What are NFTs and why are they worth millions?

It is likely for you to have heard about non fungible tokens (NFTs) amidst an explosion of blockchain news in the past year. Hailed as the future of art and a revolution in the metaverse, we take a closer look at what it means.

 

Remember the meme Bad Luck Brian? The cult meme which is often used to describe embarrassing situations is a photo of a blonde teen boy with braces wearing a plaid sweater. It was put up on Reddit in 2012. The face of that schadenfreude-fueled meme sold it for around $36,000 as a non-fungible token (NFT).


So, what is an NFT?


Once upon a time, bitcoin was hailed as the digital answer to sovereign currency, and also declared as the decentralised currency of the future. Well, now NFTs is being touted as the virtual version of collectibles.


The non-fungible here means that it is unique and irreplaceable. Take for example, a bitcoin is fungible - you can trade it for another bitcoin and you will still have the exact same thing.


A non-fungible token on the other hand has unique properties and cannot be exchanged for something else. For instance the Mona Lisa painting cannot be swapped with another item, it is one of a kind. 



Art, GIFs, collectibles, designer sneakers, songs, videos, virtual avatars and video game skins can all be NFTs. Even tweets count. That’s right. Recently, the former Twitter CEO sold his first ever tweet as an NFT for over $2.9 million. Mike Winkelmann, also known as Beeple, recently sold his artwork as an NFT for $69.3 million, which is the third-highest price achieved by a living artist. 


In the digital world, they are seen as assets and are hence traded like real estate. On buying an NFT, people generally receive a certificate of ownership for it, which means the collector now has the “digital bragging rights” on the art. 


How do they work?


Now, you must be wondering why would anyone buy a meme? Isn’t that freely available for everyone online already? Traditional art works such as Van Gogh paintings are valuable because they are one of a kind. 


What you are missing here is with NFTs, art can be “tokenised” with a digital certificate of ownership that can be bought and sold. They may also come with contracts that would allow the artist or the original owner to get a commision for any future sale.


A record of who owns the NFT is stored on blockchain. Well, most NFTs are on the Ethereum blockchain. Yes, Ethereum is a cryptocurrency, much like bitcoin, but its blockchain technology stores specific information in order to support an NFT. 


How to create and sell an NFT?


Let’s say you're an artist and you want to sell your paintings as an NFT. You can upload your work on NFT creation platforms such as OpenSea and Rarible, which do not require you to have any technical blockchain knowledge. 


Subsequent to this, you need to mint your NFT. In other words, tokenise your digital file, so that it can be stored, moved and recorded on the blockchain as an asset. And, in order to tokenise your art, you need to pay a network fee, commonly known as gas fees, to the platform. Once you pay this, your art is open for sale. 


Since NFTs are traded on an ethereum blockchain, it is better if you have a coinbase wallet. You can connect the wallet to the NFT marketplace that you plan on using. These wallets are used to store your cryptocurrencies and any NFTs you buy. 


Image credit: Ethmessages, Unsplash


NFT regulations in India


There are no regulations or ban on using cryptocurrencies in India yet. Since the country does not have any law governing NFTs, people rely on established principles as laid down in the legislation. 


It is clear that NFTs are digital assets and are all about ownership. As per the provisions of the Copyright Act, 1957, the contract for sale of an asset should mention the details of the assignment of rights explicitly, in writing. Once this is compiled, then in accordance with the Act, an NFT holder would be treated as an owner in India. 


The road ahead


Ready or not, experts believe that NFTs will be the future of art and will create a revolution in owning digital assets, especially in a metaverse. 


“It is interesting and exciting to see so many artists, celebrities and brands jumping in on the metaverse and NFT bandwagon. While it is encouraging to see this rapid adoption, most companies are just using the technology as a simple marketing tool which is really just touching the surface of what is possible,” Arad Malhotra, co-founder, Skyless Game Studio tells Forbes.

The word of the year, experts believe, is just getting started and there’s so much more we can explore with NFTs. Imagine you are in your room and at the flick of a switch a 3-D hologram of Van Gogh’s Starry Night appears. Would blow your mind, wouldn't it? NFTs may create such exclusive moments for you in the future. 


"In my opinion, with the right strategy, the future holds much more exciting applications in the industry including sustainable fashion and what I like to call 'philanthropic fashion design," adds Malhotra. 


While NFTs are a great way to support the creator community, there is every chance that you may see it grow into an exclusive digital world in the future where you’ll be given access based on your tokens. From exclusive fashion show seats to club entries in your digital avatars, all it would take is an NFT ownership to access premium life. 


 

Edited by Roshni Shroff

Cover image illustration by Pratyush Thaker

 

Know more about NFTs and how they work here:  


Indian artists discover NFTs, a new way to monetise their creations


NFT BOOM: This Art is Token, Artist Is A Millionaire!