Written by Ben Zimdahl - October 25th 2021
Illustration by Alex Broeckel
By now you’ve likely heard of non-fungible tokes (NFTs) and the excitement, general stir, or even alarm they are creating. Perhaps through an interest in cryptocurrency from whence they arrived on the scene in 2017 with a certain “CryptoKitties” game, or a crypto related climate impact article, or maybe you’ve even heard of the (r)evolution they are bringing with them to the digital art world. And if not, well its quite likely you will be hearing something about them soon. The NFT and the digital artist known as Beeple made their mark on the world this March 11, with the sale of the NFT ‘minted’ artwork “EVERY DAYS: THE FIRST 5000 DAYS”. The digital art`s token sold for an astounding $69.3 million at Christie’s Inc. catapulting both the NFT and Beeple well into the world of mainstream news.
But what exactly is an NFT?
For the most of us there often remains a degree of mystery in understanding this hot topic extensively, and besides this their function and variety of applicable uses are very much still evolving. In any case, however they are applied, an NFT is essentially the digital equivalent of an original artwork or rare collectable, existing on a cryptocurrency blockchain. They serve as the creatable and purchasable unique digital ownership certificate of an original digital asset, as a guarantee of its originality and authenticity. The most successful application of NFTs so far has been with digital illustration, though they are also created for images and online media in general. Other popular
examples include photography, song, video, gaming, digitized collectables such as trading cards, virtual avatars and even GIFs. One thing that people seem to get caught up on in learning of the NFT is the term ‘non-fungible’, which differentiates them from fungible cryptocurrencies. NFTs are termed non-fungible for the simple fact that they are in nature non-interchangeable. Although they digitally exist on a cryptocurrency’s database or blockchain, using this same decentralised technology, unlike interchangeable cryptocurrencies (I.e., 1 BTC = 1 BTC) they function as individual digital assets, enabling them to have their own individual value [NFT (A) ≠ NFT (B)].
How Does an NFT Work?
The great thing about creating an NFT as an artist or investor is that anyone can make one. All you need, along with some well-informed research, is a crypto currency wallet to store the NFT and sufficient cryptocurrency funds to create one. Currently the major (and original) blockchain supporting NFT’s is the Ethereum blockchain for Ether coins (ETH), though numerous other platforms now support them too. Once an NFT is minted, it then exists on the supporting blockchain, an encoded technological system of interlinked computers that records, ensures, and publicly documents all transaction history from the point of creation, hence securing its digital existence as an investable digital asset.
The Creator’s Perspective
The existence of a digital certificate of ownership means artists, musicians, influencers, and franchises are presented with a new means of monetising their creations to a readily available global market. Moreover, in a world of increasing digital reverence which currently involves the free availability of artists’ works once uploaded to the www, an NFT can provide the digitally permanent identification of an artwork with the artist who created it. Yet
another interesting aspect from a creator’s perspective in comparison to physical artworks, is that NFTs allow the possibility of a commission written within the token, meaning the creator can receive royalties from their creation every time the certificate of ownership is resold.
The NFT movement is already well underway and showing potential for great growth right now, however cryptocurrency is also long under fire for its high energy consumption component. Before entering the world of NFT creation or collection, one must seriously consider the effects that larger blockchains currently have on global warming. It is often cited that one single transaction on the Ethereum blockchain consumes more electricity (fossil fuel) than the average US household does within a day. 27-year-old Russian Canadian computer scientist Vitalik Buterin, and inventor of the Ethereum blockchain at age 18, is currently working on a new code overhaul dating back to 2019 that plans to reduce Ethereum’s energy consumption by 99%. Ethereum 2.0 is already implemented in the first of three phases set to transfer from the original technology to the new and redesigned green efficient model that aims to be in place by 2022. This design will replace the need for the individual high-end energy consuming processors of competing ‘miners’ with the node of a server on the internet which comparatively requires a bare minimum energy consumption. Furthermore the “Proof of Stake” (PoS) model is to be integrated in which a single ‘validator’ is randomly assigned to complete the cryptographic algorithm work, as opposed to numerous competing ‘miners’. With the total sales value of NFTs exploding from 250 million for the whole year of 2020 to a figure of 2 billion solely within the first quarter of 2021 (europeanbusinessreview.com) and the long awaited Ethereum blockchain conversion’s progress, ETH and NFTs remain cryptocurrency investment options well worth our further investigation.