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As is the case with many blockchain terms, the NFT acronym brings with it a lot of hype and fascination. NFTs, or Non-fungible tokens, are most commonly known as pieces of digital artwork that can sell for incredibly high sums, which has solicited the attention of mass media. While this is a well-known use of NFTs, it is by no means the only thing you need to know about them. NFTs have a huge amount of scope in terms of their uses and play a key role in the mass implementation of blockchains.
How Do NFTs Work?
NFTs are essentially a variation of a coin seen on a blockchain, with the only difference being that an NFT represents something unique that cannot be exchanged like-for-like. That is to say that while each $Algo coin holds the same value and can be swapped for another coin of an equivalent value, NFTs are tokens that represent assets of a subjective value. This means that while two people can exchange one $Algo each and come away with an identical value, they could not exchange one NFT for another as they all represent unique items with subjective worth. So, normal coins are fungible (they represent a set indisputable value), while NFTs are non-fungible (completely unique). The process by which items are converted into NFTs is known as tokenizing as it essentially allows any item to be represented by a digital token that can be bought or sold on a blockchain.
Of course, this has resulted in NFTs being used heavily to tokenize pieces of art, which is a classic example of an item with subjective value. In relation to art, NFTs can be utilized to not only tokenize the art itself but also the associated authentication documents and information that accompany it. This means that NFTs give creators an unprecedented level of security over their intellectual property as their artwork and documentation can be securely stored and timestamped on the blockchain. As is the case with all blockchain innovations, NFTs cut out middlemen like art authentication bodies and allow creators to authenticate their own work on the blockchain. Think of it as a digital patent office for intellectual property. While a traditional painting would have to be authenticated to verify its origins (at great expense), an NFT has a permanent record of when and who created it that can be easily accessed.
One of the most curious things to note about NFTs items in comparison with physical artwork is that the tokens merely represent ownership of these items and are not the item itself. As a result, if you were to purchase the NFT of a JPEG image, you would not actually receive that JPEG image exclusively but rather the title for the registry to it. Furthermore, that should not be confused with copyright for the image, which will remain with the creator unless they also sell you that too. This means that anyone else in the world would be able to obtain an identical copy of that JPEG online. This works in the same way as copies of famous paintings that are in wide circulation. You have no doubt seen t-shirts and mugs with photos of the Mona Lisa printed on them, but it is accepted that these items are not actually the Mona Lisa, which is owned by the French Republic.
NFTs’ Cultural Impact
As mentioned earlier, NFTs have made global headlines in the art world for the astronomical figures they are attracting. The most famous example is the record-breaking “Everydays: the First 5000 Days” JPEG by Mike Winkelmann that sold for $69.3 million at auction in 2020. This is the third-highest sum ever received by a living artist for a piece of their work, which made the world take notice of the arrival of NFTs. However, this was hardly a one-off, with major corporations like the National Basketball Association (NBA) implementing their Top Shot project, which sells NFTs containing videos of various historic basketball highlights. From Twitter Founder Jack Dorsey selling the first-ever tweet for $2.9 million to the Nyan Cat graphic interchange format (GIF) selling for around $600,000, it seems like this is just the beginning of huge sales for NFT artwork.
NFTs Are More Than Just Digital Art
While NFTs are most well-known for tokenizing digital artwork, this is merely scratching the surface of what they can be used for. One emerging application of NFTs is using them as collateral for DeFi loans, which have previously been volatile on blockchains. Through the power of tokenization, investors can receive significant and, most importantly, irreversible securities on loans with NFTs. The scope for NFT applications is limited only by what items can be tokenized, making blockchains far more accessible than ever before. From birth certificates to house titles, the applications are almost endless.
Algorand NFTs
Algorand has strategically positioned itself to be a highly suitable blockchain for facilitating NFT creation. It is extremely affordable to create them there (just 10 cents) in comparison with other blockchains (between $50–$800), making it far more accessible for token creators in the first instance. This means they can feasibly tokenize high volumes of artwork and other assets. Algorand also offers increased levels of savings when users purchase NFTs as they take a remarkably low transaction fee, unlike other blockchains. This combined with Algorand’s impressive, underlying pure proof-of-stake validation protocol has made it the blockchain of choice for many NFT creators.
