The sale of the first-ever NFT, “Quantum,” made history by fetching a staggering $1.4 million at Sotheby’s Natively Digital auction. The artist Kevin McCoy created the digital art token on the Namecoin blockchain on May 2, 2014, using technology developed by coder Anil Dash. When the duo first demonstrated their creation at the New Museum in New York City, the audience was not impressed. However, today, Quantum has caused massive disruptions in the digital art market by fetching a price typical of physical artworks created by the likes of Pablo Ruiz Picasso and Vincent van Gogh. If one is surprised by the price at which this digital art was sold, there is an NFT that was auctioned off by Christie’s for $69.3 million now digest that! The NFT, “Everydays: The First 5000 Days,” created by digital artist Mike Winkelmann, known as Beeple, became the most expensive NFT artwork ever sold.
Unsurprisingly, artists and celebrities worldwide are now embracing the idea of NFTs to monetize their work. In a recent instance from India, legendary actor Amitabh Bachchan released a series of NFTs earlier this year, which generated a record $966,000 in sales, the highest ever in India. As the creation and sale of NFTs continue to set new benchmarks in the digital art market, NFT sales have surged to $10.7 billion in the third quarter of 2021, an eight-fold increase from the previous quarter, according to DappRadar, a global app store for decentralized apps.
Read more: The Future of NFTs: Exploring the Potential of Non-Fungible Tokens
All this sounds exciting! But what is NFT?
To gain a better understanding of non-fungible tokens (NFTs), one must first understand the technology that made them possible: blockchain. Blockchain is a distributed ledger that is shared among the nodes of a computing network. Each entry into the ledger represents a block of information that is immutable due to cryptography. Any new data entry is authenticated and recorded by the computing nodes based on the previous entries. This makes it impossible to hack and modify information on a blockchain network, as one must first decode the information and then change the chain of related entries accordingly. Furthermore, blockchains are enormous; for instance, a blockchain of size 360 GB, with each block in the blockchain being the size of 1MB, and the time required to create a block, i.e., approve a transaction by computing nodes, is 10 minutes. Even if a hacker decodes information of a block, which is rare, spending 10 minutes on each of the 360*1024 blocks is impossible.
Why Blockchain for NFT Creation?
Blockchain’s promise of uncompromisable security makes it an ideal platform to trade valuable assets. It resulted in the creation of Bitcoin, the first cryptocurrency, which is nothing but encrypted and tokenized information representing some value stored in the blocks on a blockchain network. Whenever a new transaction happens, the computing nodes with the distributed ledger verify the series of transactions that authenticate and transfer Bitcoins from one person to another. The transactions are executed without a central authority overseeing them, as is the case with the current banking setup. Blockchain has the potential to revolutionize the way people bank.
Although Bitcoins act like traditional currencies and can be traded for products or services, making them fungible assets, there are no unique Bitcoins. The same is true of dollars. However, by making a crypto token unique and verifying its uniqueness with blockchain, the idea of NFTs was born.
Read more: Blockchain: A Sustainable Future or Energy Drain?
Why NFTs Cost So Much?
To understand NFTs, consider the example of the famous Mona Lisa painting. The original painting is in the Louvre Museum in Paris, and there may be millions of physical or digital copies around the world. However, the value of the original painting is unmatched by any copy, as being the only one of its kind adds emotional value that is often priceless. NFTs, bring this element of uniqueness to the digital world. Operating similarly to a cryptocurrency, an NFT token represents a work of art and verifies its authenticity and authorship thanks to the blockchain network on which it is hosted. Each NFT token created is unique and cannot be replaced by another token. This is why NFTs are non-fungible. In conclusion, while there can be multiple copies of “Quantum” and “Everydays: The First 5000 Days,” the NFTs representing these digital assets are the only ones of their kind and are therefore highly valuable.
