What are NFTs and How Do They Work?
Also, More Importantly, What They Can Do for Your Business
In recent years, NFTs have become a bit of a buzzword. In this blog we will simplify NFTs for you and put them into layman’s terms. We will also look at their various uses and how your business can benefit from them.
The Concept of Something Being “Non-Fungible”
Non-fungible simply means that something is unique. In other words, it is a one-off and it cannot be exchanged or traded for something else. One NFT is not equal to another, simply because it is an NFT. Each NFT has its own digital signature. Furthermore, they each represent a different underlying asset, with varying value. This is what makes them non-fungible.
Fungible is different. The example, which is often cited as something, which is fungible vs non-fungible, is money. In other words, a £1 coin is fungible. That’s to say you can exchange it for another £1 coin and you will have something which is essentially identical. They are equivalent. Every £1 coin is worth exactly the same.
Another example is if you were in a shop, looking for a size 6 pair of trainers. If you saw a shelf of trainers, all size 6, exactly the same, you wouldn’t care, which pair of trainers, they gave you as they are fungible. They are all the same and completely interchangeable. However, if you bought a pair of trainers, they travelled the world with you and you personalised them in some way, they would become fungible. In other words, they are special and not like every other pair of trainers, the same, size 6, out there.
Hence, NFT stands for non-fungible token. It is a digital token, for something, which is totally unique.
Where do NFTs Exist?
Like cryptocurrency, NFTs exist on a blockchain. And the programming used to build NFTs is the same as for cryptocurrency. The most well known blockchains are Bitcoin and Ethereum.
What is a Blockchain?
Wikipedia gives a pretty straightforward explanation of what a blockchain is:
A shared record of past transactions in a distributed network, typically used for cryptocurrency.
The purpose of a blockchain is basically to be able to record the information regarding an asset, such that it can’t be changed or hacked. In other words it is a digital ledger, which records transactions and these are then copied and disseminated throughout the network on the blockchain. Furthermore, it is a decentralised, chain of blocks, all of which contain information, linked by cryptography. The whole network would need to be in agreement for anything to be changed or altered and it cannot be amended retrospectively. Cryptocurrency exists on the blockchain, however it is different from NFTs. As we have already discussed, currency is fungible, whereas NFTs are non-fungible.
If, like me, you are not technical it can be quite a difficult concept to grasp. However, once you have got your head around it and have a simple understanding of what blockchain and then NFTs are, you can start to understand how they can be useful in business. In my mind, they can potentially really simplify how something is authenticated and transferred from one owner to another.
A Basic Explanation of NFTs
As the name suggests, they are tokens. That’s to say, digital tokens, which are non-fungible. They represent digital assets, such as videos or digital artwork. Think of it like a certificate, which confirms who owns the particular media being minted. It cannot be duplicated or copied or altered in any way.
There are various well known examples of NFTs, which have sold for huge amounts of money. We will look at some examples of NFTs further on in our post. However, the ones people have heard about, which have sold for exceptionally large amounts of money include the first ever tweet. Jack Dorsey, the founder of Twitter sold the tweet, which read “just setting up my twttr” for an unbelievable $2,915,835.47. It was sold in Cryptocurrency and bought by a Malaysian entrepreneur, called Sina Estavi. Just like physical art, its value is dependent on the value, that we as humans put on it. In fact, when Estavi bought the Tweet, he compared it to buying the Mona Lisa painting.
That First Tweet:
This is not just a tweet!
I think years later people will realize the true value of this tweet, like the Mona Lisa painting
@sinaestavi Mar 22, 2021
CryptoPunks is a collection of NFT digital artworks. There are 10 000 of them (6039 male and 3840) all unique and alorithmically generated. The project comes from Larva Labs studio. These CryptoPunks NFTs have recently sold for millions.
It can be hard to comprehend, why someone would spend that much money on something, which you can easily get hold of a copy of. However, if you think of it in the same vein as buying a master piece. You can easily put a copy of a well known painting on your wall, but it is nothing like owning an original. Hence, why the original Tweet, is so valuable. Just like original art, the value of the asset, is totally dependent on what someone will pay for it. Buyers such as Sina Estavi, see the value in a digital asset, just like people see the value in a physical one.
If you have something you would like to digitise and create an NFT from, Veksa can build this for you from scratch. And create your NFT.
Industries and NFTs
The case use most well known for NFTs is digital art. The CryptoPunk series, mentioned above, is an example of NFTs as digital art. The Charlie Bit my Finger, YouTube video sold last year as an NFT for $760,699. The Nyan Cat Gif an animated meme, sold for around $580 000. So you can see how NFTs can be used effectively to sell viral videos, tweets and memes. NFTs can be used to sell digital collectibles in the same way we sell art in the physical world.
