NFT- The new hype on blockchain

• Adeshina Ajayi
• September 27, 2022

Be it the animated cats or dogs or even bearing on the warped face of a celebrity, there is something about NFTs that make people take it unseriously till they begin to see the amount of money involved in these supposedly meaningless caricatures exchanging hands. The trend is truly puzzling for those who still wonder why someone in his right mind will spend so much money on assets that only exist in digital form and can be viewed or downloaded by anyone for free. It won’t be long before you know why, just stick with me.

What are NFTs (Non Fungible Tokens)

An NFT is simply a digital asset that is a representation of real-world objects like music, art, videos and even text. The market is online and exchange is mostly facilitated through cryptocurrencies as they both leverage the same technology, the blockchain. NFTs have been in existence since 2014, however, popularity has recently begun to soar as it morphed into a way of exchanging digital artwork, with about $22b being spent on NFTs in 2021 alone.

Unlike tangible artwork like the Guernica and the Ginevra de’ Benci, or even a landed property, buyers of NFTs own a non-physical certificate of authenticity in a code which is tamper-proof. You bet anyone can go online, view the image or even use it as their display picture. However, only one person actually boasts ownership of the NFT. It is this uniqueness that gives the NFT it’s non fungible character. While an ether can be traded for another, leaving the user with exactly the same value (fungibility), an NFT is a one of a kind digital asset (for instance, Kevin Roose’s New York Times PNG) which is a piece of art in this context. Copies can be made and viewed by anyone at any time but there will only exist one original. It is this scarcity that proves to be value for NFT collectors who can also prove ownership right over their digital asset.

The unique identity of the owner of an NFT has usually verified through the blockchains immutable ledger. NFTs were first launched on the Ethereum blockchain but are now present on other blockchains, including Solana and Flow.

Have NFTs added any value.

NFTs help content creators monetise their work easily. Rather than moving your art or text to galleries or auctions, they can be sold directly as NFTs, which is often more profitable because the processing commissions are relatively low. However, this doesn’t stop the artists from earning royalties each time the work is sold to another person. This is achieved by coding automatic payouts into the smart contract of the NFTs, ensuring the creator gets his fair share of the realized profits without relying on intermediaries. However, due to the unregulated nature of the ecosystem, there have been cases where people steal art and make them into NFTs, thereby depriving the original creators of what’s due them.

NFTs have also created jobs, albeit through gaming. Axie Infinity is an NFT based game which uses the pay-to-play-to-earn model. This model enables players to breed and raise axies (each, an NFT), which can then be used to battle other players or sold for a profit. Axie Infinity has given a lot of people the opportunity to make life-changing money. However, entry fee keeps soaring as the game further gains popularity.

It definitely hasn’t been smooth sailing

There have been numerous rugpulls which are also prevalent with cryptocurrencies. These scammers prey on people’s greed and the highly speculative nature of digital assets. This has led many to believe that NFTs are a bubble, synonymous with the tulip mania of the 17th century.

The adverse effect of NFTs that affects everyone, irrespective of how active they are within the ecosystem is the environmental impact. NFTs are almost entirely dependent on cryptocurrency mining which uses enormous computing power and in turn high power consumption. In my previous article, it was stated that one Bitcoin transaction uses about 2,000 kW of electricity, which is roughly the same amount an average American household will consume in 70 days. Now add the minting of NFTs (which is currently on the rise) to that equation, then we have a recipe for disaster.

The market for NFTs

The first step to purchasing NFTs is having a cryptocurrency wallet with the capacity to hold the NFT you intend to buy. Next is purchasing the NFT provider’s base cryptocurrency. You can easily get this by using your credit card to purchase from exchanges like Coinbase and Binance, then moving the funds to your preferred wallet.

There are several NFT platforms like OpenSea, Foundation, BakerySwap, Axie Marketplace and Rarible. Your role is to understand what type of NFTs are present on each before creating an account with them. You also need to be careful as some of these platforms don’t require user verification, meaning fraudsters can list art that doesn’t belong to them, therefore zeroing buyer protection.

At the time of writing, NFTs are still struggling to find any use beyond being a speculative tool, bought for the sole aim of making profit. It will then be logical for anyone longing for a bit of the action to tread carefully.