What’s an NFT? Gifs, tweets, and cryptokitties
Non-fungible tokens (NFTs) have been gaining hype as of late, but if you asked any random person on the street to explain it to you, chances are few would be able to respond. Just the term itself is confusing; what is fungible and what is a token?
Essentially, NFTs were born of the cryptocurrency boom. They are built upon the blockchain technology Ethereum, which, like Bitcoin, supports cryptocurrencies that can be exchanged without going through an intermediary like a bank. NFTs are like cryptocurrencies — they are digital and can be exchanged without going through an intermediary and are implemented in similar ways. Each NFT however is a unique digital object. Every NFT that exists on the market is digitally different from each other, a different token on the blockchain, making them non-tradable, or, "non-fungible."
Since NFTs can really be anything digital, people are using NFTs to sell a lot of different things. Like the first-published tweet, which the founder of Twitter sold as an NFT for $2.9 million. Or the source code to the World Wide Web, sold by its creator Tim Berners-Lee for $5.4 million. A popular NFT project is CryptoKitties, a game in which you can buy a custom-generated NFT cat called a CryptoKitty and participate in games with your digital pet. People have also sold NFT music, art, videos, memes; the possibilities are endless. NFTs can be incredibly profitable, and since such an extensive range of digital artifacts can be sold as NFTs, they've gained a lot of traction in a short period of time.
The thing is, a lot of these digital tokens can simply be found online for free, even if not purchased as an NFT. For example, an NFT gif of Nyan Cat, which is all over the internet, sold for $600,000. When a consumer purchases an NFT, they're not gaining copyright or sole ownership; they're really gaining bragging rights. What makes their copy of the digital file different from one you could download from the internet is simply that the blockchain allows for a secure way for them to prove that they own their copy, while someone who just right-clicked and saved the image doesn't. NFTs in that sense are like collectible cards in which the reward is less about the physical card itself and more about its rarity. NFTs are also collectible in the sense that they change hands — buyers can resell NFTs for prices much higher than the original, and the original creator of NFTs also can get a cut of profit from resells since ownership is easy to track through blockchain.
It is notable, however, that there is very little regulation over this new emerging technology. Digital content is easy to copy and pirate, and many people find NFTs overhyped when one can just simply find free versions online. Many NFTs, especially NFT artworks, are also illegally stolen and sold from their original creators.
The main concern raised over NFTs is their environmental impact. NFTs, cryptocurrencies, and blockchains in general are energy-guzzlers because they require users of the network to verify every transaction on the network. Each time a transaction is made, such as an NFT being bought or sold, "miners" authenticate the transaction by solving complex puzzles on their machines, which uses up enormous amounts of energy. This is by design, as blockchains want to make it difficult to add transactions and alter the ledger in order to make it more secure and prevent blocks incorrectly being added. As a consequence, it is estimated that a blockchain like Ethereum uses as much energy as the entire country of Libya.
The issues that come with NFTs are not completely unique to NFTs, and are to be expected when a technology gains rapid popularity while regulation is slow to follow. Their environmental issues are also a reflection of society as a whole, using more and more energy. Researchers are experimenting with other options and ways we can make NFTs and blockchain processes generally more environmentally friendly, but in the meantime, opinions on NFTs will likely continue to be polarized.