NFTs - Craze or Crazy?
Second part to our previous article on NFTs: NFTs - Helping right owner get the right price
In a world changing at lightning speed – while people were still wrapping their heads around cryptocurrencies, a new boy is in the town – NFT or Non-Fungible Tokens!!
While we discussed what these NFTs actually are or how they work in our last #finnfriday, this article is all about raising some relevant questions (or rather red flags?).
For those who haven’t gone through our previous article on NFTs, let us start with a little background on what these NFTs are:
In simplest words, NFTs or Non-Fungible Tokens are digital collectibles, online equivalent of collecting stamps. It could be anything, ranging from a tweet to 1-minute video to a 10,000 word blog post. these NFTs are non-fungible – this means that you cannot have a benchmark universal value of an NFT which can be exchanged for dollars. Every NFT is unique in itself.
This means that if you are an owner of some content, you can auction it as an NFT. The winner will get an original copy of your content as an NFT and you get the winning bid amount in your crypto wallet.
Recently, Jack Dorsey, the CEO of Twitter sold his first ever Tweet through NFT at a whopping $2.9 million dollars and just last thursday, an artwork created by humanoid robot Sophia was sold for $688K. Now that’s some real power to the creators. But how much power is vested to the buyers of these NFTs really?
The idea of converting almost anything into art sounds really fascinating, right? But is it?
Let us continue with the example of a tweet sold as an NFT:
First things first, even though NFT transactions are labelled in USD, the money that changes hands is the Etherium cryptocurrency when purchasing or selling an NFT! So yes, you cannot jump to using NFTs if you do not have a knowledge of cryptocurrencies!
Also read:
Bitcoin explanation which even the “Breezer Breed” can understand
Secondly, NFTs are booming, yes! Every NFT being sold for thousands of dollars and millions of pounds seems tempting, but what are the costs associated with trading NFTs?
Well, Every time you resell that tweet (and you can do that multiple times since you own the original), a portion of the sale goes back to the original owner. This royalty is set by the owner himself when he sells his NFT for the first time. Also, You have to use some platform that allows you to trade in NFTs, just like Zerodha for equities or CoinDCX for bitcoins. This platform charges a certain fee every time you make a transaction which ranges from 2.5% to 5%.
Thirdly, buying a tweet NFT doesn’t change the copyright or intellectual property, which remains with the tweeter, nor does it give you license to commercially use the tweet’s contents! This means that the owner can actually sell 50 more NFTs of that exact tweet!! This will definitely take away your bragging rights of owning a unique digital art!
What’s more, the original tweet can still be deleted on Twitter! Selling a tweet doesn’t mean promising to keep it up forever. Bummer, right? However, there are already solutions available in the market for that! Some NFT marketplaces like Pinata, involves the NFT’s owner putting a copy into an IPFS instance they control. IPFS would be able to find either copy, but if the creator deleted theirs the new owner would still have one, and the hash would verify it was the same digital thing (even though it had moved)!
A quick peek into what is an IPFS?
The InterPlanetary File System (IPFS) is a system used for content addressing. Content addressing makes a hash of the content itself and, provided no one messes with the file, can find the nearest of that content when a user wants to see it. So, if there were 1,000 exact copies of that tweet on 1,000 different servers around the world, but 999 of the servers got destroyed one day, IPFS could still find the last one left. The hash of the content would tell you if it really was the content you were looking for.
Also, it is the IPFS that enables an owner of the tweet (or recent buyer of an NFT of that tweet) prove that he owns the original tweet. How? There can be one copy or a thousand copies or a million, but the NFT is like a deed. However, no matter how many copies anyone makes – there will only be one record that bestows ownership; it will be in just one wallet. That’s the owner of the NFT no matter how many people have a copy. This IPFS sounds like an NFT Wizard, right!?
All in all,
NFTs are a new asset class and they do have a bright future. In the words of Gary Vaynerchuck, in 1999, no one believed that people will be dating only online by 2021 but here we are! People debunking NFTs today are probably missing an open opportunity.
In 2020 alone, NFT investments rose by 299% which itself speaks volumes of the number of people who have migrated to this tool as an asset class. According to a 2020 report from tech tracking company L'Atelier BNP Paribas and nonfungible.com, NFTs have grown to encompass a $250 million market. And we thought bitcoins were the fastest assets to grow in popularity!
Note: This is the second article of our NFT Series. We will be coming up with a third part shortly. Let us know your doubts about NFTs and FnM will try to uncover as many aspects of NFTs as possible!
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By: Anmol Gupta | Isha Garg