NFTs explained in exactly 500 words

Creators. They've struck gold.

In 2017, a painting by Leonardo da Vinci sold for $450 million.

Five days ago, an artwork by Beeple sold for $69 million.

Similar headlines, different contexts. You see - the latter was a digital artwork.

While art historians obsessed over da Vinci’s painting to make sure it wasn’t a copy, Beeple’s artwork could be duplicated identically with just a right-click + copy + paste.

Digital art has always suffered from this problem. Until recently, that is. 

A new technology called NFTs (Non-Fungible Tokens) has changed that.


NFTs are like stamps of authenticity for digital assets.

They’re based on blockchain technology, and in the next 3 minutes, you're going to understand why there’s so much hype around them.


Digital Scarcity

The term ‘Non-Fungible’ sounds complex, but it really isn’t.

Non-Fungible items are just those that cannot be substituted because they contain something that makes them unique. Most physical assets are non-fungible – the device you’re reading this on, the notebook on your desk, or a painting by da Vinci. 

Since non-fungibility implies uniqueness, it also implies scarcity. And as you know – an asset that becomes scarce usually sees its value increase.

You probably intuitively understand this phenomenon with physical assets, but it's equally applicable to digital assets.

Thanks to blockchain-based authentication by NFTs – digital assets like art, audio tracks, gifs, videos, and even Tweets can now be converted into non-fungible entities - each with a unique identifier

Creators can then sell these to the highest bidder - sometimes for their utility as assets, and other times for the bragging rights they come with.


Widening Trade

Digital non-fungible assets are not entirely new. 

Some video games have had weapons or outfits that only certain players could access. However, these assets existed and could be traded only within the confines of the video game. Besides, if a video game company shut down, the asset went with it.

Non-Fungible Tokens change that. 

Tokenization’ standardizes these digital assets. This allows them to be owned independently of platforms and traded across multiple platforms. Like a country opening up its borders, these digital assets can be sold to the highest bidder in the entire digital universe, not just the platform in which it was created.

This makes these assets more secure and liquid, and attracts investors, both – large and small.


Revolutionizing Creator Economics

Besides increasing valuations and attracting investors, some NFTs allow creators to define conditions that govern the existence of their creations.

The most common type enables creators to be compensated every time an asset created by them is traded. If a creator gets famous and their old work starts being traded at higher valuations, the creator will still get a cut.

Suddenly, digital creators have discovered that they're sitting on a goldmine that didn’t exist until recently. As with any new mine, more miners are bound to arrive.

The field is just getting started, and we're in for a crazy ride. But for now, dear reader – you’re all caught up.

Thanks for making it this far! Please share this post with someone who might be curious about NFTs

Share


PS: While trying to figure out how all this works, I made my own NFT. If you’re interested, you can buy it here for the grand price of 1 ETH.


Thanks to my art expert friend Joe for his help during the research phase of this piece.


This issue is sponsored by Morning Brew.

I’ve been subscribed to their daily newsletter for months now, and it’s one of the few that I read so often.

Besides keeping me up to date with the latest news from the business and tech worlds, it also manages to make me laugh at least a couple of times.

What’s more? It’s free.

Check it out!

Full disclosure: This is an affiliate link, and for every one of you that subscribes through it, I get a small fee from Morning Brew.


If you’re in the mood, hit the like button below.