Published: 27th August 2021
What the FAQ: What’s all the fuss about NFTs?
All that glitters ain’t gold. NFTs are taking the world by storm, but they might end up burning us all. Here's all that you need to know
NFTs are not unlike the tazo or pokemon cards we grew up fetching for and collecting. For one, they are deemed to be priceless because they provide you exclusive ownership. And for another, acquiring them costs nothing short of blood, sweat and tears.
However, the one characteristic where they do differ from those souvenirs of childhood is the fact that they are non-interchangeable and non-exchangeable. Basically, once you buy them, you are stuck with them. Also, the blood, sweat and tears that we speak about in case of NFTs are not yours, but of the planet we live on. Confused? Well, here’s our NFT 101 FAQ to help you figure these tokens (pun, of course, intended) of the absurdities that humans get up to in the digital world.
What does the term mean?
NFTs or Non-Fungible Tokens are unique declarations of singular ownership on an item. The said item exists only in the digital sphere and can be anything from art, to a tweet, or a meme, or an audio or video file. The non-fungible part implies that they cannot be exchanged for anything else, making them entirely unique. They are stored on the blockchain in a digital ledger.
How does it work?
Essentially, a blockchain marker that is non-fungible is linked to a unique digital file, via the on-chain metadata. It is the metadata on the marker that sets it apart from the regular blockchain coins, and these are what forms tradable NFTs in the blockchain’s ledger, where the ownership is certified using a cryptographic digital signature. The first NFT was demonstrated in 2014, whereas NFT blockchains have been cropping up since 2017, Ethereum being a prominent one.
Do NFTs have any practical usage?
NFTs are essentially assets, and they do have retail value. The most expensive NFT sold was American digital artist Beeple’s artwork titled, Everydays: The First 5000 Days which was sold for a mind-boggling $69 million. According to CNBC, one new-age digital artist earned $130,000 in five months alone through NFTs. And while digital art was one of the major sellers on the platform, various stakeholders are coming up with ways to make this digital proclamation of asset ownership mainstream. For example, the Singapore government is planning to make graduation and vaccination certificates available in the form of NFTs. Then there are always the quirks of the internet involved, where popular memes are selling at unfathomable prices. And while it is hard to not believe that the bubble will burst sometime soon, there is a good chance that it just might not.
What impact do NFTs have on the environment?
It is perhaps easy to sometimes forget that our usage of the digital space produces emissions and leaves behind a carbon footprint. NFTs function on Proof-of-Work blockchain algorithms which involve a series of steps that consumes incredible amounts of energy, and have an enormous carbon footprint. Apart from the environmental cost of this technology, which Ethereum uses, and has become so popular for, there is also the energy consumed during minting, bidding and selling the NFT. According to CBS, Ethereum annually consumed the energy equivalent of a country such as Qatar. Scientists have also warned that bitcoin might just boil up the earth by 2 degree celsius all on its own. And for all the virtual existence that cryptocurrency and NFTs claim to have, they are essentially minted by physical mining farms that consume ridiculous amounts of energy. For example, digital artist Lemercier shared six artworks on a crypto marketplace called Nifty Gateway in 2020. He found out that in the 10 seconds it took to release the digital artworks, he had generated a carbon footprint that was greater than his studio’s emissions over the last two years.
The environmental cost of NFTs is being calculated on this http://cryptoart.wtf website.