What Are NFTs? Something Else to Confuse You

A while back, we wrote a bit about the whole cryptocurrency thing. At the time, we felt kind of good about ourselves despite having a lingering sense of confusion. Unfortunately, the scene continues to get even more convoluted, particularly for the technologically challenged. Now we need to deal with this whole NFT thing. What are NFTs? Here’s a brief breakdown (that might make us break down).

 

Review

Humans have accepted many random things as currency over time (stones, gold, paper, etc.). In our digital age, it makes sense that such random things can be digital. These digital entities are called cryptocurrency due to the cryptographic techniques used to keep transactions secure.

All transactions are recorded on a blockchain, which, for those of us who don’t want our brains to hurt, is basically a digital public ledger that records all transactions and is very difficult to modify.

Various cryptocurrencies and their associated blockchains have gained traction, including Bitcoin, Ethereum, and Dogecoin. Such entities are considered fungible, or interchangeable. In other words, one bitcoin can be exchanged for another equivalent bitcoin, and one ether token can be exchanged for another equivalent ether token. We’re mentioning this fungible thing because it comes up below.

 

What Are NFTs?

NFT stands for non-fungible token. These are typically ether tokens that have been modified such that they are unique and thus not interchangeable as above. (Other blockchains have gotten in on the NFT action, but Ethereum has been at the forefront.)

NFTs can in turn be linked to a vast array of assets—both digital and physical—ranging from digital art to music to memes. Basically, an NFT is issued by the creator of an asset, linked to the asset, and then purchased by a collector for a given cost. What the NFT then provides the collector is proof of ownership of the asset. It also provides the license to use the asset in certain ways (with the exact details varying from case to case). The NFT, however, is separate from the copyright, which stays with the creator.

As an added perk, NFTs can be set up in such a way that allows creators to take a little cut every time the NFT is traded or sold among collectors in the future.

 

I Still Don’t Get It

Yeah, either do we. But just think about the baseball card thing. People are willing to spend massive amounts of money on a piece of cardboard (or whatever it is) with a picture of some dude. Why? Because someone else might be willing to buy the collectible for even more money.

Does this make sense? Not necessarily. But the point is that NFTs capture the same curiosity of human behavior. In this case, you’re buying the proof of ownership of whatever the thing happens to be. And that proof of ownership is valuable because someone else might buy it from you for even more (or the ownership might simply make you feel happy for some reason). With that in mind, NFTs are traded and sold on digital markets, much like baseball cards used to be traded and sold in those musty, smoky rooms at the Knights of Columbus.

 

Problems

Just because you are able to prove ownership of an asset, problems can still arise. One of the potential downsides is referred to as link rot, where the link to a digital asset that you own no longer points to the desired target. Stated another way, you can’t find what you own.

Another potential issue is the impact of NFTs on the environment. The computing power required to uphold the world of digital currency is massive, leading to concerns regarding the carbon footprint of the electricity generation needed to keep the system running.

Finally, there’s the issue of fraud. Apparently, people can issue NFTs as if they come from an artist without the artist ever knowing. In such a circumstance, the fraudster would then get all the benefits of the NFT.

 

So should you be getting in on this whole NFT thing? To be honest, we have no idea.