Just an averagely drawn picture of a bored looking monkey? Well yes there is that, but underneath there's some really useful technology that's useful in the real world.
Let’s start with the definition: NFT stands for Non-Fungible Token. ‘Non-fungible’ is a term for items which have unique properties. For example — a one-of-a-kind artwork, original song or a unique trading card. In comparison, a ‘fungible’ item is one which exists as multiple versions with the same properties and value. Cryptocurrencies like Bitcoin are an example of fungible tokens.
One of the reasons NFTs are exciting is that until now, it’s been difficult to ensure uniqueness for items like digital artwork. Web3 and blockchain technology have created the ability to keep items distinctive (non-fungible) and prove ownership by one person.
Beyond the image: The potential of NFTs
So what, you say. Why should I care about a bunch online images?
Well, aside from the ability to prove uniqueness and ownership, NFTs have huge potential because of the smart contract technology they’re built on.
So, what are smart contracts? Smart contracts are online contracts that enable two parties to undertake a form of exchange. This exchange can be anything from money to goods transfers such as artwork.
The two parties agree terms and the moment those terms are completed, triggers the smart contract to initiate an action such as transferring money. These contracts are made up of ‘if this/then that’ statements written into code.
Smart contracts run on a blockchain and are run by a network of computers that executes all the agreed-upon actions coded in the smart contract only when the pre-determined ‘if this’ ’conditions are met and verified. The smart contract also ensures that the information stored is transparent and immutable which means the ownership can be verified.
The technical explanation is easier to understand with examples- buy a ticket to an event — your receipt is an NFT which unlocks the ability to go to the event, buy a burger at a stand, or give you a backstage pass. The potential is limitless. When you consider that every transaction we make is a series of ‘if this/then that,’ the potential is huge.
So what’s exciting about NFTs is not so much the flex value of owning an image of an pixelated cat, but how they can be used for customers in the real world.
Is there a market for NFTs?
The short answer to that is yes. One of the things that’s fascinating about NFTs is that it symbolises how our perception of value is changing.
I have a familiar conversation thread around the NFT topic which goes something like ‘it’s just a jpeg, why...’ ‘well, much like the Mona Lisa is just a painting.’ ‘Yes but there’s only one Mona Lisa, how do I know there’s not multiple jpegs?’ ‘well technically you could make copies of the Mona Lisa and you can’t replicate an NFT because of the contract...’ and on, until eventually the chat inevitably ends with ‘I just don’t get it.’ and fair enough. For anyone not actively involved in the online world, it must seem weird. On that note, I explained to a stunned person yesterday that it was called a ‘cheque account’ because people used to write actual cheques to other people. True story. I digress.
But here’s where that’s important. NFTs are just another part of the evolution of the internet as interactions online gain value in our lives. It’s now much more than a tool to get things done. We spend a large amount of time staring into screens of varying sizes, shopping, playing, browsing, interacting and getting ‘feel good’ from responses to our content from strangers. It’s not a great stretch to conceive of an online receipt enabling customers to do more.
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