Did you read that Jack Dorsey, CEO of Twitter and Square, sold his first tweet as an NFT for almost $3Million? The tweet, just says, “just setting up my twttr,” and was sent by him on March 21, 2006.
This has captured the imagination of many and probably why people seem to have been talking about NFT’s quite a bit recently. The barber was talking about them and my son has watched a number of YouTube videos on the subject. So what does this short acronym mean and why is this happening? Also, is it something that will be around for any amount of time?
An NFT is a Non-fungible token. So that clears everything up nicely!
Fungible is actually a term used in finance. It’s the ability for an item or an asset to be exchangeable with another item or asset of the same type and value. Widgets for widgets basically.
Firstly let’s understand what the word Fungible means (as I didn’t have a clue – it sounded like something that was susceptible to mould!). Fungible is actually a term used in finance. According to investopedia.com, it’s the ability for an item or an asset to be exchangeable with another item or asset of the same type and value. Widgets for widgets basically (though not always). They look the same, they do the same, they are the same.
Examples of Fungible items could be anything from gold bullion or money to items from the local supermarket such as unopened paper tissues (unopened being important) or a bag of crisps. Any items that share an identical value and set of properties to other similar items.
Also fungible items may only be fungible when new and not tomorrow. Items you buy at the store can change once opened (hence the unopened bit). If you open the previously mentioned tissues and they get damp or otherwise damaged, suddenly they don’t hold the same value as they did unopened.
So if fungible is widgets for widgets, non-fungible is what?
In very simple terms it means that an item is unique and irreplaceable. So again broadly, a new postage stamp is fungible as it is the same as pretty much all other similar priced new postage stamps. However an unused (or even used) stamp that is 100 years old is non-fungible. The quality of the stamp will vary, but after 100 years no two stamps will be the same.
It doesn’t need to be old to be unique though, for instance original art, memorabilia with provenance, a signed football shirt or a house on piece of land are all non fungible. They are all unique, none of them can be replaced with something with exactly the same attributes. We’re talking about NFT’s though. The ’T’ bit standing for ’token’.
What is a token?
In my head a token is something you can use instead of something else, something you could redeem – like in an arcade. Well in this case, the tokens in question are digital tokens on a blockchain. Yeah, another word… a blockchain. We’ll get back to tokens in a sec, but first, we should probably clear up blockchains
In simple terms (as we’re a design company and not an IT company) a blockchain is a type of database. A database being a collection of stored digital items (data, images, etc) on a system. The biggest difference between a blockchain and a run of the mill database is all to do with how the data is structured (spoiler – its where the black bit comes in).
A blockchain holds information in groups, or ‘blocks’ (The main blockchain for NFT’s is Ethereum) . These blocks each hold chronologically timestamped information, each block having a finite storage capacity. When one of these blocks is filled they are connected to the previous similar block to form a chain… a ‘blockchain’. And then the next block is started. Another characteristic of blockchains is that they are irreversible and tamperproof, they are a time-line that is permanent (as permanent as a database could be).
So back to the token part of an NFT. This is the part that is allocated to a user or group of users. The token part is the part of the NFT that makes it an NFT. It’s the part that makes an NF something that is owned, it’s the part that says who owns a specific item, it’s the index card.
an artwork entitled “Everydays – The First 5000 Days”, by Beeple, the artist Mike Winkelmann, sold earlier this year for US$69.3 million
So an NFT is an index of a unique item that is held in a blockchain. And although NFT’s have been around since 2012, they have exploded in interest in the last few months. This is also a market that has some money behind it. in 2020 it was valued at more than $250 million (tripling the value from the previous year). And some analysts believe that trading could double month on month by October.
The usage has also expanded from the initial the run of the mill types of digital files into market places in virtual worlds (Axie Infinity recorded a sale of $1.5 million for digital land titles in a single sale), digital art (an artwork entitled “Everydays – The First 5000 Days”, by Beeple, the artist Mike Winkelmann, sold earlier this year for US$69.3 million) and digital versions of common real world collectibles (ie trading cards).
However, this isn’t just a bunch of people with more money than sense buying bits of digital art that exist predominantly in the ether. Organisations are now starting to take advantage of this phenomenon. There have been digital art exhibitions in physical spaces. Earlier this year he ABV gallery in Atlanta USA showed work by artists on 20 digital displays. And the NBA created digital trading cards which have generated over $230M in revenue.
Maybe the future will bring creating one off items for websites, galleries selling digital art in virtual worlds or estate agents selling land in same spaces. The sky seems to be the limit at the moment.
As well as the opportunities there are also downsides. As with Bitcoin, the energy used to run the Ethereum blockchain is massive. Not as much as the 57.09 Billion kWh of Bitcoin, but Ethereum still consumes a whopping 2.57 Billion kWh or energy annually. That is 42.8633kWh per transaction. To put this in perspective in 2011 Cambodia, a country with almost 16.5 Million inhabitants used pretty much the same amount of energy during the whole of that year.
When the world is doing everything to reduce the carbon footprint of everything, these money making enterprises are doing the opposite.
Is this a flash in the pan?
Going through all this it seems that there are a number of people and companies who are making shed loads of cash from NFT’s. Is this something that we can all do or is it just a fad from a world in lockdown? I’m not sure anyone will be able to give a definite answer to this, but it does remind me of a something I read from the book about eBay and Pierre Omidyar. He said that he knew eBay would be a hit when that first broken board pointer was sold.
I think that NFT’s will be somewhat the same. Like eBay, there will be the heady days of the start. However, I think that though things will quieten down, NFT’s are here to stay (as long as they can sort out the energy issues!). I can see the will crash at some point – everyone jumping on this particular band wagon. To back this up, according to cointobuy.io the risk in investing in NFT’s is quite high, but at the moment the profits possible are very high.
None of this has much to do with what Puur are, or what we do. It is interesting though, and we are always interested in what is happening in the world, we strive to deliver the unique, we ensure that the projects we deliver for our clients are bespoke to their needs. We do this by being curious and keeping our eyes open. After all, with creativity, craftsmanship and the attention to detail are at our core we need to stay fresh.