What Is An NFT?

Posted in   NFTs, Crypto   on  December 20, 2022 by  Money Bren0

Nothing in this article is financial advice. The writer is not your financial advisor. Investing contains risk and you can lose money. Consult your own professionals before making investment decisions. This article may contain affiliate links. 

Take a look at this artwork:

If you’re not much of an art buff, this is Guernica.

It’s one of Picasso’s most famous paintings.

The original is currently displayed in the Queen Sofia Museum in Spain.

Of course, there are thousands, maybe even millions of copies of Guernica all around the world – digitals, postcards, prints, replicas, counterfeits.

If you visit Madrid, you can probably buy a replica to hang in your house that looks exactly like the original.

However, obviously there will only ever be one real Guernica.

The one that’s hanging in Queen Sofia Museum.

Now – ponder this.

How do any of us actually know that’s the real one?

We don’t.

Of course, the museum will tell you they have spent millions of dollars on the best appraisers and forensic examiners and historians in the world to verify it’s the real one, and they all said yes, it’s the real one, it has Picasso’s DNA on it, or whatever.

Great. Maybe that’s even true.

But can anyone today know with 150% certainty that it’s truly the real Guernica?

Unless someone actually sat there and watched Picasso paint it, no, they can’t.

However, let’s make this easy.

We’ll concede that yes, it’s the real one.

Now we have a new problem: Preserving and protecting this painting until the end of time.

After all, it’s a one-of-a-kind, priceless, historic treasure. Even a single micro-tear, a single splatter of saliva could ruin it forever.

So what do we do?

We will spend millions of dollars on the best security, protection and preservation. It will be encased in the most indestructible material we have. Every time it’s transported to a new museum, an army of guards will need to escort it. Twenty-four hours a day, seven days a week, it will need world-class security systems and personnel standing guard.

And we need to do this literally forever.

Until the end of time.

All for a painting that only might be the real Guernica.

Sounds a bit … inefficient? Annoying? Expensive?

But that’s the reality of artwork. We stand in the museum and look at a painting enclosed in triple bulletproof glass, and simply need to trust we’re looking at the real painting because they told us so.

What if there was a better way to do this?

So we don’t need to rely on appraisers and historians and forensic scientists?

So we don’t need to protect the artwork with security guards and bulletproof glass?

If we could remove the need for trust, and have technology give us irrefutable proof that this artwork is indeed the real one. If we could remove the need for protection because this same technology could make the artwork literally indestructible.

This is what NFTs can do.

And they’re able to do it because of that cool word you keep hearing:


How NFTs work

NFT stands for Non-Fungible Token.

Fungible is just a fancy word for interchangeable.

For example, the New Zealand dollar.

If I have a $10 note, and you have a $10 note, they are perfectly interchangeable.

My $10 note is worth the same as your $10 note, and they do exactly the same thing.

If I buy candy at the store with my $10 note, or your $10 note, the storekeeper won’t know the difference.

This means New Zealand $10 notes are fungible.

In fact, if you ever studied economics, you’ll remember that one of the characteristics required for money is fungibility – each note and coin must be perfectly interchangeable.

Bitcoin is also fungible.

If you have a Bitcoin, and I have a Bitcoin, nobody can tell the difference. They both do the exact same thing and are worth the same amount.

Non-fungible is the opposite of that.

It’s a fancy word for unique, or one-of-a-kind.

In summary:

  • $10 notes: Fungible
  • Bitcoin: Fungible
  • Picasso’s Guernica: Non-Fungible.

Artwork as an NFT

Digital artwork has now entered the mainstream, but it’s actually been around for decades.

If you think people can do amazing things with paintbrushes, wait until you see what they can do with a computer.

However, until today digital art was mostly worthless because it was so easily copied.

For example, here’s a piece of digital art by well-known NFT artist @pplpleasr:

Ten years ago, the obvious problem with this kind of artwork was you could never sell it, because there’s no way to tell “the original” from any other copy on the internet.

Anyone could just download it and all the copies would be indistinguishable.

Why would anyone buy a digital artwork when infinite copies of it can be created for free at the click of a mouse?

Enter the blockchain.

When a piece of digital art is minted (created) on a blockchain as an NFT, the record of it is now permanent and public.

Like any other token on a blockchain (like a Bitcoin) it can be sent or sold to anyone, but the record of when it was minted and which address minted it will be stuck to it forever.

Therefore, anyone can go and check who minted it and when.

Millions of copies can be created, but it is very easy to tell which is the original – the first one created from the real artist’s address.

All others are fake and worthless.

Now – I know what you’re thinking:

Why would anyone care to own the original of a digital art when you could easily just “right-click” and make a copy of it?

Same reason people want to own the original of Guernica rather than prints.

You can get a replica of Guernica that looks identical to the original to the naked eye. You could literally hang it in your house and tell people it’s the original, and nobody would be able to tell otherwise.

But it won’t even be worth 1% as much.

Only the original is worth anything.

NFTs are exactly the same.

And since the blockchain records who minted the NFT, it’s like a permanent, instantly verifiable signature from the artist. Anyone, at any time, can instantly tell which is the “real” NFT, and which are the worthless copies.

If you don’t understand Bitcoin, this might mean nothing, but if you do, then it should make perfect sense (you can learn how Bitcoin works in my blog post here). The art doesn’t need to be verified because the blockchain is the verification.

Just like it is impossible to create a fake Bitcoin, it is impossible to create a fake NFT.

