NFTs: Beyond the Meme Hype
Recently NFTs have become the latest trend. And not just in niche circles of cryptocurrency nerds like most blockchain inventions. No, this has really gone mainstream, with everyone from rappers to the guy who created Nyancat selling them. And, of course, Elon Musk.
Currently, they're primarily being used as a slightly faddy way of selling collectables – similar to the Pokemon cards you might have collected as a kid – as well as artwork. NFTs are especially appealing to artists because it's normally difficult to make money from creative works. Not only is it easier than you may think to sell NFTs for large amounts of money, but as with physical art, many people buy primarily to resell. Whenever an NFT is traded, the person who “minted” it gets a cut of the sale price – usually around 10%. So the appeal to artists is obvious. As well as opening up a platform to sell their artwork for serious cash without needing millions of followers on social media, they are also guaranteed royalties whenever it changes hands.
The first NFT app to get popular, back when Ethereum was a new kid on the block, was Crypto Kitties. The NFTs you're reading about today operate under the exact same principle and indeed exact same technology for the most part – albeit with much larger sums of money involved.
But... what actually are they? Are they the future of the creative world or just a fad? And do they have other utility outside of tokenising ownership of art?
Well, NFT stands for non-fungible token. This means they're provably and cryptographically unique. NFTs can be used to represent both digital and physical items. To use an example outside of art, NFTs have also long been used to sell decentralised domain names that work within the Ethereum blockchain or IPFS, a separate decentralised internet project that doesn't rely on a blockchain – but domains for IPFS can and often are purchased for cryptocurrency while the domains themselves operate on blockchains, as decentralised networks and decentralised money go hand in hand.
Those domains can also be used to point to cryptocurrency wallets – so instead of having to copy and paste a random string of numbers and letters to send crypto to someone, you can just enter the domain. The wallet looks up the smart contract for that domain, checks what crypto addresses it's linked to, and sends the coin to it, much the same as how a regular domain is translated by a centralised DNS server into an IP address your browser can use when you visit a website.
Way before anyone outside of Ethereum fans even knew what NFTs were, I bought a few such domains to help facilitate transfers. It makes life much easier when you can just say “send some Ethereum to mycooldomain.eth” instead of “send some Ethereum to 0x895284A4059159E4D8e6c39df6b0Dc98e1a458EE” as I'm sure you can imagine.
Since theoretically an NFT can be used to represent literally anything, and effectively acts as a cryptographically signed contract of ownership, the potential use cases are almost limitless and go beyond not only art but also the digital realm. You could sell physical goods for cryptocurrency and mint NFTs for your customers as proof of purchase, for example, removing the need for centralised markets such as eBay to exist. NFTs could be used as train tickets, with proof you booked a seat on that train connected to your crypto wallet easily scannable as a QR code on your phone.
These examples are of course not nearly as sexy as fancy 3D digital art auctions, but they're the type of thing that is far more likely to catch on as the primary use for NFTs in the long run, and I believe they will as cryptocurrency is only moving further and further into the mainstream. Just recently Visa announced that it believed cryptocurrency was about to become “extremely mainstream” and that it was preparing to accept bitcoin at 70 million payment terminals.
In such a landscape, being able to generate NFTs is an undeniably useful tool for many areas of life. I believe the NFT art craze will begin to die down in the not-too-distant future – although the market will continue to exist, the crazy prices won't – but the primary utility of NFTs will be as part of the ecosystem that pushes cryptocurrency into the mainstream, helping to facilitate purchases of both digital and physical goods around the world.