What is an NFT?
Background
Jack Dorsey sells his first tweet ever as an NFT for $2.9 million, read the headline of major business newspapers on 24th March 2021. A year later, Twitter is going private, all thanks to Elon Musk, in what is said to be the largest Leveraged buyout (LBO) ever. Both Jack Dorsey and Elon Musk are successful entrepreneurs who have voiced their support for the Blockchain Revolution. This revolution is not going away anytime soon! Let’s get back to the question, can you sell a tweet? How do you do it, and what is that N-F-T doing there in the headline?
What is an NFT?
NFT stands for Non-Fungible-Token; non-fungible means something that cannot be exchanged for an item because it is unique. In other words, you can exchange a ₹100 note for another ₹100 note as both have the same value associated with them. Another classic example is a cryptocurrency; 1 Bitcoin can be exchanged for another. Cryptocurrency is fungible, whereas NFTs are not. On the other hand, one piece of artwork is not equal to another; The Mona Lisa is not equal to a Van Gogh’s since both have unique properties. NFTs are tokens that live on a blockchain and represent ownership of unique items. Why do you need a blockchain to do this? Well, tracking a digital file is tricky, as it can be copied and distributed effortlessly. A blockchain comes in handy for ease of tracking ownership and for the value discovery of an asset. Let us take an example to cement our understanding.
Suppose you made a piece of digital art. You can create a .jpg or mint an NFT out of this. The NFT that represents your art contains information about it, such as
A unique fingerprint ID of the file (Hash)
Token Name
Token Symbol
This token is then stored on the blockchain, and you, the artist, become the owner. To sell the artwork, you create a transaction on the blockchain, and the blockchain makes sure that this information can never be tampered with. It also allows you to track the current owner if the artwork is traded further. In other words, it is a smart contract on the blockchain that stores the unique properties of the asset and keeps track of current and previous owners.
Specifics of an NFT
It is important to note that the artwork itself is not stored in the blockchain; only its attributes like hash, name and a link to the actual artwork are stored in the block. Also, one must keep in mind that you often do not get a physical copy of the original artwork and most of the time, anyone can download a physical copy for free. The NFT only represents proof of ownership. It gives you exclusive ‘digital bragging rights.
NFTs are not limited to pieces of digital artwork, though a bulk of the market comprises these; NFTs can also include concert tickets, domain names, in-game limited edition items, real estate and anything that is unique and requires proof of ownership. The prices of NFTs are not uniform and depend on supply-demand characteristics. A word of caution: an expensive NFT becomes worthless if no one wants to buy it!
FAQs
Where can one buy NFTs?
NFTs can be bought online on open-source exchanges and NFT marketplaces.
Which blockchain is used in NFTs?
A bulk of contracts are executed on the Ethereum blockchain.