Case in point: The abovementioned NFT by @pplpleasr is called Apes Together Strong, and was last sold in May 2021 for 36.4 Ethereum ($125,000 USD).

Artist Royalties – A Game Changer

One problem the art world has struggled with is the idea of fairly compensating the artist.

Often when an artwork becomes valuable, it’s after the artist dies, OR it’s after the artist has already sold it.

For example, an artist might sell a collection of paintings, and in ten years time that artist’s work might become very popular. Collectors start selling the paintings on the market for millions of dollars, but the artist gets none of that. It’s just the collectors getting rich.

Think about the Van Gogh family.

The Mona Lisa might be the most valuable painting in the history of humanity, but every time it gets sold for millions of dollars, the Van Gogh family gets none of it.

In fact, Vincent Van Gogh is famous for having died completely penniless, having never sold a painting in his life.

NFTs solve this issue through the royalty feature in the NFT smart contract.

Whenever an artist mints an NFT, they are able to include a royalty clause, so every time the artwork is onsold, the artist will receive a commission (maybe 2% to 10%) straight into their wallet.

Here’s an example from an NFT listed on Opensea:

This ensures that if artwork grows in value, the artist will always share in the success.

Imagine if every time Guernica by Picasso was sold for millions of dollars, 10% was automatically sent to his Ethereum wallet (now presumably owned by his great grandkids).

Art is timeless, and now the benefits to the artist can be timeless too.

Beyond Artwork – The Possibilities For NFTs Are Endless

Because it’s impossible to fake an NFT, and you can instantly verify who owns it, creators can safely add millions in value to their NFTs.

This takes the realm of NFTs beyond artwork to things like trading cards, membership cards, gaming items, music, videos and infinite possibilities more.

For example, Adidas recently dropped an NFT.

This now functions as a lifetime membership card.

Adidas can offer all NFT holders discounts, exclusive deals, access to events, free gifts, free tickets. This increases the NFT’s value.

The owner can keep the NFT and use it, or as the value increases can sell it on the NFT market whenever they wish.

They can safely do this, because the blockchain instantly verifies whether or not an NFT is real. Adidas does not need to worry about counterfeiting or people abusing their NFT, because as we saw earlier – it’s impossible to fake an NFT. They can be sure that all the holders are genuine.

It is possible every major brand name will issue some sort of NFT in the years to come.

The key is in their versatility.

Some are simply art (like @pplpleasr’s Apes Together Strong), some are like trading cards (NBA Topshot) others are membership NFTs (like Adidas and Playboy), many are a combination of the three.

This makes them a natural way to build a community around an audience – if a brand releases an NFT, it makes you more than just a regular Youtube subscriber or Twitter follower. Connect your NFT wallet and you can get VIP access to content regular subscribers may not get (similar to Patreon), all managed and verified via the blockchain.

Two good examples of this are Gary Vee’s VeeFriends and the Nelk Boys’ Meta Card.

Sometimes, it can be as simple as people want to own very expensive NFTs, just like people like to own very expensive artwork like Guernica.

This is why many celebrities such as Justin Bieber and Snoop Dogg were buying Bored Ape NFTs (worth millions of dollars) and putting them as their social media profile pictures.

It’s nothing more than a sign of social status to show you can afford a million-dollar piece of digital art (similar to owning a Ferrari or Rolex).

In many ways, this is the next iteration of the crypto revolution.

Many teenagers and young people have made millions on Bitcoin and cryptocurrency, now they’re looking to develop networks and collaborate, as well as have fun, buy cool art (and flex). Think back to the moon lambo phase of Bitcoin. This was a tradition where if you made a million on crypto, you were supposed to go and buy a Lambourghini because Lambourghini started accepting Bitcoin as payment. Lots of kids were driving around in lambos, now they have Cryptopunks or Bored Apes as their profile pictures.

What’s next?

How To Get Started With Investing In NFTs

Even in a few short years, many digital artists are now making a full-time living selling their art as NFTs.

The technology allows artists to sell their work to buyers worldwide and deliver it safely within seconds.

It is also a way for buyers to be able to make purchases confidently, knowing they are getting the authentic work with no risk of damage, and can resell it easily on sites like Opensea.

Some of the biggest brands and personalities in the world are building communities around NFTs, and more will follow.

If you want to get started in NFTs, here’s a few tips:

Get familiar with the NFT trading sites. These sites are like eBay for NFTs. The established ones are:

Right now, most NFT projects are being built on Ethereum or Solana.

You can also browse the NFT marketplaces on Binance and Crypto.com

If you’d like to use and earn NFTs within games, some popular ones right now are:

Get familiar with the brands that have launched NFTs and what they are doing with them. Some of the biggest brands in the world have jumped into the space, including Coca Cola, Nike, Louis Vuitton and Samsung.

As a word of caution, the NFT space is filled with low-quality projects or outright scams.

Always looks for projects that are launched by legitimate brands or personalities, and that actually offer you some value as a holder. Sometimes, especially in the case of artwork, you might just want to buy something because it’s cool. That’s fine, but don’t expect to make millions from it. Very valuable artwork is rare, and in the digital world it’s no different. In the end, follow the same advice I always give with crypto – don’t invest anything you can’t afford to lose.

Also, most NFT projects will not make much sense to you if you’re not familiar with blockchain and crypto. Educate yourself first.

NFTs are a lot of fun once you see how much is growing and changing in the industry every day.

Good luck and have fun!

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