Okay, so this some super strange stuff happening online right now and I need to tell you about it. First, you might have heard about the tweet. The first tweet ever created in the history of Twitter. The tweet is by Jack Dorsey. And this tweet was somehow just purchased for $2,915,835.47 and its not just a tweet, just last month a single JPEG Sold form $69,000,000. The NBA is selling little moments of basketball games for thousands of dollars. This is all sorts of digital things that people are purchasing a version of them for lots of money.
Let’s just understand what are these NFTs and why there’s so much hype on the Internet.
what is NFT?
There are three simple letters that you can understand to understand what’s going on here. Those letters are N-F-T. This story is much bigger than a $600,000 Cat GIF or a $3,000,000. It’s a story about human psychology and how the way we value things is shifting because of technology.
A Technology that some people think may revolutionise our society well at the same time accelerate the climate disaster. Its really nuts, it’s all of these things together.
NFT stands for Non-Fungible Token. One of my issues with this topic is that people throw around things like Blockchain, Crypto, Art, Ledger, NFT and they just expect me to understand what you’re talking about that I didn’t.
Let’s talk about the word “Fungible”. It’s very specific word that economists use has a very precise definition. I want to use a different word for fungible for a second. Let’s just use the word replaceable. NFT stands for Non-Fungible Token.
Example to understand nft :
Let me give you an example of something I feel very strongly about it. Let’s say you want to buy an orange jacket. You want to buy orange jacket from Uniqlo, you go on the Internet and a jacket cost $39. If you purchase one of these jackets for $39, you don’t care what specific jacket they sent to you. They’re gonna make thousands of jackets in your size, send them to stores in the people and they will send one to you. The jacket is fungible. It’s replaceable. As long as you get one that’s identical to the rest is worth the same. They are interchangeable.
This jacket is not replaceable. If I went on to the website and paid $39 for a jacket that was this exact same model, it would not be this jacket. This jacket is non-fungible. That is the only one on the planet that exists. It has emotional value, it has significance. It is a very valuable thing because it is scarce. There is only one of them.
Everything in our economy is one or the other, fungible or non-fungible. A sac of rice fungible. You just want to a sac of rice you don’t care which one of it is.
The Mona Lisa non-fungible. There’s only one. Unsurprisingly non-fungible things are way more valuable responsible. So that’s the ‘NF’ in NFT non-fungible.
What are tokens?
Now lets talk about ‘T’. Token this is a very in any word. To explain this, I have to explain something I have avoided explaining for a very long time, the Blockchain. Luckily, there’s a way to understand this. I’m going to make it painless as possible.
Example to understand Token :
Let’s say I want to buy 3 slices of pizza from my friend Anna. She charges me $6 for these three slices. I don’t use cash anymore so I pull up my debit card, my bank card and I swipe on her little terminal. As soon as I swipe card, a message is sent to my bank and it says hey who has an account in your bank, wants to spend $6 on pizza and that money needs to go to Anna’s bank. This is like the bread and butter of what a bank does all day. They document, every transaction that comes in from other customers, they send out money to other banks.
And at the end of the day they have a tally of all the money that went out of your account and into your account and they can give you a number. They can say based on all of these transactions you have $50 in your bank account and so in that request comes in as I swipe my card, my bank is like okay, so based on all of your transactions you have $50 in your account, I can send $6 to Anna’s bank, approved and they approve the transaction. Once that money comes into Anna’s bank, Anna’s Bank is doing the same thing they’re like Oh cool. She had $80 and now she has $86 and they added to her record.
More and more your money is just a number on a screen. It’s the result of a bunch of transactions. You don’t barter with physical things, you don’t use cash as much. so the bank keeping meticulous records of every transaction becomes really important. We trust the bank to do this correctly, so thank you banks. Banks and another middlemen have been keeping stuff like this running smoothly first centuries.
how blockchain works in nfts?
With the rise of the Internet, people started to wonder, is there a way that we can do the same thing? Coordinate this transaction of transfer of money between two people without the bank? The result is a very clever concept called the Blockchain. The Blockchain fulfils the same thing as the Bank was doing. But instead of doing this privately on my bank account and talking to Anna’s bank, all of the transactions are actually recorded publicly on the Internet. So let’s redo this example in a crypto world. Anna charges me six crypto coins for my three slices. I go to swipe my proverbial bank card to say yes, I want to pay you 6 points.
Instead of bank seeing that request for a transaction and trying to validate it, it goes on public record were a bunch of peoples computers all around the world are keeping track of every single transaction of everyone always.
If I don’t indeed have the six coins in my account to pay Anna, all of the peoples computers who are keeping track of every single transaction will notice that there is a discrepancy. They’ll be like,you don’t have six coins. We’re looking at every transaction ever and you don’t have 6 coins. Your transaction is rejected.
If I do have 6 points, all of the computers looking at the public records will see that request for transaction and will be approved. You have 6 points and now Ann 6 coins. And they’ll write the transaction into the public record. Now Anna having no six extra coins, is now the business of everybody. Everybody now knows that.
