Earlier this year, a 6-bit algorithmically generated NFT (Cryptopunk #5822) was sold for $23.7 million. Mike Winkelmann, a digital artist, sold his artwork (Everyday’s—the first 5000 days) for a whopping $69 million. The most expensive NFT was Pak’s ‘The Merge’ which sold for around $91.8 million.
Last year, the NFT market grew at an exponential rate, even though this increase was not constant and has somewhat slowed off this year. This didn’t affect the total valuation of the NFT market which was $15.70 billion last year and is now predicted to grow to $122.43 billion by 2028 as per Global newswire.
Keeping the numbers aside, one might ask what is the actual point of NFTs after all? There are two main reasons behind this concept. Firstly, supporting artists. By selling their art they gain recognition which helps in supporting and promoting the overall community of artists/creators. Secondly, monetizing. As the fourth industrial revolution kicks in, there is an entirely different generation that finds the impending digitalization more acclimating. There will be a shift in how we create, earn and demand. New ways of monetizing will make their way making some old ways obsolete.
Unscrambling the concept
NFTs are digital assets or cryptographic tokens having a unique identity that makes them distinguishable and one-and-only. These tokens are more like a certificate of holding/ownership. Say, you go to an art gallery and felt like buying a painting. But the one you want to buy has several other buyers in line, hence bidding. You played the highest bid and got the painting. Now you have the ownership of the same. Things are no different with NFTs.
An NFT’s worth is determined by its unique characteristics straight after minting. Market research and the median cost of other comparable assets are major factors used to determine the opening price. The value of these NFTs is thus determined foremostly by market demand (presumably prospective buyers and creators). Over time, an NFT develops its own value based on aspects such as who owns it and how they utilize it.
Nevertheless, the critics argue that the concept behind the same is quite absurd as anyone can save the picture by a right-click or simply by taking a screenshot. Purchasing an NFT gives you technical ownership of the artwork. It represents the ownership certificate, not the digital artwork itself. Any artist/creator can retain the copyright anytime. Now whether you really own all the contents of an NFT or not is a matter of later discussion.
Is it just about art?
Yeah, at least for now. But NFTs can really be anything: music, video, jpeg, gif, meme, virtual accessories of your favourite brand, etc. These digital entities are more like a stamp of ownership. A prominent influencer can turn his/her Spotify playlist into an NFT for his/her viewers. Jack Dorsey, the co-founder of Twitter sold his first-ever tweet as an NFT for $2.9 million.
Besides this NFT technology can also assist in various other ways like verifying authenticity, thanks to the blockchain system, proof-of-ownership of property in real estate, and storing medical records without risking confidentiality. It can also help in replacing the old ways of proof-of-work like trademark and copyright. The timestamp factor can help in resolving the imminent conflicts between creators and owners.
Although, for now, most of the NFTs are present in the form of digital artwork, it is important to note that the technology behind NFTs is way more adept than we can possibly fathom.
The grey area
Usually, NFTs are stored in two forms, one is by a metadata file (Data that offers details about other data is called metadata) and the second is by directly uploading the media on the blockchain. The former is the most common type of NFT, where you simply upload the metadata of the digitalized media in a coded format. The latter is quite expensive as it requires supercomputers that have high power needs.
Now coming back to the question, whether you really own the contents of an NFT or not? remains debatable.
NFTs are more like a code of ownership uploaded on the blockchain. The code usually consists of a token ID (produced when the token is created) and a blockchain address. Every code is unique in itself. The majority of NFTs contain a link to the location of the original work rather than the original work itself. Does that mean you are simply buying a code that is somehow linked to the work but not the work itself?
Yep. However, smart contracts are always there where the buyer and a seller can make copyright agreements. But these contracts have not received much recognition and awareness in the NFT market as of now.
The monetary chaos
One major idea behind the creation of this technology was to support digital artists with real talent who are struggling to get their work monetized. And that has worked for creators at some point. But algorithmically- generated, let’s be real, is not real art. What you need to create such artwork is coding or basic knowledge of any computer language. Popular NFT artworks like CryptoPunk and BAYC (Bored Ape Yacht Club), having a net worth of millions, are algorithmically generated.
These tokenized digital assets are more than just artwork, when you buy an NFT from a collection, you get to be a part of a larger influential group. These groups have a limited number of memberships. Many people buy these NFTs, not for the sake of art but to be part of these larger communities.
Many investors and buyers poured a large sum of amounts into these NFTs, hoping to make profits in the future. Is it art, smart investing or gambling remains a question unanswered?
Plus, most of the transactions in the NFT market are only possible with Ethereum. There are other cryptocurrencies too, but Ethereum is the dominant player in this market.
The actual price of buying an NFT
If you wish to try your luck in the NFT market, you can buy one on sites like Opensea and Rarible. There are several platforms on the internet that offer a wide collection of NFTs. But before you dive into the marketplace you must have a digital wallet. Platforms like Metamask and Alphawallet are one of the many platforms which offer the service of wallet creation. Make sure you have some amount of Ethereum in your wallet as it is the most widely accepted currency in the NFT market.
Till now the process seems simple, you create a wallet, you put in some money, you go to an NFT marketplace, and voila! However, there are several additional costs attached to the transaction process. For instance, the Ethereum blockchain network demands a gas fee for every transaction taking place. This fee varies time-to-time depending on the amount of traffic in the marketplace and the number of transactions occurring at that very moment.
Added to this, additional costs like royalty, passive income on secondary sales; making charges, cost of minting an NFT or simply converting a digital object into an NFT; service fees, collected by the platform where the buying & selling process is taking place, are also added to the entire sum total of the transaction while buying an NFT.
A record of every activity is kept on the blockchain. Even though it is impossible to modify or delete data on the blockchain, it is important that you choose other platforms for wallet creation and marketplace discreetly. There are several people who lost their money just because they didn’t choose the right platform for buying an NFT.
NFTs are much more than what people think them to be. The technology can revolutionize the way various sectors work. As for the upcoming digital artists, the support and recognition people believe NFTs can provide is quite debatable. But let’s be honest, what is not debatable in Web 3.0?
If people can buy blank canvases in real life for millions, perhaps there is nothing wrong with a 6-bit algorithmically generated NFT.
