POSTED: October 19, 2021
“What does the phrase non-fungible token even mean?”, I asked myself late one evening. And so I turned to Mister Google to find out.
Robyn Conti and John Schmidt explained it like this at Forbes Advisor:
An NFT is a digital asset that represents real-world objects like art, music, in-game items and videos. They are bought and sold online, frequently with cryptocurrency, and they are generally encoded with the same underlying software as many cryptos.
Although they’ve been around since 2014, NFTs are gaining notoriety now because they are becoming an increasingly popular way to buy and sell digital artwork. A staggering $174 million has been spent on NFTs since November 2017.
NFTs are also generally one of a kind, or at least one of a very limited run, and have unique identifying codes.
“Essentially, NFTs create digital scarcity,” says Arry Yu, chair of the Washington Technology Industry Association Cascadia Blockchain Council and managing director of Yellow Umbrella Ventures.
This stands in stark contrast to most digital creations, which are almost always infinite in supply. Hypothetically, cutting off the supply should raise the value of a given asset, assuming it’s in demand.
But many NFTs, at least in these early days, have been digital creations that already exist in some form elsewhere, like iconic video clips from NBA games or securitized versions of digital art that’s already floating around on Instagram.
For instance, famous digital artist Mike Winklemann, better known as “Beeple” crafted a composite of 5,000 daily drawings to create perhaps the most famous NFT of the moment, “EVERYDAYS: The First 5000 Days,” which sold at Christie’s for a record-breaking $69.3 million.
Anyone can view the individual images—or even the entire collage of images online for free. So why are people willing to spend millions on something they could easily screenshot or download?
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. Collectors value those “digital bragging rights” almost more than the item itself.
Meanwhile at the BBC, an anonymous reporter said that “NFTs are “one-of-a-kind” assets in the digital world that can be bought and sold like any other piece of property, but which have no tangible form of their own. The digital tokens can be thought of as certificates of ownership for virtual or physical assets.”
So now I know.
They create artificial scarcity because scarcity creates value and in the world of the digital scarcity does not exist and therefore nothing has any value. Next I need to find out what uses they might have other than as tools of speculation or as a means of injecting capitalism into crevices where it has no place.