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Over the last few months, you’ve probably seen or heard the term NFT, most likely in relation to the millions of dollars being spent on them. But what actually is an NFT? Why are they seemly worth so much? Why do people both love and hate them?

What is an NFT?

NFT stands for Non-Fungible Token. But what is a non-fungible token? Well, brace yourself because this gets pretty dense. ‘Non-fungible’ means unique and unexchangeable, unlike fungible tokens (such as bitcoin or the money in your wallet) which can be exchanged. Essentially, a non-fungible token is a unique piece of code embedded into digital art that acts as a certificate of ownership and authenticity. Usually, it’s for digital art, but really the technology could be used for anything. You might be wondering, how is this different from a regular receipt? Well, it exists on the blockchain, which is sort of like a digital ledger that tracks who owns what (it’s the same technology behind cryptocurrency). For example, if I was to buy an NFT, the blockchain that my NFT is on gets updated to say I own that receipt.

Physical pieces of art are appraised by specialists to determine their worth, who created them, and who owns them. Blockchains that how NFT’s basically do this, but without judging the quality of the art. That’s generally how it works at the moment. However, given the rapidly changing nature of blockchain technology, anything could really be sold as an NFT. But that’s a rabbit hole for a different time.

Source: Pascal Bernardon

The Argument Against NFTs?

The most glaring reason to be against NFTs this their environmental impact. When an artist wants to put something on the blockchain this process is called minting and it requires a decent amount of energy to do. Not to mention this process has to be repeated every time the NFT changes hands. Quartz estimates that one transaction of an NFT is likely to be 14 times the carbon footprint of sending art in the mail. Although, given how new this technology is, there isn’t a lot of academic peer review research out there at the moment to back this figure up. Although programmers Memo Atken, The Digeconomic, and The verge have argued that its number is somewhere in the of 33KgsCO2- 48Kgs CO2 which works out to be somewhere in the neighbourhood of 14 times the effect of physical art.

Outside of the environmental impact, there is also the fact you’re not buying a physical thing. For example, if I was to buy a conventional piece of art I would get the physical piece, with NFTs, however, the actual product only exists digitally. This creates a problem with the idea of ownership.

Influencer Steven Spohn pointed out this problem with an anecdote on Twitter. He mentioned that his friend text him saying he bought his first NFT and then sent him the image. Steven then screenshotted the image cheekily claiming that he’d know double the value of the NFT. And therein lies the issue, it doesn’t make a lot of economic sense to try and monetize something that can be so easily recreated and distributed. This is the same idea that gave Keanu Reeves a chuckle in the now-famous interview with The Verge’s Alex Heath.

The Argument for NFTs

Well, most of them boil down money. People have been making digital art for decades now, basically since computers have existed there have been digital artists. One notable example of this is the artist known as Beeple. For a while, Beeple had been making “everydays”, every day he’d create a digital piece of art. He then created a collage of his first 5000 of these and it sold for $69 million making Beeple in the top three most valuable living artists worldwide.

Naturally, this kind of money gets people talking. Soon every Tom, dick, and Harry saw the buying and selling of NFTs as a way to get rich.

That is also pretty much the same reason that they are worth so much. As with all new technology that is highly volatile, people don’t want to be left out. More broadly as with all art, it’s worth something because somebody somewhere decided it was.

There is also the idea that is potentially the next evolution of art, as what you can do with a digital canvas is theoretically limitless and seen as cheaper and easier than the physical alternative, you don’t have to buy materials or print anything. Up until now, however, it hasn’t really been possible to make any money off it.

With the ever-increasing rise in NFTs, the next few years stand to be very interesting for the world of digital art.

So, should I start investing in NFTs?

I am by no means a financial adviser, but I can’t help but think that NFTs are a bad bet. Because of the decentralised and encrypted nature of the blockchain, anything bought or sold on the blockchain is going to be incredibly volatile. That’s before we even get into all the kinds of bad behaviour that having a decentralised finical system leads to. The most notable among them are money laundering and artificial inflation. These are by no means exclusive to NFTs but the blockchain ensures there are no real viable means of tracing these transactions. For now, I wouldn’t bet more on NFTs than you are willing to lose.

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