NFTs are currently taking the digital world by storm and digital artists are seeing their lives getting transformed rather very quickly thanks to the meteoric rise in NFT collectibles and the maiden and blossoming crypto-audience.
NFTs could be on the precipice of an entirely new business model for pretty much anyone who’s willing to look it up (celebrities, business persons, content creators or even corporate establishments). But before that can happen, the conversation around what NFTs truly stand for need to be wholesomely understood.
What is an NFT?
NFT stands for non-fungible token. This means the tokens are unique and one of a kind. NFTs are a token issued on blockchains, mostly the Ethereum blockchain, that verify ownership of unique digital assets (such as audio, video, photos, and more), and are distinct from cryptocurrency tokens (such as Bitcoin and Ethereum) which commonly imply equity ownership. They let us tokenise things like art, collectibles and even real estate. They can only have one official owner at a time and they are secured by the Ethereum blockchain – no one can modify the record of ownership.
NFTs can be considered modern-day collectibles. They are bought and sold online, and represent a digital proof of ownership of any given item. NFTs are securely recorded on a blockchain the same technology behind cryptocurrencies which ensures the asset is one-of-a-kind. The technology can also make it difficult to alter or counterfeit NFTs.
How do NFTs work?
NFTs are different in that each individual token is completely unique and is not divisible. NFTs give the ability to assign or claim ownership of any unique piece of digital data, trackable by using Ethereum’s blockchain as a public ledger. An NFT is minted from digital objects as a representation of digital or non-digital assets.
An NFT can only have one owner at a time. Ownership is managed through the uniqueID and metadata that no other token can replicate. NFTs are minted through smart contracts that assign ownership and manage the transferability of the NFTs. When someone creates or mints an NFT, they execute code stored in smart contracts that conform to different standards.
NFT’s have some special properties:
- Each token minted has a unique identifier that is directly linked to one Ethereum address.
- They are not directly interchangeable with other tokens. For example 1 ETH is exactly the same as another ETH. This isn’t the case with NFTs.
- Each token has an owner and this information is easily verifiable.
- They live on Ethereum and can be bought and sold on any Ethereum-based NFT market.
In other words, if you own an NFT:
- You can easily prove you own it.
- No one can manipulate it in any way.
- You can sell it, and in some cases this will earn the original creator resale royalties.
- Or, you can hold it forever, resting comfortably knowing your asset is secured by your wallet on Ethereum.
And if you create an NFT:
- You can easily prove you’re the creator.
- You determine the scarcity.
- You can earn royalties every time it is sold.
- You can sell it on any NFT market or peer-to-peer. You are not locked in to any platform and you don’t need anyone to intermediate.
The creator of an NFT gets to decide the scarcity of their asset. The creator of an NFT can decide how many replicas exist. Sometimes these are exact replicas while at other times, several are minted that are very similar, but each slightly different. The creator can also create an NFT where only one is minted as a special rare collectible.
In these cases, each NFT would still have a unique identifier with only one owner. The intended scarcity of the NFT matters and is up to the creator. All information about an NFT is always publicly available.
Some NFTs will automatically pay out royalties to their creators when they’re sold. This is still a developing concept but it’s one of the most powerful. This is completely automatic so creators can just sit back and earn royalties as their work is sold from person to person. At the moment, figuring out royalties is very manual and lacks accuracy – a lot of creators don’t get paid what they deserve. If your NFT has a royalty programmed into it, you’ll never miss out.
As the underlying technology and concept advances, NFTs could have many potential applications that go beyond the art world and digital contents. New and developed use-cases for NFTs are continually springing up. The tokenization of gaming items, physical items (such as real estate), domain names, investments and collaterals are gradually gaining popularity by the day.
NFTs Are The New Gold: Maximising earnings for creators
The biggest use of NFTs today is in the digital content realm. That is because that industry today is broken. Content creators see their profits and earning potential swallowed by platforms. An artist publishing work on a social network makes money for the platform who sell ads to the artists followers. They get exposure in return, but exposure does not pay the bills.
NFTs power a new creator economy where creators do not hand ownership of their content over to the platforms they use to publicize it. Ownership is baked into the content itself. When they sell their content, funds go directly to them. If the new owner then sells the NFT, the original creator can even automatically receive royalties. This is guaranteed every time it’s sold because the creator’s address is part of the token’s metadata – metadata which can’t be modified.
NFTs have greatly changed the business game for creators. Finally, they can sell their works directly to a global community. Their new business model cuts out most of the distributors (who typically receive a commission) and lets them deal directly and easily with the customers through marketplaces like OpenSea and Foundation. Artists and musicians have made millions on NFT sales and so are podcasters, authors, youtubers, and twitchers.
Tom Bilyeu, the popular motivational Impact Theory podcaster developed Founder’s Key, which dropped in October 2021. He created three NFTs, offering different levels of access to his podcasts, bundled them into NFT memberships and minted many for each level. So if you’re a podcaster, you could sell an NFT that creates access to exclusive shows. If you are an author, it could be a book or audiobook. A YouTuber could sell a membership package. A writer could theoretically sell the rights to their articles.
The NFT space continues to get bigger for different categories of players. We have seen big brands and celebrities like Marvel and Wayne Gretzky launch their own NFTs, which seem to be aimed at more traditional collectors, rather than crypto-enthusiasts. There are several marketplaces that have popped up around NFTs (such as OpenSea, Rarible, Grimes’ choice, Nifty Gateway and a host of others) which allow people to buy and sell.
While all this sounds exciting, there are many issues to face before this technology becomes mainstream. Most NFTs are traded with cryptocurrency on specialist exchanges, so they attract a specific audience. Also, there are regulatory issues as most governments are still sniffing around the NFT phenomenon and not sure how to react. But as with cryptocurrency, there are growing government concerns about NFTs being an avenue for money laundering and the defrauding of naïve investors. The difference with NFTs perhaps is the trading volumes and fan engagement metrics make a compelling argument. If you’re considering purchasing an NFT as an investment, know that there’s no guarantee it will increase in value. While some NFTs sell for thousands or millions of dollars, others may remain or become worthless. If you’re considering purchasing an NFT as an investment, know that there’s no guarantee it will increase in value. While some NFTs sell for thousands or millions of dollars, others may remain or become worthless.