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So you sort of know about NFTs. You may have read a couple of articles, grasped what non-fungible means (basically something that’s unique or very limited) and gawped at how much money some pretty cool NFT digital art has been selling for.
But it’s becoming increasingly apparent there’s a lot more to the NFT hype than simply art dealing. Discussions ranging from the real-world potential of NFTs to their impact on the planet are happening across the internet, so what are you missing?
Worry no more, here are the 5 things that perhaps you still don’t quite get about NFTs:
Non-fungible tokens are often mentioned in the same breath as the mind-bending topic of blockchain, but how exactly are they related?
NFTs are a decentralised technology, which means they work on a blockchain.
So what’s a blockchain? It’s basically a shared database (often referred to as distributed but it pretty much means the same thing) with some special properties:
Everyone can have a copy of the blockchain database and verify that their copy is true. Only people who are allowed to make changes to the database are able to make changes.
This makes blockchain perfect for storing things of value, particularly information about valuable assets.
NFTs are an example of something valuable that is stored on a blockchain. They are valuable because they contain the rights to something or the information about something in the digital or physical world that is valuable e.g. they prove that you own an expensive piece of digital art.
The cool thing about having NFTs stored on a blockchain is that because of their shared but secure nature, there is no central authority or company that is in control. This is the special property of blockchain: we can have verifiable digital value stored in a way where there isn’t a central entity in control of it.
One of the most emotive debates about NFTs right now relates to their energy impact and how this aids or damages our fight against the climate crisis. So are NFTs bad for the planet?
The first thing you need to know is that NFTs in themselves don’t produce carbon. Some blockchains do, in the act of running the blockchain. Specifically, it is the chain’s method of producing blocks that can be very energy-intensive. It doesn’t matter what information is in those blocks, it’s the act of creating them that adds to the chain’s overall carbon footprint.
Secondly, there are 2 kinds of blockchain technology:
- Proof of work which first and some second-generation blockchain’s use (such as Bitcoin). This technology uses energy as a way to try and secure the network. So it needs a lot of energy if it stores a lot of value.
- Proof of stake, which pretty much all other major blockchain’s either use or are moving towards. Proof of Stake is around 99% more efficient. This means that creating and sending an NFT on a Proof of Stake blockchain will be roughly similar energy-wise to Tweeting.
Alongside shifts to less energy-demanding technology, the blockchain community is working hard to offset its carbon impact. For example, while the Ethereum network is moving its chain from proof of work to proof of stake, its team minted an NFT that generated enough revenue to offset the carbon cost of every NFT that has since been produced on the network. So even the dirty networks are working to offset their carbon contribution.
Here at CENNZnet in New Zealand, we have built our network using Proof of Stake technology, so any NFTs that are minted on our network are already very low energy usage. On top of that, we also work with local offsetting venture CarbonClick to offset our impact and achieve not just carbon neutral but carbon negative impact.
So what’s the point in an NFT if you can just screenshot the $69 million piece of digital art? The answer: blockchain’s make sure we can all tell what’s a screenshot and what’s the original.
Blockchains are so useful because they provide the ability to verify and authenticate things in the digital world. If we look around us we can see that the world is becoming increasingly digital and as a result, things that we value are going to become more represented as digital assets rather than or as well as in the physical world.
Even before NFTs, there were multi-billion dollar industries selling skins in games or stickers in messaging apps — so it’s not a new concept. But the blockchain provides a way to prove that your copy and paste version is not the real one. Now we can have easy verification in a digital setting and without a third party coming in to authenticate it.
It’s worth also remembering that issues of authenticity also apply to non-digital art. You have always been able to buy a copy of the Mona Lisa or just photograph it. Even if you get that copy nicely framed on your wall — it’s not actually the Mona Lisa — and a busload of art dealers and experts would happily attest to that if they ever tried seriously to suggest that it was.
That being said, we predict that the biggest use cases will be in the finance world. We don’t often see it in our day to day lives, but pretty much all of the financial world runs on non-fungible instruments. For example, a bond has a unique maturity date, amount and interest rate. Your mortgage is non-fungible, as is the house itself and any land. All of these instruments which currently exist in the financial world can now be put into the digital sphere and connected to the world of smart money.
In essence, all of the things which are possible with digital money can now be connected to NFTs and that opens up a whole world of new financial products that you can build in the blockchain and decentralised finance space.
First off we call making an NFT ‘minting’. How easy minting your own NFTs’ is depends on the tools you use. Some platforms require you to have a bit of blockchain coding experience others are much more straightforward and require only a quick point and click UI.
It's worth doing your research before selecting a platform to determine what the process is, and also how easy it is to sell your NFTs once they are minted.
This article was first published at: https://medium.com/centrality/5-things-you-still-dont-know-about-nfts-9efba0abc019
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