What are NFTs?

What are NFTs

I want to start by giving you a quick intro to the short history of NFTs.

For those of you new to the concept of Blockchain… Blockchain is a way to record information so it cannot be changed, or at least it makes it nearly impossible to change or hack.

A blockchain is basically a digital ledger of transactions that is recorded simultaneously across a network of computers worldwide…  Because its decentralised, meaning it’s not based on one central server, but across many worldwide, it’s known as a Distributed Ledger Technology.

And what this means is that if one block on the chain was to be changed, all of the other blocks on the chain would have to be changed too, and because this is across all the different versions of the chain worldwide, it’s basically impossible to hack or change transactions. This provides more trust and transparency to the whole system.

There are different blockchain platforms, such as the Bitcoin blockchain and the Ethereum blockchain and they are continually growing blocks through more and more transactions and this increases its security.

So that’s a quick intro to the blockchain… There is a lot more about the actual technology but we won’t get into that here…. so, back to NFTs….

Blockchain

Around 2012, something called a ‘colored coin’ was issued on the Bitcoin blockchain and gave rise to this idea of an NFT. Coloured coins are what is referred to as tokens which are symbols that actually represent real-world assets and they are used to prove ownership of something, like a car, a house, precious metals or even stocks and bonds.

To further explain what tokens are ​… so technically, a token describes all cryptocurrencies like bitcoin, ethereum and others. But there is another use which is to describe digital assets that run on other cryptocurrencies’ blockchain, for example Ethereum’s blockchain.

NFTs are non fungible tokens and I’ll explain in more detail what this means, but what is important to understand is that these  Non-fungible tokens or NFTs have loads of potential functions and applications, and many of these are being explored and defined today, which is why now is the time to start getting into this space and contribute to this dialogue. But we’ll get into that in a bit…

Ok so going back to the coloured coins and how these gave rise to the initial baby idea of representing ownership of real world assets through these tokens on the bitcoin blockchain….

There were other super interesting projects that started to evolve this concept… and between 2017 and 2018 this really exploded with two projects in particular, the CryptoPunks and the CryptoKitties.

NFTs

In 2017, John Watkinson and Matt Hall, from Larva Labs, created 10,000 code generated 24×24 bit images of characters on the Ethereum blockchain. Initially they were given for free to their community and since then their value has skyrocketed. Just in summer 2021, Visa bought a Cryptopunk for 150,000. But now they can sell for millions.

The next project I mentioned was the CryptoKitties. These are also running on the Ethereum blockchain and what is interesting about these is that owners could buy, breed and trade them, they also have features that are more rare and this has an impact on their value.

Larva Labs

Since then, the world of NFTs has really exploded, and 2021 in particular was a year that saw many new projects come into the scene. 

This revolution is also now taking over the art world and the creative industries in general. For example in 2018, artist Kevin Abosch created a piece of CryptoArt called the Forever Rose, which sold for 1 million.

Another example is Beeple’s collage ‘Everydays: the first 5000 days’  that sold for 69 million at Christies

In terms of where NFTs can be traded there are several platforms.   Opensea is one of the largest ones for art, music, collectibles, etc…  Mintable’s platform has its main focus on making the minting process super straightforward for the creators.  And there is Rarible too where you can upload your work without paying minting or gas fees (these are paid once the sale happens).

So now that you have a bit of a background of the history of NFts, let’s answer the questions, what are NFTs in more detail…

NFT stands for Non-Fungible Tokens, they each are unique, distinguishable from each other, indivisible and one of a kind. There are different types of standards that govern how this works in more detail, but we won’t get into that in this video.

NFts in detail

To explain this a bit more, a fungible asset is something that can be exchanged and holds the same value, so for example an ounce of gold or a pound, or a dollar, or bitcoin…

Non-fungibles are like a painting, a house, a collectible… so assets that are unique, and rare.

NFTs can be any digital assets, like 

  • Artworks
  • Tweets
  • GIFs
  • Songs
  • In-game purchases
  • Essays
  • Domain names

And more….

So now that we know a bit more about what NFTs are… 

So what? Why should I care as an artist, as a creative?

This technology is poised to completely disrupt the creative industries, it already is doing that, and it’s moving very very quickly…

And what that will look like in the future, that vision, that reality is being created today… and personally, I think that all creatives, digital and non-digital should be part of this conversation.

But more importantly, the technology will protect the uniqueness and the provenance of your work… your work, once on the blockchain, will always be traced back to you… it will always have a unique signature on the blockchain which means it cannot be forged. Another great benefit is that once an artists sells an artwork, in many marketplaces, you actually get royalties on the sales after that… so if you sell to a collector, and your work goes up in value with time, you will get a percentage of that sale… so you are profiting from your work’s value going up in the market, not only the people that collect it and bought it but you as an artist as well. Currently, that’s profit artists don’t see.

In terms of the creative industry, this will give control back to the artist and change the role of the middle person.

There are other ways in which NFTs can be used… for example, you can sell a physical, unique piece of art on the blockchain, this creates a record of the transaction and you can disclose the shipping information to the seller, once the sale has gone through.

But also, NFTs can be used as ways to provide access to the artist, to events, to limited editions, etc…

So basically, NFTs can include functionalities and rewards with the actual asset. 

Let’s imagine I create a series of artworks, all unique… but I have 3 levels of access…. the most basic one is just owning the digital, unique artwork, the next level is getting the artwork, plus maybe a physical print and a t-shirt, then maybe invitations to all my exhibitions… for music it could be backstage access or a private concert with the artist.

From the perspective of the investor, it actually democratises access to art… traditionally art has been expensive and exclusive and investing in art is something only wealthy individuals could do, but now… you can buy pieces of an artwork…

so you could invest in an artist that maybe you couldn’t afford if you tried to buy a complete piece, but what if you could buy a portion of a Banksy let’s say…

Gorilla in Pink Mask

In September 2020 Banksy’s  ‘Gorilla in a Pink Mask’ was removed from a physical wall in Bristol and then sold as a fractionalised NFT, each fraction being sold for around £600 pounds.

So suddenly, a lot more people can own and invest in Banksy’s work.

Thanks and check out Cereal Lab’s YouTube Channel for videos.

D.S.H.

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