What are NFTs?
Before we go into pros and cons of NFTs, lets define what they are. NFTs stand for Non-Fungible Token and are digital representations of various forms of art that are on a blockchain network. Currently, NFTs are mostly represented by digital artwork in the form of gifs, pictures, memes, videos, music, etc.
The non-fungible part is an important aspect of NFTs. Having a non-fungible nature these tokens are a commodity that has not more than one unit. Technically there might be copies of it but these won’t be interchangeable like the one-dollar bill to another dollar bill.
Non-fungible tokens represent one-of-a-kind assets like famous paintings. If we take any famous painting we know that there are only one of these items and replicating the painting doesn’t automatically assign value to the copy. Copying an NFT and saying that it belongs to you is similar to taking a picture of a Lamborghini on the street and saying just because you have the photo you own the car.
The idea of NFT is to create a piece of digital art that won’t have copies and will be owned by one person or an entity.
How Were NFTs Created?
Ethereum (ETH) blockchain was the first cryptocurrency network where the non-fungible token concept initially took off. The ability to create smart contracts was a prime difference between Ethereum and Bitcoin blockchains that laid the ground for the NFTs to be initiated on ETH blockchain versus bitcoin.
Smart contracts act as a platform where developers can create assets of value that are located on a verified and interconnected ledger of communication and ownership.
To put it simply, Ethereum was created to make the best out of digital assets, and NFTs are a great example of what digital assets can become in synergy with blockchain technology.
The first NFT project was done by Canadian software developers Matt Hall and John Watkinson and is called CryptoPunks. The project was publicly launched in 2017 and is a non-fungible token collection residing on the Ethereum blockchain. The CryptoPunks have algorithmically generated 24×24 pixel art images. As of writing this post, the lowest price punk available is
68.4 ETH ($170,995.21 USD). After its first launch the project the total value of all sales to today is $1.93 Billion.
However this project is not the only one that has been accumulating this massive revenue, Top these are the top NFTs: largest tokens by market cap
- Decentraland (MANA)
- Axie Infinity (AXS)
- The Sandbox (SAND)
- Theta Network (THETA)
- Tezos (XTZ)
Pros of NFTs
New Stream of Revenue and Royalties for Artists
Many artists have struggled in their careers in the past and the NFTs were partially designed in a way that would help artists earn more money in a digital world. Simply put, if the artist creates a piece of digital art and sets it up as a non-fungible token to sell, after the sale he/she can receive royalties on it each time an artwork NFT is sold or resold. Each sale transaction will automatically grant the creator of the token a percentage of the proceeds.
NFTs authenticity is verified on the blockchain so they can not be changed or altered in any way. The authenticity of the token is recorded and its inherent value becomes its true value.
NFTs might be similar to classical artwork in their essence, however, In contrast to the traditional collections of art, NFTs can be traded in a more secure and transparent manner. NFTs’ digital signatures are the main driver of security, in this case, delivering the highest level of confidence to the owners.
In addition to trade security, there is storage security that plays an important role with the NFT art. For physical art, being physical already contains the risk of damage or overtime deterioration, on the other hand, the digital assets stay intact and free of any damage from time.
The security measures of transportation are also avoided as NFTs on a contrary to physical artwork live on the internet and are easily accessible from any destination and effortlessly and swiftly transferable from one to another.
Overall, with NFTs, you are guaranteed to have unique ownership of an asset and be authorized through interconnected blockchain technology.
Transparency and Authenticity
Digital creations have long been a part of the internet, but we haven’t had any way of verifying a piece’s authenticity and ownership. As a result of NFTs, we can finally firmly link ownership and creation proof to unique digital assets we acquire or create.
Traceability and scarcity verification are both assured with NFT transactions. Furthermore, these mechanisms allow us to track edition sizes of specific items. Therefore, a single project like The Sandbox project could contain different edition tiers of NFT. You can track your NFT piece as well as the other pieces in the collection.
As technology advances and people start to adjust the virtual as well as digital side of reality, easy access to NFTs becomes more interesting and more fun to collectors. While you’ve been buying physical arts assets previously and hanging them on the walls of your apartment, now you can easily set up a crypto wallet and buy NFTs that live on your smartphone and go everywhere you go, for you to be a part of the community and share the excitement of the groups you are connected with through these art pieces.
The creation of an NFT art project can be done in various ways, you can draw them yourself or make the computer generate them for you with the available open-source code. This code can generate something new and unique from scratch or base it on something already existent. Being able to co-create is one of the additional pros of NFT’s, you can easily base your new NFT ideas on the already existing ideas that are seeing success in the market. Much of the art is co-creation, it has no boundaries in that.
Automated executions after certain events are possible thanks to smart contracts, that are the very core of Ethereum blockchain technology. As an example, A royalty “rider” attached to the contract ensures that the artist gets compensated promptly if the NFT is resold for a profit by the future owner of the art.
Pride of Ownership and Support for the community
NFTs are essentially a work of art, they might sit on your wallet and you might not interact with it much, however, the ownership of the token is what makes the whole idea of NFTs so special.
Imagine if you buy a sports car, you automatically become one of the club members for those sports cars, and most of the collectibles are the same. It’s not the piece that generates the value, but the social connection that it creates.
When you buy an NFT it serves as a ticket to the party where like-minded people share their ideas and interests, it gives you the ability to support the community you love or the artist whose art you appreciate.
Cons of NFTs
Currently NFT worth is based mainly on the sentimental or fragile social value. The market consists of collectors who possess proof of unique ownership, which really translates into being able to show off or to earn money when selling the asset in the future.
Even though NFTs create communities that are currently much celebrated, and despite being fairly new, large sums of money has already been in exchange among collectors, It is also a speculative market having no tangible value behind it.
It's not easy but - NFTs Can Be Stolen
NFTs are safe in the way they are stored and authorized. The ownership is recorded in the blockchain and there is not much a “hacker” can do to compromise it from this point of view unless it hacks the whole blockchain. However, there are ways for them to pick your pockets if you are to follow deceitful links or false communities.
NFTs have been the target of a few security breaches, especially from hackers who don’t believe they’re “real” investments. Overall, there are two most common ways of stealing your NFTs
- Exploitation of the Platforms
- Deceptive instructions or links
In the first case, as the market is still fairly new, there are many NFT platforms that have security protocols that seem to be quite inefficient. Hackers take advantage of those exchanges and can get hold of the assets if you put your NFTs in the wrong place.
The second case is when you are deceptively offered a link, from which the third party gets access to your entire wallet and is able to get hold of your creations and purchases.
It is well known that blockchain transactions and crypto activity are very energy-intensive. The same is true for NFTs, creation, and sale of which consumes a lot of power. This fact has been mentioned in many scientific journals, which claim that an already rapidly depleting environment could be further adversely affected by a growing NFT market.
Ownership Doesn’t Equal Control
When you acquire a certain art piece and you are the sole owner of the asset, you soon realize that the digital art piece can be copied and redistributed without your actual consent. You do own the original version of it, however, you don’t have control over its distribution across platforms.
The big bubble Burst
Even though the NFTs market is quite speculative there are still many people who believe that the market stands on solid ground, so people and even companies who want to get on the hype and purchase NFTs. However the bigger the bubble the bigger the chance of its bursting. A number of influencers are already talking about the big burst, however, the idea that there will be survivor NFT projects worth far more after the crisis, raises the hope for the collectors to keep the digital heat on.