However, there are many other practical uses for NFTs beyond the art world. Many people believe that NFTs are a bubble about to burst. They may be right. However, if you remember, way back in early 2000, the Internet bubble “burst”. But the internet didn’t go away. It adjusted and adapted, and some of the companies that survived are some of the most successful companies in the world today. Amazon, Ebay, Priceline, to name but a few. It is highly likely that NFTs will develop in much the same way. NFTs have created a huge hype and whilst this is unlikely to continue, there are business uses for NFTs, beyond the viral videos and memes etc it is currently known for.
Potential in the NFT Industry
At Veksa our aim is to help our clients to grow. Obviously, artists, software developers and graphic designers can benefit from the trend and boom in NFTs. We are also looking at future applications and how innovative use of NFTs could help people to grow their businesses going forwards.
Property Industry
There is a lot of potential for the use of NFTs in the property industry. It is a slightly different application of NFTs as it would be an acknowledgment and provide proof of ownership for a physical asset. In other words for the sale of a home or building. This article from Forbes, documents a building sale in the US of an apartment with the transfer of ownership via NFTs. The sale in the article includes an apartment and a piece of art by a street artist called Chizz. The apartment had previously been bought with Cryptocurrency in 2017, so it seemed like a good fit. Anyway, have a read of the article, it will give you an idea of how NFTs can be used to facilitate current practices.
The property business is notoriously old school and painfully slow at times, so it may seem like an unlikely candidate for a high-tech revamp. However, there are elements within the whole process, which would greatly benefit from the NFT technology. The whole process is pretty complex with a physical asset, contractual and title documentation. Requiring both in-depth due diligence, surveys (of the physical asset) and ID checks, which could potentially be open to fraud.
NFTs could potentially smooth, simplify and speed up the whole process. And massively reduce the risk of anyone being swindled. The fact that many of the documents involved are extremely old, could also benefit from a digital upgrade.
In addition, NFTs have the potential to broaden the investment or purchase. In other words, by adding a digital asset to the physical asset. For example a piece of art, could be added to the building. Such as the example of the US apartment above. Or maybe a digital footprint of the house being purchased.
Possibility and Opportunity
Are what interest us here at Veksa. The property industry is one such industry, but there are others too. The entertainment industry is another, brimming with possibilities. If you work in any of these industries and would like to build an NFT, then please get in touch with the Veksa team.
The Entertainment Industry and Live Events
Many artists, musicians and other creatives have already delved into the world of NFTs and the metaverse. Here is another article, from Rolling Stone magazine, which extols the potential of NFTs in the music, entertainment and live events worlds. In its words “innovative use cases”, which will transform the live events landscape.
The Rolling Stone article gives come interesting examples of how musicians have used NFTs to enhance their offering and the experience for their fans. The Kings of Leon example really shows how artists who are breaking new ground can get ahead in the NFT game. As well as launching their new album on the usual music services, such as Spotify, they also launched it on an NFT platform called YellowHeart. The NFT version included 3 different types of package, which included live show perks and exclusive audio visual art. In addition, there were also 18 golden tickets, launched in NFT form, which gave the owner front row concert seats at Kings of Leon performances for life.
The Kings of Leon’s promotion is a great example of how NFTs can be used and treated in much the same way as rare pieces of art. It really sets the mind whirring with possibilities of how NFTs can add value create exciting new possibilities for artists and musicians.
The Possibilities are Limitless..
Some other possible uses for NFTs include intellectual property and patents. They can prove and certify ownership, so very useful in this area of business. Academic achievements can be documented in NFTs, there will be no need to issue a hard copy or certificate of anything. The ability to track products through their cycle of manufacture and supply, will be very helpful for businesses. For example, food producers, will be able to prove where their food has come from. NFTs have the potential to provide much more transparency. The gaming industry already uses NFTs and has so much more potential going forwards. The more we move towards the metaverse, the more NFTs will come into their own. ID, legal documents, medical records, invites to events.. there are so many possibilities for NFTs on top of the digital assets, they are mostly being used for now.
Some Examples of Recent NFT Sales of Digital Artwork..
We have already mentioned the CryptoPunks series from Larva Labs. They take up a large number of the top spots for most expensive NFTs ever sold. With figures like $23.7 Million a piece and 10 000 of them, you can be truly inspired by the potential of NFTs.
Beeple or Mike Winkelman is a graphic designer and animator. His digital artworks have sold for millions and are an inspiration for would be, digital artists. His collage, Everydays, the First 5000 Days, is made up of previous work. It sold for a staggering $69.3 Million at Christie’s and was their first purely digital artwork sale. Human ONE, a sculpture, with digital screens, also by Beeple, sold for $25 Million.
The Merge, by Pak sold for an eye-watering $91,8056,519. Unlike the others, this piece of digital artwork, was sold off in units, as if it were shares in a company. Another truly novel approach.
In Conclusion
There are a raft of possibilities for these new NFTs, which have taken the digital art world by storm. If you would like to discuss how they could help to grow your business, then please get in touch and book a 30 minute slot with Veksa. We’d love to chat to you.
