Did someone say NFTs?
The first-ever tweet was by the co-founder of Twitter, Jack Dorsey:
This tweet was purchased for $2.9M. Yes, you read it right. The tweet, which everyone can see, and I have pasted the screenshot of, was PURCHASED for a staggering 2.9Million USD by a Malaysian businessman Sina Estavi.
To understand what is happening, what this craze is about and how people are purchasing digital things, we need to understand what NFTs or non-fungible tokens are.
What is an NFT?
In simple terms, fungible means replaceable. For example, if you go to a shop to buy a Kit-Kat, it doesn’t matter which Kit-Kat you get — since every Kit-Kat is the same. You can even trade this Kit-Kat for another Kit-Kat and you will have exactly the chocolate. So, it’s replaceable. And as evident as it is, on the contrary, non-fungible means non-replaceable. For example, the famous Mona Lisa painting is non-fungible. It’s unique and you can’t replace it since it’s one of a kind. You can take a photo of the painting or buy a print but there will only ever be the one original painting.
NFTs can be compared to the Mona Lisa painting but in a digital world. So, NFTs are digital assets that can be bought or sold online but they have no tangible form of their own. They are just tokens with proof of ownership of the digital arts.
But why would I spend Millions on something that I can simply view or download from the internet? Because an NFT allows the buyer to own the original item. Not only that, it contains built-in authentication, which serves as proof of ownership. So the collector gets exclusive ownership rights. And collectors value those “digital bragging rights” almost more than the item itself.
How do NFTs work?
To understand how NFTs work, let’s quickly understand about Blockchains and how blockchains work:
In super simple terms, if you want to send your friend 100 Rs online — then the way this 100 Rs is transferred is that it is debited from your bank account (provided your bank balance is more than 100 Rs) by your bank and credited in the bank of your friend. The money does not physically move and the intermediaries — your bank and your friend’s bank — would keep a record of this transaction.
Now, what if you can directly transfer the money to your friend without the banks getting involved? That’s where the concept of blockchain comes in.
The blockchains are doing what the banks were doing. But instead of doing the transactions between specific bank accounts, the transactions are being recorded publicly on the internet in a public ledger. To validate the transaction request (if you have enough money) is done by a bunch of computers all around the world that are keeping a track of all the transactions that are happening. So everyone knows how much you or your friend has because it’s all public.
This explanation is courtesy of this super informative video on NFTs: NFTs explained by Johnny Harris
Note: This is a super simplistic explanation and does not capture the intricacies of how the blockchain works. If you want to learn more, you can refer to this link: Blockchain explained — Investopedia
NFTs exist on a blockchain and hence the transaction cannot be forged because the ledger is maintained by thousands of computers around the world. Specifically, NFTs are typically held on the Ethereum blockchain. Essentially, NFTs are like the items the collector owns, only digitally. So instead of getting an actual painting to hang on the wall, the buyer gets a digital file instead.
The unique data in NFTs makes it easy to verify their ownership. The owner can also store specific information inside them. For instance, artists can sign their artwork by including their signature in an NFT’s metadata. NFTs can also contain smart contracts that may give the artist, for example, a cut of any future sale of the token.
The flipside to the NFT fad — the climate controversy swirling around NFTs
NFTs are typically held on the Ethereum blockchain and below is the chart of the Ethereum Energy consumption (The energy consumption is due to the fact that it involves a network of computers that use advanced cryptography to decide whether transactions are valid — and in doing so it uses energy):
Based on the above graph, as of 27th May 2021, the estimated Ethereum energy consumption was 50.16 TWh (terawatt hours) per year. Btw, to get an idea of what does this number translates to — this is roughly the same amount of power as the country of Singapore
Digiconomist estimates a single Ethereum transaction’s carbon footprint at 33.4kg CO2 (equivalent to 74000 VISA transactions), while artist and programmer Memo Akten estimates that an average transaction specifically for NFTs has a carbon footprint of about 48kg CO2. These estimates tell us that one NFT transaction is likely to have a carbon footprint more than 14 times that of mailing an art print!
So, though the art is not physical, it does have real-world adverse effects.
