NFTs have become all the rage in certain circles, but a lot of people are still scratching their heads trying to figure out what they are and why (or if) they matter. In this article, NFTs and blockchain technology will both be explained briefly in plain English, as well as how they are being used by both individuals and businesses for a wide range of purposes, including events.
NFT 101: The Basics of Non-Fungible Tokens
Let’s say a friend approaches you, pulls a one-dollar bill out their wallet and says, “Hey, I’ll trade you this one-dollar bill for your one-dollar bill.” You might wonder what in the world your friend is up to, but you agree to the trade because every dollar bill in circulation is worth the same amount—a dollar is a dollar is a dollar because they’re interchangeable.
There’s nothing especially unique about any given dollar bill versus another. That’s the definition of fungible: interchangeable. If something is non-fungible, then it is considered unique or one-of-kind.
The original Mona Lisa painting is non-fungible because there’s only one. Yes, there are all kinds of reproductions of the Mona Lisa, but there’s only one original. This is true of all original artwork, which is why it’s important to be able to prove if you have the original with some kind of certificate of authenticity tracing the ownership of the original from previous owners to you.
The acronym NFT stands for non-fungible token. It acts as a kind of digital certificate of authenticity proving you own the original version of something, which could be a digital photo, meme, video file, audio file, and so on. The interesting thing is that owning an NFT does not grant you any kind of copyright or intellectual property rights over the item in the physical world.
All it grants you is “bragging rights” that you own the original, which lives online. Where is the “certificate of authenticity” proving you own the original? The data about the item is contained in a data block that exists on the blockchain. This is where you might be wondering what this whole blockchain thing is about.
Blockchain 101: How Blockchain Works Securely
A blockchain is a digital, decentralized, public ledger that records transaction details and tracks the movement of digital assets from person to person. It is encrypted and widely distributed to all members of the blockchain network, making it basically immutable, meaning it can’t be changed or tampered with in any way. Once data is entered on a blockchain and verified, it is permanent and cannot be altered.
What blockchain does is allow people to transfer digital assets to someone else without needing a third-party entity to manage it. In the physical world, to transfer money to someone, you have to go through a third-party entity like a bank to get it done, and it’s going to take some time for the transaction to happen. Blockchain eliminates the need for a third-party entity to get involved, and because it’s all digital, transactions are much faster (nearly instantaneous).
Blockchain has mostly been used to manage transactions of cryptocurrencies like Bitcoin, but it can be used to facilitate and validate transactions of any type, such as the transfer of ownership of an NFT from one person to another.
The way you interact with a blockchain is through a token, and you do that by using your unique private access key. If you own an NFT and are selling it to someone else, you sign the token using your private key and send it off to the person buying it. The NFT has now changed ownership.
It’s also worth mentioning that NFT and blockchain technologies do in fact require the use of a lot of electricity, which means there can be a significant climate impact depending on how that electricity is produced.
How NFTs Are Being Used
What makes headlines right now around NFTs are those that sell for ridiculous amounts of money. Twitter founder Jack Dorsey sold his first-ever Tweet as an NFT for $2.9 million. Christie’s auctioned off digital artist Beeple’s “Everydays: the First 5000 Days” for an eye-popping $63.9 million. The creator of the Doge meme sold the original as an NFT for $4 million. Again, all these buyers are getting is the “bragging rights” that they own the original. Essentially, anything that can be considered collectible can be turned into an NFT someone will want to buy.
Artists are using NFTs as a new way to sell their work. This is important because NFTs can be set up in such a way that every time it is sold to a new owner, the creator can get a percentage of the sale as a royalty. Musicians are releasing NFT versions of tracks, albums, and live concert clips as a way to make up for so much lost income because of the pandemic.
Some big brand-name corporations are using NFTs for marketing purposes. Marvel is producing sets of NFTs for some of its superheroes, including Spiderman and Captain America so far. Both Pizza Hut and Taco Bell are selling NFTs. Pizza Hut’s first attempt in a series of 8-bit versions of favorite menu items sold for $8,824. Nike is figuring out a way to use NFTs linked to physical pairs of sneakers.
Tickets for events all kinds could be converted into NFTs. One advantage of this is that the rules could be set up in a way that NFT ticketholders could sell their tickets to someone else if they cannot attend the event, but only for the same amount they paid for them, which would effectively eliminate the problem of ticket scalping. Those rules could also be set so that after the event has taken place, the NFT tickets become collectibles that can be sold for whatever price buyers are willing to pay.
Companies managing and hosting virtual and hybrid events are also looking to integrate NFTs, whether for ticketing, gamification, event swag, and so on. All of which is to say that NFTs appear to be here to stay, and the sky is the limit when it comes to how they can be used across many different industries and sectors in the digital era of the twenty-first century.