Lower: It can often cost less to produce digital art as the upfront costs are lower. For example, traditional artists would need to purchase the canvas they are painting on, the painting supplies and a frame to put the art in. For newer artists, this can be prohibitively expensive, which is why some people are turning to creating digital art. Creating digital art requires software such as Photoshop and Illustrator plus other software if required. This can work out much cheaper than buying art supplies for a traditional art piece. Additionally, digital art allows the artist to experiment more with their art piece as there is always the undo button that can revert them back to an earlier version of their art. Other advantages include:
- More Profitable: NFT art can be more profitable than traditional art as the original of traditional art can only be sold once by the artist, but with NFT art the artist can sell NFTs as many times as they want. Effectively they can sell the same art piece to a significant number of people, each time they sell to someone they will get a royalty each time.
- Less Risk Of Digital Art Getting Damaged: You can choose to store NFTs on a ‘hot wallet’ which is an online cryptocurrency wallet, basically the same place you can store cryptocurrency like bitcoin you can normally store NFTs. Another option that provides a safer option of storage is a ‘cold wallet’ which is a physical cryptocurrency wallet, these often look like memory sticks or modern external computer hard drives.
Disadvantages of NFT Art
- Stability: The market value of NFT art can be influenced by public opinion and social media trends. Social media trends in particular often don’t last long before the general consensus switches to another, newer trend. You could spend a lot of time making pieces of digital art for it to have gone out of style or for public opinion to have turned against it, within very short periods of time sometimes.
- Energy Use: When blockchain transactions are taking place they take up an alarming amount of energy.
- Legal Rights: Purchasing an NFT does not necessarily give you ownership of that intellectual property. This means you can own an NFT of a photograph but people who do not own the NFT can still download the photograph freely onto their computer.
With the rise of popularity in NFTs within the previous few years it is not surprising that an increasing number of artists are creating their own NFT art, but it is important for them to make sure that they understand the space before they jump into it feet first. This allows them to understand if getting into the NFT space is right for them.