When first explaining NFTs, one usually starts with the following sentence:
NFTs stand for “non-fungible tokens”.
A perfectly natural place to start, no?
But trying to understand an NFT through the expansion of its abbreviation is like answering the question “what is an mp3?” with “it’s a MPEG Audio Layer-3.”
Well, yeah… but that answer doesn’t quite get to the meat of the thing.
A better answer? An mp3 is a file type that completely revolutionized entire industries by changing the way we share and consume audio.
Yes, NFTs are “non-fungible tokens”. And sure, understanding what fungibility means is helpful (and we’ll get to that shortly). But it doesn’t quite get to the meat of the thing.
A better answer?
NFTs are a type of token that are going to completely revolutionize entire industries by changing the way we share and consume pretty much everything.
A “fungible” asset refers to something that is interchangeable with another unit of that same asset. A good example of a fungible asset is the US dollar. If I exchange my $1 bill for your $1 bill, nothing really changes. While they are two different pieces of fancy paper, both bills represent the same exact value. That’s fungibility.
Conversely, a non-fungible asset refers to something of a distinct value. There are no two exactly the same. A good example of a non-fungible asset is a house or a car.
A non-fungible token is where things get really interesting.
Blockchain technologies allow us to implement a lot of radically new ideas that weren’t before possible. The first and so far most popular of these implementations is the creation and distribution of tokens. Perhaps you’ve heard of one called Bitcoin.
Bitcoin is a good example of a fungible token. One bitcoin is one bitcoin is one bitcoin.
On the other hand, a non-fungible token allows us to create a digital certificate that represents a unique asset. We can attach these tokens to pretty much anything, including digital files—say, a photo, a video, an audio recording, or even this article.
This allows us to create proofs of authenticity for digital content that can be owned, bought, sold and traded. Because these tokens are stored on an open and distributed blockchain (such as Ethereum), their embedded metadata and transaction history are completely verifiable by anyone in the world with an Internet connection. That means we can all know what digital wallets own what tokens at any given point in time.
The implications of this are truly infinite, and we’ve just begun to scratch the surface of possibilities. So far, non-fungible tokens are being used to create industries around digital art, collectibles, gaming skins, digital land, and many many more.
A great place to begin our journey into NFTs is in the now-exploding world of NFT art. As we now know, we can create a non-fungible token that acts as proof of authenticity for any digital file. So let’s say I jumped into Photoshop and made a really cool picture of a happy face. In fact, I’ve done exactly that…
Pretty dope, no?
Now, this happy face exists as a JPG file that I created in Photoshop, saved onto my computer, and uploaded onto this article’s web page. You, the reader, can easily drag this file onto your own desktop. Boom, there are now two copies of the “happy.jpg” on two different computers. This can be done a million times over by a million more people. Up until the advent of NFTs, this rendered the value of digital files near zero. If everyone owns it, no one owns it.
This time, after creating my happy face image, I mint it on the blockchain — a fancy way of saying that I turn it into an NFT. In fact, I’ve done exactly that.
Now there is a 1 of 1 proof of authenticity certificate for “happy.jpg” that exists on the Ethereum blockchain, securely housed in my digital wallet. Anyone can verify this to be true on websites like Etherscan, which pull in the transaction history of everything done on the Ethereum blockchain. I can choose to put this 1 of 1 NFT of “happy.jpg” up for sale, and anyone can bid on it or buy it right away at its listed price.
“But wait! I can still copy and drag the file onto my own computer a million times over. Why would anyone want to buy it?”
This is the initial reaction most people have when they’re first introduced to NFT art. Why would anyone want to own digital art if it can be infinitely copied and consumed by everyone?
Well, as the current owner of the “happy.jpg” NFT, I would like to say: please copy it! In fact, put it all over the Internet! Share it with all your friends! Turn it into a meme I beg of you!
The blockchain is the Louvre
NFTs allow us to completely transcend the supposed conflict between scarcity and abundance. We can now truly have our cake and eat it too. Content now gets to be both scarce and abundant.
By creating a rare 1 of 1 NFT that represents a potentially famous and ubiquitously consumed file, we open the doors to capturing the value of viral content. Not by necessarily monetizing each instance that content is consumed, but by the value of that original NFT going up with the cultural significance of its associated art.
It is like owning a Lebron James rookie card. You don’t own Lebron James. Everyone everywhere gets to watch him play basketball. But as Lebron’s stock in basketball and culture goes up, so does the value of the rare rookie card you own.
The same is now true for memes! How glorious.
Another analogy that lands for some — and helped me understand all this as I first entered the world of NFTs — is that of the Mona Lisa.
So you might say, “I can just screenshot the happy.jpg image!” Yes, you can. You can also take a photo of the Mona Lisa with your phone. But you wouldn’t claim provenance over the Mona Lisa. In fact, the more people share their iPhone pics of the Mona Lisa, the more the painting’s cultural relevance continues to grow, and the more value the original painting has.
We just all instinctively trust that the Louvre holds the real Mona Lisa. As @whatdotcd said in a recent Clubhouse room, “the blockchain is the Louvre.” Meaning, the open and distributed nature of a blockchain allows us to verify and trust the history and ownership of digital content, the same way we trust that the Louvre holds the real Mona Lisa.
This is all very new to us, especially since we’ve all grown up in the first iteration of the Internet — an age in which we’ve learned to see digital content a certain way. There is, therefore a mental jump that we all have to take to understand these new concepts and to begin to truly taste their implications for ourselves.
But rest assured, our grandchildren will not have to make this same mental jump. They will grow up in a world where digital content feels as distinct and tactile as physical objects do to us.
What happens then? I for one can’t wait to find out.
We will do a subsequent post on the emerging platforms in the NFT art world. If you’re itching to get exploring right away, here are some of the most popular NFT art marketplaces to get you going:
SuperRare — Highly-curated 1-of-1 edition NFTs. The “gold standard” in the current NFT space.
NiftyGateway — Fast-growing NFT market leading the pack in sales volume. Highly-sought after daily NFT drops, with popular visual artists and now celebrities getting involved. One of the few NFT platforms that accepts USD / credit card as payment.
Zora — Feed-style NFT platform in which the market of each piece is baked into the NFT itself and not run by the platform. Zora therefore doesn’t take a transaction fee on each sale like the other platforms. Creating NFTs is open for everyone. The Zora protocol is also open for anyone to build on.
Foundation — Beautifully designed and curated NFT marketplace with reserved bidding that, once met, unlocks 24-hour auctions. Creating NFTs is currently invite-only.
Rarible — The most open and permissionless NFT marketplace. Anyone can create an NFT right away without needing an invite, and a roadmap is in place to make the platform community-run.
Makersplace — An invite-only creator NFT platform that accepts both Ethereum and fiat currency. Recently partnered with Christie’s auction house to sell the first fully digital piece at Christie’s, by artist Beeple.
KnownOrigin — Quality NFT art platform with multiple weekly drops. Offers accepted in ETH.