NFTs. NFTs. NFTS. New month. New craze. Ey?
What are they? Where do they come from? Why are they here, and are they here to stay?
Join us as we answer these questions and the underlying controversy surrounding NFTs.
What are NFTs?
NFTs stand for non-fungible tokens. Perplexed? You are not alone.
First, let us break down the term fungibility. According to Investopedia, it stands for the ability of a good or asset to be readily interchanged for another of like kind. Basically, fungible means exchangeable or substitutable, think different breakfast cereal varieties. By default, then, non-fungible is the opposite, think DNA (veto, any viologists here on cloning or the like).
In economics, fungible assets are often units that can be exchanged readily on the market, such as money of the same value— i.e., two £10 notes as equivalent to one £20 note. The value is the same, the value is fungible.
In contrast, tokens are simple. Synonymous to vouchers and coupons; day-to-day they’re seen in supermarkets, shops, and online. For NFTs, tokens hold similar meaning. Digital tokens can be thought of as a badge or a license of ownership for assets in the virtual realm. Ownership of these assets is recorded on the blockchain – a digital ledger that is similar to the networks underpinning bitcoin and cryptocurrencies.
So, non-fungible + tokens = non-fungible tokens.
Where do NFTs come from?
Arguably, Coloured Coins are the first NFTs to exist. The era of Coloured Coins dates back to 2012-2013, yet their history of them may be longer than most realize. NFTs most likely date back to near the origins of bitcoin and blockchain. Saying this, NFTs have recently sprung up once again, as they have been experiencing great exponential popularity and growth. This is especially in the world of art, as artists rightfully boast their works as ‘one of a kind’, but this unique aspect may just have been taken to the next level.
How do NFTs work?
Traditionally, paintings, such as those from the Italian Renaissance period like the ‘The Birth of Venus’ by Botticelli (1485-1486), ‘Mona Lisa’ by Leonardo da Vinci (1503-1506), and ‘The Creation of Adam’ by Michelangelo (1512) are not just seen as valuable, but rather defined as such. Partially, this is because of the encompassed history and irreplaceability of the meaning and culture of the times. A nostalgic feeling of such artistic pieces being ‘lost in history.’ In this case, stuck in the 15th – 16th century period.
Zoom to the 21 st century, Non-fungible tokens. With NFTs, artworks (mostly of the digital assortment) can be “tokenized” to create a digital license of ownership or purchasable certificates. Blockchain plays a huge role within NFTs and maintains security and integrity in a similar fashion to cryptocurrency. Put simply, NFTs are blockchain assets designed to hold a specific value, typically measured via Ethereum. So, how does this link to the world of art?
Well, these “crypto-collectibles” recently exploded in popularity. Most recently, a video clip created by the digital artist Beeple (Mike Winkelmann), which originally sold at $67,000 has been branded as an NFT and re-sold on the secondary market for a whopping $6.6M (after Ethereum conversions). This is not a one-off. CryptoPunks NFT sold for $2M. A crypto art rendition of the Nyan Cat meme sold for $590,00 in an online auction. This is a spiraling trend, and it comes at a crippling cost to the environment. Some say it is a craze, a speculative frenzy that may fizzle out, but what if it is here to stay?
The third wave of the Internet has certainly arrived, but at what cost?
The True Cost of NFTs
Emissions must fall intentionally year on year to stall climate change.
Too often we hear ‘better late than never,’ but perhaps on reflection, we should be saying ‘too little too late’. The science. The facts. The data. All of this, and more, point to this impending climate disaster. NFTs-lovers and tree-huggers do not go hand in hand.
Ethereum alone is responsible for 96,200,000 tonnes of Carbon Dioxide since its inception. To contextualize, this is equivalent to the combined annual emissions of 84 countries around the globe. The blockchain farms, with energy-guzzling machines that solve complex mathematical puzzles to keep ledgers and NFT tokens alive, are simultaneously depleting the globe’s resources. Despite these astonishing facts, Nifty Gateway (a marketplace for NFTs) have refused to comment on their carbon usage when Lemercier requested for it, after selling an NFT unaware of the true costs that left him feeling “angry”. Feelings of deception and betrayal have led artists to launch carbon audits on NFTs. It is revealed that the NFTs Grimes dropped on the 28th February 2020 resulted in 122T of carbon. The open edition “The Bitcoin Angel” alone released 468 tons of Carbon Dioxide according to ART news.
Albeit, Nifty Gateway has announced a system transferral from separate transactions to one transaction, in order to reduce the usage of blockchain efficiency, this is yet to avail results. If done correctly, their pledge to go carbon negative within the year will certainly be applauded and awarded.
So, what are your thoughts? Are NFTs fact or fiction in the long run?