In 2021 a small digital picture known as a “Cryptopunk” sold for $5.59 million dollars. The cryptopunk in question, CryptoPunk #5217, commanded such a high price because it had the unique attributes of…a knit hat.
If you’re rolling your eyes at this, you’re right to do so. But, if you’re thinking that NFTs are nothing more than glorified jpegs, then you might be misleading yourself.
In this post, we’ll go beyond the jpeg craze to explain why NFTs are actually important to the future of tech, creativity, and the internet as a whole. We’ll explain:
- What an NFT actually enables
- Which markets NFTs will disrupt
- The types of NFTs you should pay attention to
If you’re curious to learn more about NFTs, you can also attend a free live workshop hosted by A Little Crypto Curious here.
What is a NFT?
An NFT, or “non-fungible token,” is really a way to identify an original piece of content in the digital space. The problem that NFTs solve is not a new one.
In the physical world, we’ve spent centuries developing ways to tell if an item is authentic or not. The tests for authenticity range from one-of-a-kind items, such as the Mona Lisa, to semi-unique items like driver’s licenses.
As our lives have transitioned to be more digital, the problems of telling if something or someone is authentic have grown. The true reason that NFTs are important, is that they allow for trust to occur in both the digital and physical worlds like never before.
Why Do NFTs Matter?
Let’s take a look at 3 reasons why NFTs are important and the real world implications of them. What is a NFT and how does it benefit participants discussed.
1. NFTs as Memberships
One way that NFTs are being used is to authenticate membership to a group or club. One of the most desirable of these clubs is the NFT known as the Bored Ape Yacht Club (BAYC).
Originally created as a simple art NFT, the Bored Ape Yacht Club has grown into one of the most exclusive groups in the world. The BAYC currently includes:
- Mark Cuban (Billionaire, Shark Tank)
- Steph Curry (NBA Champion)
- Shaqille O’Neal (NBA Champion)
- Steve Aoki (World Famous DJ)
- Eminem (Hip Hop Artist)
- Jimmy Fallon (Talk Show Host)
- + Dozens of others
The beauty of NFTs is that it allows anyone to participate in this exclusive club. If you had purchased a Bored Ape NFT a couple of years ago, you could currently meet and possibly talk to some of the most elite athletes, entertainers, and leaders.
Your ticket for entry? A simple NFT with an ape on it.
If you’re part of the club, you can go to free events hosted by the club. For example, the BAYC recently hosted a weekend of festivities for owners in New York, featuring an actual yacht party and a concert that featured appearances from Chris Rock, Aziz Ansari and The Strokes.
While Bored Ape Yacht Club is a one-of-a-kind club, there are hundreds of other communities and clubs that are formed around different NFT projects. If you love art, for example, you could join the Art Blocks NFT community. If you love music, maybe you want to pick up a Ziggurat NFT and join that community.
One of the reasons why NFTs are important is that they allow for a counterfeit-proof way of creating a community of like-minded individuals who share a passion for something.
And, unlike a gym membership, once you’d like to leave the club, you can actually sell your NFT to someone else and recoup some or all of your investment.
2. NFTs as Royalties
Another group that NFTs are improving is the creator community. Artists, whether they be musicians, writers, or visual artists, have long been underpaid for their work.
Of course, if an artist becomes insanely famous they become insanely rich, but this is the exception not the rule. Most artists struggle to make a living with their art because the current system for compensating them is flawed.
NFTs are changing this by creating a new way for artists to receive royalties on their work. A unique property of NFTs is that the ownership of the piece can be traced in perpetuity. Another unique property is that an NFT can be programmed to do automated actions.
Combining these two traits, artists are able to be paid royalties indefinitely for their art.
Here’s how it works:
- When an artist sells their art to a buyer, the buyer pays them a lump sum
- When that buyer sells that piece of art to another buyer in the future, the artist is automatically given a predetermined royalty on the sale.
Remember the Bored Ape Yacht Club? When the project came out, you could purchase a Bored Ape for $190. There were 10,000 Bored Apes created, so that’s a nice profit for the artists who created them.
But, it doesn’t stop there.
Every time a Bored Ape is sold from one buyer to another, the artists receive a percentage royalty of that sale. So, when an Ape sells for $245,000 (which isn’t uncommon) the artist receives a royalty of 3% or $7,410.
In this way, NFTs enable creatives all around the world to have a sustainable income from their art. This means more people can pursue the creative arts, leading to a more beautiful world for us all.
3. NFTs as Authentication
The third reason that NFTs are important is because they can eliminate counterfeiting both in the virtual world and the physical world.
Because an NFT is permanently written into the blockchain, it’s authenticity can always be checked by looking at its blockchain transactions.
This helps with validating authenticity in the virtual world, but it also can be applied to the real world. What is a NFT is a question new entrants in the space are finding out about.
Imagine that you’re trying to buy a used Rolex watch. You’re about to pay $15,000 so you’re worried that the watch might be a fake. Back in the day, you would only have one of two options. You could trust the seller’s reputation or you could go get the watch authenticated by a Rolex expert, which can be quite costly and a bit of a hassle.
Now, imagine that when Rolex initially produced the watch they also created an NFT to go along with it. This NFT is unique to this watch and when the initial buyer wants to sell the watch, he now sells the Rolex+NFT as a combo.
Now you, as the next buyer of the watch, can look up the origin of that NFT and see that it was indeed created by Rolex and was sold to this particular buyer.
NFTs are important because soon they will allow you to be sure that the products that you’re buying, even in the physical world, are authentic and created by the manufacturer you trust.
NFTs Are Hot Tech
As you can see, NFTs are a lot more than just expensive jpegs. NFTs are actually a new type of technology that can be used for dozens of applications.
What’s most exciting about NFTs is that we’re just in the early stages of their potential. When the internet first came out, people mocked it for being nothing more than a way to send virtual letters to each other (known as email). No one back then could have predicted Amazon, Uber, Doordash, LinkedIn Learning, Netflix, Youtube, Reddit, or the thousands of ways we use the internet today.
Imagine if instead of those people mocking the internet, they had put $100 into Apple or Microsoft or that strange bookstore called Amazon?
Today, the same thing is happening with NFTs. It’s a new day and a new opportunity to be curious rather than dismissive. What is a NFT is quickly being discovered by millions pouring into the space. What and relevance is a NFT is rapidly changing the landscape of crypto.
If you’d like to learn more about NFTs or crypto in general, there are some great guides and workshops at A Little Crypto Curious that we highly recommend.
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