Rohan Arora ’22 is a philosophy, politics, and economics (PPE) major from Edison, NJ.
In continuing with my push for financial literacy in the midst of a sort of stock investing boom, today I wanted to break down and analyze the concept of NFTs. Non-Fungible tokens, or NFTs are a new unit of blockchain data. The distinction between regular cryptocurrency units like Bitcoin or Ethereum and an NFT is important to understand; NFTs are explicitly unique, or Non fungible. Bitcoin is all uniform in value to a degree; one bitcoin at point x in person A’s account is always going to be worth the same as one bitcoin in person B’s at the same point in time. As such, theoretically, person A and B could exchange one bitcoin with each other and effectively have the same item.
NFTs may be in similar formats or of similar items, but they are all unique and individual assets. Most NFT’s are on the Ethereum blockchain, along with cryptocurrency. For those unfamiliar with what blockchain is, think of it very basically as an extensive and encoded database of transactions between entities that exists online. NFT’s are stored on the blockchain with more information than cryptocurrency, which is what makes them unique unlike regular cryptocurrency units.
A vast majority of NFTs now are digital artwork. Artists have started publishing and selling NFTs to certify ownership of their created digital media including pictures, videos, gifs and more. Now, this is where things get weird. When you purchase an NFT, you don’t necessarily ‘own’ the artwork in the conventional sense, as with a real painting. The artist can, and usually does, own the copyright and reproduction rights of the work. Also, the art/media behind many of these NFTs can usually be accessed for free, by anyone with a laptop and enough knowledge of the media to type it into Google.
The NFT itself seeks to grant ownership uniquely to one consumer/user, with the additional data in the blockchain certifying this ownership. This could be anything from complete and total ownership (this is very uncommon), to just a ‘data entry’ in the blockchain effectively certifying one’s ownership. Another kink in the works, though, is that theoretically the merchant selling an NFT could sell more than one NFT for one work of art, and not inform any of the consumers that there is more than one in existence. However, at this point, the market has been largely transparent, with many commodities either being explicitly one-of-a-kind, or serial-numbered to indicate how many similar NFTs are in existence. Also, a benefit of the blockchain is that these records seek to minimize fraud and theft among art collectors, so this would implicitly discourage double-dealing practices at the source.
NFTs are considered assets just as a stock or cryptocurrency might; individuals can potentially speculate on the future value of some of these works and purchase NFTs intelligently to maximize profit down the line, like one can also do with physical artwork. But artwork isn’t where the buck stops with NFTs: articles, trading cards and even tweets can be sold as NFTs.
NFTs seem to have a lot of hype behind them, at least in terms of the predicted market value. Some are treating NFTs like glorified baseball cards. At the same time, NFTs are seen as the future of trading unique commodities, especially as society progresses to become increasingly connected and digital. As with most publicly traded and sold goods, demand will largely drive the value and performance of NFTs, and we can only watch and see how the market ends up. And who knows, maybe we’ll buy a few pieces of digital art along the way!