The point here is that the group verifies the legitimacy of every transaction by keeping an eye on every transaction to make sure that it adds up.
Okay, so you’re wondering, what does the Blockchain and this public record have anything to do with cat GIFs that sell for $600,000?
So in my pizza example, we talked about Blockchain as a way to verify currency transaction. I pay this much, you paid me this much and everybody knows how much everybody has because it’s all public. But this is where it starts to bend my mind a little bit. What if we apply this to something that isn’t money or currency?
Another example :
Let’s say one day you’re just looking at the ledger and the ledger is like you want to give Anna 6 coins okay, he’s got 6 coins approved and the transaction comes up that’s like a Malaysian businessman wants to give $3,000,000 worth of coins to Jack Dorsey in exchange or a little token or digital certificate that says the tweet is somehow now owned by the Malaysian businessman. The only thing that the Blockchain cares about is does the Malaysian businessman have $3,000,000 worth of coins? and so a bunch of computers all around the world look at the whole entire list of transactions and say like yes, this guy has more than $3,000,000 of coins. They approve the transaction and now it is written in a public record that is unalterable that says that this Malaysian businessman owns this tweet.
The token has been transferred to somebody new non-fungible token NFT. And if there’s anything that gets human psychology to value something, it’s if an entire group validates that it’s real, and that there’s only one of them. There are tens of thousands of NFTs of all kinds.
Some NFTs are sold for millions of dollars :
Some music is being given tokens, lots of art is being minted as tokens and being bought and sold. And then of course there’s NBA Top Shot who’s taking advantage of this.
It’s the weirdest thing. As soon as humans have enough abundance, to have their basic need met, food, shelter, etc.
The next frontier is to create value in things that have no inherent value. The value turns into psychological hype. Excitement around a certain thing.
We’ve been doing that forever. I mean the whole art industry is based on the idea of bunch of people deciding this painting, this little bit of canvas and wood and paint is valuable, and thus it is valuable.
The only difference is we now have the technology to do this in a non physical way using this very sophisticated Internet technology that is maturing very quickly.
Okay, so this is a lot of hype and I know you’re probably thinking like cool, there’s a bunch of people online buying and trading digital art, And there’s millions of dollars worth of cards, I thought you said that this was gonna have the potential to change the world. And I’m getting there but first need to talk about the crazy flip side to the NFT fad.
The reality is that the technology that is the backbone for all of this, the blockchain stuff, relies on the public ledger thing that l talked about. That is the heart and soul conceptually but mechanically like physically, what it relies on is computers doing a bunch of little calculations all day and night forever. This computer are real computers . They don’t have any memory or screens or anything big. All they do is just make little micro calculations all day, all night.
Most NFTs are stored on a blockchain called Etherium. and as of in early April 2021, the Etherium Blockchain is using 33 terawatt hours of electricity. That’s the same amount of power as the country of Serbia. A reminder that generating electricity with it comes from power plants that are burning fossil fuels, that are putting carbon into the atmosphere, which is a big freaking problem.
The power consumption on the Etherium Blockchain is exploding, it quadrupled in the like eight months and it is showing no signs of slowing down. It is a lot of energy. And to think that much energy is not being used to like, move people around or produce things, it’s used to like crunch numbers in a weird computer warehouse somewhere so that somebody can buy a fake token of the thing that we only……. It’s such an ironic moment where it’s like this is all digital, it’s all fake. It’s not real, but it has deeply real world effects.
impact of nft in future :
Talking about what this might mean for our world going forward. This is definitely hype and that’s the whole point. I mean, the speculation markets are all about hype. We see this all the time with new technologies and new things that people get excited about. And they swarm it with their investments and the price goes up, and then something happens.
In the 90s the Internet was taking off and people were just realizing that you could make money on the Internet. You could like make big businesses on the internet.
The stock market surging, 400% five years mainly fueled by so much hype and excitement around these new internet companies.
This rise peaked in March of 2000 and then the bubble burst, and a lot of these companies either went under or completely lost all of this excitement valuation that they had.
But, did that mean the Internet went away? Did that mean that Internet businesses didn’t come back?
No companies went on to reshape our world. Right now I think we’re probably in that stage of NFTs, it’s hype, its novel, exciting, but what it’s doing is it’s pushing our minds to think differently about how we validate and verify things. If I buy house, there is a hole thick stack of paperwork and a bunch of middlemen to make sure that it is very clear who owns the house and how that money gets transferred from one person to another. It is like a nightmare of experience. If suddenly technology exists in that took away the centralised middleman and make transactions between people able to be authenticated, verifiable and much smoother that could change our world.
I’m not here to say the bubble’s gonna burst, or whatever, I don’t know. I just know that this is a crazy moment where we’re getting our heads around a new technology and what it means, and eventually will adapt. This wont be crazy, this would be novel anymore, prices will go down, But the technology that allowed it all to happen will probably stick around.
So this was the article about what NFTs are.
In the next article, we will cover how you can buy and sell NFTs and make money out of it!