What are NFTs?

You may have noticed the word NFT has been all over the news in recent times. More than ever before, people are eager to wrap their heads around the concept.

It has become so common to hear these words from people “What are NFTs” with some level of curiosity in their voices or faces.

Why would that not be the case when in 2021 we saw acquisition of things that you would never a few years ago have believed could be valuable.

Is it Jack Dorsey’s Tweet that was sold at around $2.9 million?, or Beeple’s Collage of Artworks for $69 Million? or Paks “The Merge” that sold for $91 Million?

So what are NFTs?

NFT is a short form for Non Fungible Token. They are tokens that live on a blockchain and represent ownership of a unique copy of an item.

This unique items could be

1. Artworks,
2. Tweets,
3. Domain Names,
4. Concert Tickets etc. 

Just about anything unique that needs a proof of ownership. I know it still sounds a little complicated, so I am going to further break it down. I will start by explaining what the word Fungible means in NFTs.

Fungible

When you say something is Fungible, it simply means it is interchangeable or replaceable. If however you say something is Non Fungible it means it’s irreplaceable and not interchangeable. So we can as well now call them Non Interchangeable Tokens.

Again is that all? Definitely not. We need to know what the Tokens are in  NFT. Before we go ahead to explain what Tokens are in this context, we need to first discuss the Blockchain. Don’t worry I will simplify it as much as possible for the purpose of understanding.

What is the Blockchain?

 

Over centuries banks have always been that middle man that coordinates transactions between people. 

Let’s take for example, I decided to buy  myself Lunch at my favorite Eatery that’s located in the neighborhood I stay in Lagos. For the sake of this example, we want to assume the name of this eatery is Troozie.

I walk in there and order a Plate of Jollof Rice with Chicken and a Bottle of Soda. The attendant then tells me my money is 2500 Naira and she takes my card to process the transaction on their POS. What happens is that a message is sent to my bank.

The message will be like “ Hey Moyor that has this account with your bank is trying to spend 2500 naira in buying a pack of jollof rice with chicken and soda, and this money needs to go to Troozie Eatery’s bank account.

The bank then looks through my account; as they have a proper documention of every transaction that has happened on my account every single day since the account was opened, up until the moment I requested the Jollof Rice Transaction.

The bank knows my account balance and with this they will determine if i have enough money to purchase the jollof rice or not. So let’s say I have 5000 Naira in my bank account, the bank then can approve that transaction leaving my balance at around 2500 naira.

The same happens with Troozie’s bank account. Once my 2500 lands in their account, let’s say they had a balance of 10,000 naira before, the bank simply adds the 2500 to it in the system and their balance becomes 12,500 naira.

This is just how bank transactions work, numbers on a computer system.  All these transactions are private and happens between just the transacting banks and their respective customers. They are not put out publicly.

The banks have done this for a very long time and they have been fairly reliable. However, there have been a few times they have failed. In fact there are draw backs to using banks for our frequent money transactions with others. A lot of people have pointed hands at some banks as stealing their money in tiny fractions while some just don’t enjoy the charges that come with these transactions.

The rise of the internet has got people wondering how it is possible to do these transactions without the Middle Man (The Bank) in a secured way. This is what brought about the birth of the Blockchain.

Blockchain is the solution that helps two parties carry out a transaction without the need of a bank. Unlike banks, transactions on the blockchain are recorded publicly.

Requests for transactions go on the Public Record where lot’s of people’s computers are keeping track of all transactions going on there.

For example, if I decided to send 20 Crypto Coins to another user on the blockchain, my request is posted on the public ledger and the group of computers in that system approve that transaction when they are able to verify you have enough coins in your wallet to facilitate that transaction.

I hope I have been able to give you a simple understanding of what the Block Chain is?

Now you might be wondering what all of these has to do with some Tweets, Artworks etc. While Blockchain Verifies currency transactions, NFTs require giving currency in exchange for a Digital Certificate that lives on the Block Chain e.g Jack Dorsey’s Tweet.

What’s the relationship between the Blockchain and NFTs?

NFTs as we said earlier can be made from Digital Items like Art, Conncert Tickets, Music, Tweets etc. It is however not these items that are stored on the block chain. It is the Token.

For example, Artwork can be copied and redistributed and in many cases a particular Artwork can be made into an NFT multiple times whether by imposters or a greedy creator.

This shows us two things:

That item might have many versions but every copy is unique and cannot be exchanged for one another. One NFT is not the same as the other as one bitcoin is the same as the other.

Whether or not two NFTs have the same Digital Item, they remain different in value and properties as the Tokens are totally different.

To further explain value of NFTs, let’s take the example below.

Imagine you had the opportunity to buy a Collectible Loafers that was made around 40 years ago.

You walk into the store and you are shown two copies of the same Loafers and you were told both shoes are the same.

The attendant further explains that one was worn by Michael Jackson to perform his signature Moonwalk, while the other was worn by a relatively unknown banker. You then ask about the price and you were told both sell for $12,000 each.

Which are you likely to buy at that price as a Michael Jackson lover? It’s most likely that of Michael.

As a matter of fact, the store would not price both Loafers the same way, even though they are the same exact product but with different serial numbers. The one from Michael Jackson would most likely scream VALUE VALUE VALUE and that’s definitely going to have a huge impact on it’s price.

Another thing I want to point out is this, NFTs should ordinarily be made by the Copyright owner of the Digital Item (which could be the creator of the item or the person they passed the copyright to).

For example Beeple Created 5000 Artworks daily from the Year 2007 till 2021 when he sold the Collage for around 69 Million USD. There are chances that someone else will be able to make an NFT out of Beeple’s Collage, but it’s not likely he would ever be able to sell that NFT to anyone as the Art is well known. Even if they are able to sell, it will never be like the unique copy Beeple sold off. That copy remains openly registered on the Blockchain.

In NFTs the Digital Item is not what Is Stored in the Blockchain, it’s the Token that’s stored there, it cannot be tampered with.

NFT TOKEN

The Token is made up of

• A Token Name
• A Unique Fingerprint
• A Token Symbol

Now that we know a lot about these Tokens and why they are Non Fungible, lets highlight some of its features below:

• These Tokens are stored in the BlockChain and you remain the owner as long as an authrorization don’t come from your end to sell them.
• Their worth is determined by how much people are willing to pay for them at every point in time.
• It can be programmed to give Royalties to the Creator each time it exchanges hands.

 

I hope this article has helped you get a clearer picture of what NFTs are. If you like the article please share with your friends on social media by clicking on the buttons below or by using any other means you can to share.

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