Your digital existence, in the form of tweets, art, music or literally anything can now be monetized through Non-Fungible Tokens or NFTs, as they are lovingly known.
To be frank, your digital existence has already been monetized and sold off by Big-Tech; but this time, you can reap the dividends. All the cash will (hopefully) go into your pockets instead of the likes of Google or Microsoft.
Jack Dorsey did exactly the same. He sold his very first tweet as an NFT for $2.9 million.
Now you can do the same, provided that you end up building something akin to Twitter so that you can justify the sky-high price of your ‘trolling-expertise’.
You can sell your tweets if they are witty or funny enough, but this editorial just talks about the economic significance, or insignificance of NFTs. This is by no means a guide to create/buy/sell NFTs. Do your own research. PLEASE. You have been warned.
With that out of the way, let’s get going.
What does an NFT even mean?
Before that, lets understand what fungibility means.
In economics, fungibility is essentially a measure of the interchangeability or exchangeability of assets or liabilities.
Fungibility isn’t a black and white metric and it can’t be classified binarily, it rather exists on a spectrum; with Gold being pretty fungible, cash being fungible to a good extent, cryptocurrencies being less fungible due to their digital traceability and NFTs being NOT AT ALL fungible, unsurprisingly.
Simply put, NFTs are digital collectibles which cannot be exchanged or counterfeited because no 2 NFTs are identical, just like trading cards.
Except that these trading cards are digital, and through some technology (read ahead) you can verify their originality and diagnose whether they’re the real deal or not.
Remember CricketAttax, which were the hype of the day back when IPL was just starting to make itself prominent? A digitally rendered CricketAttax card would suffice as an NFT, but don’t go ahead and try this, or you’re setting yourself up for multiple lawsuits (copyright infringement or something).
Who authorizes the legitimacy of an NFT?
If we were to consider famous artworks like Michelangelo’s David or da Vinci’s Mona Lisa, there exist historical experts and certain professionals who have devoted their entire lives to get better at legitimizing, authenticating and proving the originality of artworks created by artists who have kicked the bucket a long time ago.
On top of this, the location at which an artwork is being kept for display also confidently indicates its legitimacy.
You really shouldn’t expect to see the original Mona Lisa in some place other than the Louvre Museum in Paris. If you are able to do so, then you are most probably looking at a fake or you are part of an incredibly, legendarily articulate art-robbery, which isn’t so likely. Hopefully.
But this verifiability isn’t as straightforward in the case of NFTs.
After all, an NFT is just an overhyped jpeg, GIF, or any other image format, and it shouldn’t come as a surprise that digital entities are infinitely replicable, you can just download the file and circulate it around, who’s stopping you?
Humans are not infallible.
Facts get meddled with overtime due to ‘interference’, so you cannot be overly reliant on them.
So, it was concluded that it would be infinitely better if we were to automate this task of verification-cum-authentication, and blockchain technology gleefully grabs the spotlight for this purpose.
Simply because that’s the very premise of blockchain technology.
A decentralized digital-ledger which is incorruptible, unfalsifiable and indestructible.
Of course, to varying degrees.
It is only as robust as you make it. There have been various instances when cryptocurrencies (based on blockchain) have been hacked and/or tampered with.
Now when it comes to NFTs; art-auditors, historians and their ‘document of proof’ are replaced with a publicly accessible ledger stored on a blockchain network, usually the Ethereum blockchain.
Simply because Ethereum’s programmability enables you to build ‘smart contracts’, which are auto-executable programs storing every historical detail of the NFT while authoritatively proving its originality; by virtue of it being publicly visible on the blockchain network and storing it alongside the NFT, going wherever the NFT goes.
Think of it like a certificate of authenticity super-glued to the back of the art, except it doesn’t damage the art and can’t be seen if you flip the painting, and yet it proves its originality.
Pathetic attempt at trivializing smart contracts, but here we are.
But aren’t NFTs just overhyped jpegs? If yes, then why are they being sold for literal millions?
What is the economic premise of NFTs? And if there is one, is it even logical by any means?
NFTs certainly make economic sense albeit in an abstract way, more or less due to the monetary and proprietary guarantee which blockchain tech blesses them with and due to trivial, human nature.
Economics can be crudely understood as monetary psychology.
Simply put, ‘What drives the individual nodes of a market which usually are humans (automated trading bots)?’.
And humans aren’t rational, surprisingly.
So, by transitivity, economics, or the economic value of a good cannot be perceived to be logically derived.
We buy, sell, trade, barter whatever that seems to be valuable, irrespective of the fact that it may or may not hold tangible, feelable, physical, REAL value.
And here comes the annoyingly overused concept, the supply-demand relationship.
Whenever we humans desire something, someone tries to seize this opportunity to make some cash while trying to quench this demand.
All in all, just like beauty, economic worth is in the eye of the beholder.
You can say that people are extremely bored, or that society has progressed, or regressed to a point where we are buying virtual F-1 cars just for the giggles while citing some convoluted theory trying to justify our purchase.
But how do they monetize NFTs?
Firstly, through smart contracts.
Smart contracts let you code the royalties into the NFT, so that whenever someone uses your art and it starts circulating around, you automatically get compensated according to the built-in deal which goes around with the NFT.
No royalty agencies or middlemen leaching on your intellectual property.
Digital ownership becomes immutable through blockchain, which simply means that you cannot change the ownership of the NFT once it has been introduced into the blockchain.
And secondly, the art market, which is so outlandish that it will make you cry (read: Modern Art).
Many people even consider NFTs to be the next frontier of the practice of fine art collection.
More digital art ‘connoisseurs’ for us to deal with.
But for an artist this is a ticket to nirvana.
Rather than selling off your art as Telegram stickers, you can leave it to certain individuals who exist in substantial numbers who will kill to buy your art, as they think of it to be a speculative asset whose value may go up if held long enough, just like some cryptos.
You’re essentially being served a market filled with the mavericks who missed out on the BTC boom back in 2013. Such FOMOed individuals can really pump up the value of any particular NFT, if it seems worthy enough.
Just try to make the NFT as wacky as possible, maybe try converting an article about NFTs into an NFT itself, essentially what Quartz did.
Please stop saying ‘NFT’, I beg you.
Don’t worry. This is it.
All in all, NFTs, by themselves, cover every single aspect of a tradeable good.
From satisfying the esoteric demands of collectors and the financial needs of artists to forming a little (massive) virtual economic paradise, clearly serving an all-encompassing human need to exchange, trade, barter and even gamble something valuable with/against other humans, even if this supposed value is extremely volatile and can be wiped out due to a collective collapse of the global electric grid.
Seems implausible? Look up ‘impacts of largescale solar flares’ and pray that it doesn’t happen, EVER.