If you’re anywhere close to the crypto space or know anyone in it, you’ve undoubtedly heard of NFTs and the controversy around them. I mean, they’re just JPGs, right? Ehhh not exactly. Let’s take a look.
What is an NFT?
NFT is just a dumb name assigned to unique tokens by the broader crypto community. The acronym stands for Non-Fungible Token and is based on the ERC721 standard. If you want to read more on that protocol, there’s an awesome article from the Ethereum Foundation at this link.
So, what does fungible mean? If you want the Merriam-Webster definition, it’s right here. If you’re lazy like me, fungible is defined as a commodity (or money) where each item can be exchanged for another. All of them are the same. So naturally, non-fungible is the opposite.
Instead of writing the same definition in reverse, I’ll give the example I give to my younger siblings when they want to know what an NFT is. Let’s say you have $1 and I have $1. Does it matter to you which one you have? Probably not. They’re both worth the same amount: exactly $1.
What about something else? Say I had da Vinci’s Mona Lisa and you had Van Gogh’s Starry Night. Does it matter to you which one you have? I’d bet it does.
“Today, in 2021, the Mona Lisa is believed to be worth more than $867 million, taking into account inflation.” (source: ScienceABC)
Versus Starry Night: “As arguably Van Gogh’s most famous work of art, it is safe to estimate the value of Starry Night at well over $100 million.” (source: Medium)
Now let’s say those are NFTs. Mona Lisa would be worth 230,152 ETH and Starry Night would be worth 26,546 ETH.
Quick aside: That price is based on the value of Ether as of 14 Oct 2021 (1 ETH = 3,764.15 USD)
What can NFTs be used for?
Great question! They can be used for anything. Right now, the most common use of NFTs is art. With platforms like OpenSea, SuperRare, and Nifty Gateway, there are tons of digitally native artists who can create 1-of-1 artworks and sell them as unique tokens on the blockchain.
By token, I mean something similar to a crypto coin (like Ether).
Another super common use of these is in Web3 games. One game that’s blown up in the last few months is Axie Infinity. It’s not just a fun game, but also allows people to play games and earn a real living. (What?!)
Now hold on, I promise it’s not a scam. It’s a lot like how Twitch or YouTube allows people to make money, but it’s entirely based on gameplay. Because of how a blockchain is built (which I’ll explain at a high level in a minute), the network can pay players when they do something worth paying. I.E. winning a battle against another player.
How can that work?
When you write new data to the blockchain, it’s expensive. The network is made up of thousands of computers all verifying transactions. When a transaction is made, an asset goes from one wallet to another. The only reason these nodes are willing to do this is that they get paid. Sending data from one wallet to another requires all the nodes to save that update to their hard drives.
This cost is measured in gas. It’s analogous to gas in a car where you have to expend gas to move. If you don’t, nothing happens. Now, crypto gas and gasoline aren’t a perfect analogy, but it’s enough to understand the basic mechanics of how it works and why it exists. You can read more on Ethereum gas here.
Some of that expense can go to the game’s network which can be pooled and paid out to anyone who wins it. With the example of Axie Infinity, that happens when you win a battle against another player.
I hope that makes sense. If not, we’ll be diving into the broader story of what blockchains are and how they work next week.
Okay, so what else?
Oh, my lovely friend, there’s so much more NFTs can be used for. But here’s the thing: these other use cases I’m about to talk about don’t exist yet. They haven’t been built but easily could be. It’s so incredibly early in this space.
On a more philosophical level, I believe NFTs are just another infrastructure layer on top of the blockchain. That means they aren’t meant only for art, game items/characters, or collectibles. They can be used for anything that can be uniquely identified.
Let me say that again: NFTs can be used for anything that can be uniquely identified.
Earlier this week in my home state of Utah, the Silicon Slopes organization held the annual Silicon Slopes Summit in Salt Lake City. One of the talks on Thursday was about crypto and NFTs specifically. The speaker, Jimmy McNelis, spoke about the idea that nearly anything in our lives could be thought of as non-fungible. Our houses, cars, clothes, etc.
This idea is the one I’m most excited about. I think that, eventually, the mega-hype around NFTs will go away and developers and consumers will begin to see NFTs as a tool rather than a product. One I’m particularly excited for is blockchain native IDs. A driver’s license, social security card, birth/death certificates, etc.
Work of course needs to be done to make sure they’re secure and bad actors can’t come along and steal sensitive information like a home address or SSN, but wouldn’t it be cool if you had your driver’s license, SSN, and birth certificate all verifiable and unchangeable? I think so. It’d make voter registration way easier, that’s for sure.
Had enough yet?
This post is getting a little long, so I’ll save your eyes and your brains and stop here. Thank you so much for reading this week’s edition of CryptoCurious. I hope you enjoyed it. And if you have any suggestions for future posts, hit me up! You can reply to this post or DM me on Twitter.
See you next week!
Non-Fungible What-Now?