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An early classic meme, “Charlie bit my finger,” has been removed from the internet. It was auctioned off for a six-figure sum, snagged by collectors of “Non Fungible Tokens,” often called NFTs. That is not the only meme that fetched a coveted sum. Disaster Girl Zoe Roth, famous as the little girl smiling as a house burns in the background, has made almost $500,000 by selling the original as an NFT. Everyone from tattoo artists to musicians to digital creators is jumping on the bandwagon, but how do NFTs even work?
In the simplest form, NFTs are the digital version of a collector’s item. “Non-fungible” means that this token is unique and irreplaceable by an equivalent entity. For example, a dime is fungible — trade one for another dime, and you still have one dime. A one-of-a-kind handmade fabric, however, is non-fungible. Similarly, great works of art are non-fungible – there is only one Mona Lisa. Instead of getting a piece of fabric or an oil painting, an NFT means you have the original digital file instead. NFTs also come with exclusive ownership rights, which means that NFTs can have only one owner at a time. The artist may include a digital signature, but the NFTs come with unique data to identify the owner. However, proof of ownership is not the same as copyright and does not stop people from owning copies of that artwork. Just as people can have reprints of the Mona Lisa, other people can have copies of what you own. Most NFTs are part of the Ethereum blockchain as of now. Other blockchains are in the process of implementing their versions of NFTs.
Many artists are looking at NFTs as the next evolutionary step in the business of art – NFTs mean that the art can be sold directly to customers instead of being at the mercy of galleries. The artists get to keep a much higher percentage of the profit made by selling the art. Any picture, video, or music file can be sold as NFT.
The technology has existed since 2017, but they’ve gained viral fame of late, and everyone seems to be discussing buying them across social media platforms. While the NFT market value tripled in 2020, there are concerns over this technology as well. Since proof-of-ownership algorithms are extremely computation-heavy, NFTs have a large carbon footprint. NFTs are a highly high-risk form of speculative assets -you can hope that their value increases, but they might crash drastically as well. As the buying frenzy continues and as more and more YouTube stars hop on to the bandwagon and sell their videos and art as NFTs, you might be tempted to invest in these as well. Just as one tweet from Elon Musk made the bitcoin value crash, NFTs are also highly dependent on the positive and negative hype they receive. As with any high-risk asset, do your research and exercise caution. If it still looks like a fun investment, take the plunge.
