Non-Fungible Token or NFT. Have you seen this abbreviation in the media lately and wondered what on earth are they talking about? It is like the feeling you get when teenagers come up with some new street slang and you realise that you are finally middle-aged, and the world has slipped you by.
It is sort of like the feeling when you first heard punk music and you were brought up on classic rock music and punk sounded like noise, to me at least! The influence of punk music and subculture quickly spread worldwide, and punk music rejected affiliation with the mainstream. So, in that sense, NFTs/ Blockchain is analogous to punk music. There is nothing like a wave of news about NFTs to leave you thinking, “Um… what’s going on here?”
A recent article from Forbes explained that NFTs seem to have exploded out of the ether this year. From art and music to real estate, these digital assets are selling like 17th-century exotic Dutch tulips.
But are NFTs worth the money or the hype? Look what happened to the tulip market! The Dutch tulip- bulb-market bubble, known as “tulip mania”, was one of the most infamous market bubbles and crashes of all time. It occurred in Holland during the early to mid-1600s when speculation drove the value of tulip bulbs to extremes. At the height of the market, the most exclusive tulip bulbs traded for as much as five times the average person's yearly salary. Today, the tulip mania serves as a warning for the pitfalls that excessive greed and speculation can lead to.
Some pundits say NFTs are a bubble set to burst, like the stock market crash of 1929, or the 1989 Japanese real estate bubble or the internet bubble in March 2000. On the other hand, there are many who believe that NFTs are here to stay and that they will change the way investing works forever.
“The average monthly trading volumes of NFTs jumped from $64 million in the first half of 2021 to more than $750 million in the second half. Now the NFT space is a $41 billion industry with thousands being traded daily.” - The Ledger.
The Forbes article goes on to say that an NFT is a digital asset that represents real-world objects like art, music and collectibles. They are traded online, usually with cryptocurrency and they are generally encoded with the same underlying software as many cryptos.
NFTs have been around for about 7 years, and they are only recently coming into the public consciousness. They are becoming an increasingly popular way to buy and sell digital collectibles and there are plenty of stories online about 12-year olds making small fortunes in a day using NFTs.
It’s generally built using the same kind of computer programming as cryptocurrency, like Bitcoin or Ethereum but that’s where the comparison ends. In short, NFTs are unique tokens that exist on blockchain networks and confirm ownership over a digital or physical asset.
In economic terms, fungibility is the property or a good or commodity whose individual units are in essence interchangeable and each of whose parts is indistinguishable from another part. Physical money and cryptocurrencies are “fungible,” meaning they are replaceable by another identical item i.e., they are equal in value - one dollar is always worth another dollar; one Bitcoin is always equal to another Bitcoin. Crypto’s fungibility makes it a trusted and reliable means of handling transactions on the blockchain.
Confused? It is hard to wrap one’s brain around the terminology, so let’s go back a step. We need to start with some basic information about the underlying technology, blockchain.
Initially, blockchain was just the computer term for how to construct, structure and share data. Blockchains are a novel approach to the distributed database. The improvement comes from incorporating old technology in new ways. One way to think about blockchains is as distributed databases that a group of individuals control and that these distributed databases store and share specific information.
There are many different types of blockchains and blockchain applications. Blockchain is an all-embracing technology that is integrated across platforms and hardware all over the world. A blockchain is a data structure that makes it possible to create a digital ledger of data and share it among a network of independent parties.
Crypto’s fungibility makes it a trusted and reliable means of handling transactions on the blockchain.
Blockchain categories do not compete as each type was developed separately to suit different requirements and operations. For example, public blockchains are typically chosen for cryptocurrency and peer-to-peer transactions, while private infrastructure is more effective for tasks like supply-chain management and record-keeping for organisations with fewer transaction requirements.
As for permissioned blockchains, their ability to be customised better suits financial houses and other organisations that want to control who can participate in the network and their access levels. Permission blockchains are emerging as a middle ground between public and private because of their access control layer and customisability.
Each type of blockchain serves its specialised requirements in commerce. The discussion is not around which type of blockchain is best, but which is the better for each use, case and organisational structure.
Are NFTs worth the hype and money? It has certainly seen exponential growth in popularity among investors and artists!
“Blockchains are now recognised as the “fifth evolution” of computing, the missing trust layer for the Internet. Blockchains create trust in digital data. When information has been written into a blockchain database, it’s very difficult and almost impossible to remove or change it. This capability has never existed before.” - Dinesh Jain, prominent blockchain writer.
So now that we have a basic understanding of the underlying technology, let's see what we can do with NFTs.
At a very high level, most NFTs are created by using the Ethereum blockchain. Ethereum is a cryptocurrency, like bitcoin or dogecoin. NFTs are meant to give you something that cannot be replicated: i.e., Ownership of artwork (though the artist can still retain the copyright and reproduction rights, just like with physical artwork). To put it in terms of physical art collecting: anyone can buy a Picasso print. But only one individual entity can own the original.
NFTs are tokens that one can use to represent confirmed ownership of distinctive items. They allow us to tokenize things like art, collectibles, and even real estate. They can only have one certified owner at a time, and they're usually secured by the Ethereum blockchain – no one can modify the record of ownership or copy/paste a new NFT into existence.
The most obvious benefit of NFTs is their potential to make markets friction-free. The conversion of a real-world asset into a digital one can streamline processes, eliminate intermediaries, enhance supply chains and strengthen security.
Just like physical art, NFTs can have only one exclusive owner at a time.
Future Use for NFTs
So far, NFTs have been mainly used as a certificate of authenticity with digital artwork. But their use cases are rapidly evolving - today, they can demonstrate ownership and give special access to VIP perks, exclusive content, and rights to certain assets.
About the Author
Martin is well recognised as one of the leading voices of the outsourcing / shared services industry and its role in facilitating outsourcing success throughout the Asia Pacific. Martin was voted into the top five most influential and respected people in the global call centre outsourcing industry in 2014.
Martin is an accomplished writer and public speaker and has delivered keynote addresses at BPO - ICT and Shared Services conferences in Australia, Bangladesh, China, Hong Kong, India, Korea, Malaysia, Mauritius, the Middle East, The Philippines, Singapore, Thailand and USA.
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