What is a NFT? And why it can be the next big thing in blockchain?
It was a fine February morning, when I was listening to Waveform podcast by Marques Brownlee, one of the most famous Tech You-tubers (also known as MKBHD). I was listening the podcast on spotify. That was the first time when I heard about NFTs. That 40–50 minute podcast really inspired me to discuss and talk about NFTs to my friends and other people as I like it so much. So, I though about writing this article, explaining about NFTs. What are those? I will also be exploring the concept of Blockchain in this article, since that’s the technology that NFTs use. Yes Blockchain, that same technology which cryptocurrencies like Bitcoin and many others use.
First of all, what is Blockchain?
First of all, before diving into the world of NFTs, we need to learn about Blockchain. It is the technology that NFTs use. It’s the exact same technologies that cryptocurrencies use as well. Unless you’ve been living under a rock, you will be knowing all the buzz around cryptocurrencies like Bitcoin and Dogecoin on the internet, news and everywhere else. Everyone wants to invest in cryptocurrencies these days. Now, let’s see more about blockchain.
Explained: Blockchain
As the name suggests, Blockchain means chain of blocks. And these blocks contain information. The main aim of Blockchain technology is to provide a decentralized medium of transactions. Decentralized meaning there is no involvement of third party (like a bank or an institution) in the transaction. It was created to timestamp every digital document, so that it is impossible for the to back date them or tamper with them (just like in notary). Each block represents one transaction, and each of the block contains three types of information:
1. Data: This the most important part of the block. This contains all the information. Such sender, receiver and amount is the data in the blockchain for a Bitcoin. This is the part that is important for most people.
2. Hash: This part helps in uniquely identifying the information block. This acts like a fingerprint or an identifier of the block. This remains unique for each information block. Any change happening inside the block, will change the hash of the block. Hence, this really helps in determining if there is any change of information inside the block.
3. Hash of previous block: This contains the fingerprint or unique identification code of the previous information block in the chain of blocks. This helps in forming the chain of blocks that gives the concept its name. This makes the blockchain technology so secure. If anyone tries to change some information inside the block, it will change the hash of the block. But the original hash of this block is also stored in another block as “Hash of previous block”. So that will be need to changed as well. After changing hash in next block, the fingerprint hash of that block is now also changed and process will needed to be repeated again. This cycle will go on till the chain ends. This is difficult, but not impossible.
To make this more secure, Blockchain uses proof-of-work. It slows down the creation of new blocks. It takes at least ten minutes to add a new block to blockchain in case of Bitcoin, which is quite high for modern computers. Now, if any transaction information is changed in one block, this will change the fingerprint of it, and will take at least ten minutes to create. But, to make it authentic person will have to change the old fingerprint (stored in next block), which will again take ten minutes and will change its fingerprint as well. Hence, by changing one block, it will invalidate the blockchain ahead. This will require lot of time and processing to validate a fraudulent transaction.
P2P makes this system even more secure. P2P enables any user to join the Blockchain network. Each user gets the copy of blockchain. Whenever a new node is added, this gets added to blockchain of every user on this network. This helps in creating a consensus as to what node/block in networks are valid. The nodes which are tempered gets rejected by the system. Hence, for user to successfully create fraudulent transaction, will need to alter not only one blockchain, but also majority of other blockchains on this network being run by other users and redo the proof-of-work for each block, so that transaction can take place. This next to impossible to do. That is why now-a-days blockchain is being adopted to store other data like medical records, tax records and even being used for notary.
Let’s discuss what is a NFT
So basically, NFT is a Non-Fungible Token. This token is basically like a certificate of authenticity which states the particular digital asset is unique and is not interchangeable. It certifies the ownership of this digital asset. This digital asset can be images, videos, audio or any other type of digital files. The NFTs are stored on Blockchain technology, just like in cryptocurrency.
To understand it more easily, let’s compare it to physical unique assets. Let’s say a person buys a unique art piece made by an renowned artist from an art gallery or a museum. When person will purchase this asset at a certain price, he/she will get a certificate of authenticity from the art gallery or museum to state the authenticity of that asset, and stating its ownership. Similarly, if this art peace is a digital asset, maybe a digital image (which is original copy from the creator and is unique), the NFT will act as certificate of authenticity which will certify the ownership and authenticity of the original digital image. This image can have copies of it, but the original image will be owned by the person, who bought it as NFT. NFT will associate the ownership of the digital asset using Blockchain. Basically instead owning certain quantity of cryptocurrency, person will own this digital asset on blockchain. Person also has choice to sell this later on if he/she wishes to.
What can be sold as a NFT?
NFTs can be associated with any asset, which can be represented in any digital document or asset. Like paintings by famous artists can be a PNG or JPEG file, famous sports moments can be in MP4 or in any other video format, original copy of a famous song can be sold as an audio file, even famous Tweets can be sold as a NFT. A famous YouTuber can sell his first YouTube video as NFT, a famous singer can sell recording of fist song as NFT, and there are innumerable possibility available to take advantage of rising popularity of NFTs. Hence, NFT opens up a world of possibilities for creators. Many people also try to earn profit using NFTs, by buying the asset in certain price and then selling at a higher price to earn profit.
First Tweet, that was ever tweeted on the Twitter platform that was tweeted by the CEO and founder Jack Dorsey in 2006, was sold as a NFT for $2.9 Million. An artist Beeple sold his artwork named: “Everydays: the First 5000 Days” for $69.3 Million as a NFT.
This opens up a possibility of for investors to buy digital assets from less renowned creators (who maybe are new to the filed right now) at a cheap rate. To then selling these assets maybe some years later when the creators maybe more renowned and value of his digital art/asset might might have gone up. This also gives an opportunity to these less renowned creators to get some income for themselves. They might also invest this income to maybe upgrade their equipment or skills, so that they can make even better things to sell them as NFTs.
Concerns and Future
The biggest concern regarding NFTs is same as one of the biggest concerns associated with Blockchain in general and use of cryptocurrencies. It is the environmental concerns. Because of P2P and proof-of-work in blockchain, the security increases, but this also increases the processing required for one transaction exponentially. As one transaction needs to be processed by every user on the Blockchain network, this causes unnecessary extra consumption of electricity by the computers. Most of electricity around the world is produced by coal and other non-renewable resources. This will only increase CO2 emissions in our atmosphere and thereby will eventually cause global warming. As NFTs and cryptocurrencies will grow in popularity, so will the consumption of electricity. This is why, Tesla stopped accepting Bitcoins as medium of transaction recently. Until the countries around the world adopt more renewable and cleaner sources, this problem will be a hindrance in industry wide adoption of Blockchain applications like Bitcoins and NFTs.
One last concern is regarding trust in the technology. Many people are afraid in trusting blockchain applications because of the new technology and highly volatile fluctuation of prices in cryptocurrency (since NFTs are also based on similar technology). Also, its going to be an issue to find what should be the exact price of a particular asset. It may happen a person might overpay for something and face huge loss later, or might pay too less thereby causing a loss for seller of the asset.
As people become more aware about this technology, more and more are trusting it. That’s why popularity of cryptocurrencies have skyrocketed. Though, wider adoption of blockchain applications will require to solve the problem of unnecessary consumption of electricity. Especially because most countries and people around the world are trying to adopt a more sustainable way of living.
