WTF is an NFT and how are people making money from them?

Everywhere you look online people are talking about NFT’s and the ridiculous amount of money that is associated with them. Beeple's - Everydays: The First 5000 Days still holds the record for now, after fetching $69 million at Christie's in March 2021 

But what are they and how are people making this money from them. 

What is an actual NFT.  

In short, an NFT represents the ownership of something unique, this can be a solely digital product or a physical item. The abbreviation stands for Non-Fungible Token and what is key to the name is the word fungible. This is what NFTs revolve around. 

So, let's talk about fungibility. Everything is fungible or non-fungible in the world.  

• Fungible = Items that are interchangeable because they are identical to each other.  
• Non-Fungible = They are not interchangeable as they are not identical to each other.  

Some examples …... 

Fungible you do not care which one you get as it holds the same value. Money is a good example; you don’t care about which note you get as long as you get one. However, if that bill had a picture on it that was reversed and it was the only one in the world. That would then become non-Fungible because of its uniqueness and the value of it now is different to every note in the world.  

Another example: There are millions of Adidas Telstar 18 soccer balls in production. But there was only a hand full of these balls that were used in the world cup final in 2018, and only one that the winning goal was scored with.   

These footballs are now non-Fungible as they are unique and can never be replaced.  

Using that example of the football, with an NFT you can now prove that this was the football and it cannot be faked.  

How do you prove this?  

This was always the part that lost me when I heard of NFT.  

Unfortunately, to explain this I need to explain blockchain as well. This would require another video/ Blog of its own and we do not have time for that here, so in short: Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat. A blockchain is essentially a digital book of transactions that is duplicated and distributed across a network of computer systems on the blockchain.  

Using this technology ensures that the ownership is impossible to duplicate.  

Now that you have a fundamental idea of the blockchain let's look at how the process would go. 

1. Fifa have the football  
2. They will register with an exchange (OpenSea, Axie Infinity, or Rarible to name a few) 
3. They will create a token that holds all the information about the football. The game it was played in, the make, and the serial number of the ball. 
4. They will create a smart contract with different clauses in it (which we will touch on later) 
5. They will then put the football up for auction along with the NFT as proof of ownership and authenticity. 
6. People will bid using cryptocurrency (Ethereum being the most common)  
7. Once a bid has been accepted, Fifa will transfer their token (the NFT) from their wallet to the new owner's wallet and send the product as well. 

The new owner now has ownership of the football, a record of who owned the item before them and how much they paid for it.  

Note: This is a simplified version of events just to show you the process of what would usually happen. 

NFT is creating value where there was none before  

How are people making money from NFT’s? 

I am going to use the example of digital art, as this is where most newsworthy transactions are created.  

The question I always asked was, “Why pay that much for digital art that you can download and have on your desktop.” This is the main reason I started to research the topic.  

The answer is yes you can download it, much like you can download any piece of art onto your computer. You can download a copy of the Mona Lisa onto your machine, but it does not mean you own the original or make any money from it. As the NFT is transferred to the new owner the copyright to that piece of work can be as well.  

This would stop anyone from making money off the digital art as you own the copyright to it.  

Each piece of art is put up for auction and people bid on the work, it really is that simple. People are either buying to support the artist or to be a collector and hope the investment grows over time.  

Are digital art valuations any crazier than a painting? If you break a painting down into its components, it is just paint and a canvas that an artist has put together and we the public have decided on its value by purchasing the painting. 

The same can be said for digital art, all it is, is an artist creating art and we the public are putting value onto it by purchasing it at auction.  

Another benefit of using NFTs to sell anything is the ability to add a sell-on clause to the contract. So, if Beeple's Everydays sells for 100 million in ten year's time, as the transaction is all digital he could have a sell-on clause that he will receive 10% of the transaction each time it is sold onwards. This will be done automatically at the point of sale.  

This may be viewed as ridiculous, some may think the tech is sound, while others see it as a way to get rich. My thinking is, it’s is like the Dot Com boom all over again and it will come crashing down eventually. But like the Dot Com crash that soon followed where millions were invested all over the place, that did not get rid of the internet. The technology survived and the internet as we know it is what we got.  

This will crash at some stage and what will be left will be NFT’s as we know it. As we are about to see the technology can be used for more than just digital art.  

The price of a NFT is driven by demand, if there is no demand it is worthless  

Other uses for NFT technology 

Basically, anything that is unique and/or needs proof of ownership.  

• Deeds to a car or house. 
• Tickets to a real-world event. 
• Legal documents. 
• Domain names. 
• In-game purchases. 
• Fashion items. 
• Music. 
• And many more....  

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