What is NFT (Non-Fungible Token)? Why Do People Pay Million Dollars for Easy-to-Copy Digital Products?
What is NFT (Non-Fungible Token)?
Non-Fungible Token (NFT) are digital assets that are unequaled by their shortest definition. It represents many unique digital assets, from collector products to virtual shoes, from virtual game content to digital properties. NFTs are produced using blockchain technology, mostly with Ethereum token standards. However, unlike crypto currencies, they are traded in the ERC-721 and ERC-1155 standards, not in Ethereum’s ERC-20 standard.
With the technological innovations brought by our age, having digital products has become widespread among people and since 2017, more than $ 174 million has been spent on NFTs. Supply and demand balance ensures that prices are determined in NFTs as well as in all assets with value. Due to the unique nature of NFTs, the products sold are considered as collectible items and their values are very high.
What Makes NFTs Valuable?
The fact that all NFTs contain unique information and are easily accessible reveals the advantages of having a product digitally compared to a physical product that has a collection value. By preventing the production and reproduction of counterfeit products, it ensures that all information about the originality of the digital asset is obtained from the previous owner and manufacturer.
Unlike crypto assets, NFTs cannot be exchanged among themselves. The fact that each is unique ensures that each has distinct characteristics and prevents the two entities from being equal. NFTs can think of it as a football match ticket. All tickets are in fact unique, as each ticket will contain different stadiums and dates, the teams to be watched, the seat location, and the personal information of the person buying the ticket, and will provide the owner with a unique view of the stadium, and therefore it is not possible to exchange tickets in an equivalent way.
NFTs also enable artists to produce. By delivering his works to all parts of the world, the production of digital works has become widespread, and it has made it possible to bring together buyers and producers more easily by avoiding intermediary institutions. In addition, in the event that the purchased work changes hands, the rights of the artist are protected with the copyright details, and the producer is also ensured to be a shareholder in subsequent handover. Actor William Shatner, for example, processed digital cards made up of his own photographs and sold them. In the event that these cards change hands, it also gets a share as its producer.
Some of the other features of NFTs are; all of them have a specific area – The content purchased for a game cannot be used in a different game – The products cannot be reproduced and dismantled, there is no such thing as deletion or change because they are processed on the blockchain and with smart contracts, and the originality of each product is transparently is controllable.
High Value NFT Examples
Alien2089, a character belonging to the CryptoPunk game, one of the first produced NFTs, was sold in January 2021 for 605 Ethereum (TRY 6.455.000 with the price of 27.02.2021).
The value of the “Dragon” character in the game named CryptoKitty is 600 Ethereum (6.350.000 TRY with the price dated 27.02.2021).
The “1-1-1” race car in the F1 Delta Time game was sold for 415.9 Ethereum (TRY 4.440.000 at current price of 27.02.2021) in May 2019.
The highest-value NFT sale to date achieved “Everydays: The First 5,000 Days”, which crypto artist Beeple auctioned at Christie’s. The work was the first NFT sold in a historic auction house, marking a new institutional legitimacy for the burgeoning market. The digital art work in jpg format, a compilation of 5 thousand pieces by Beeple, was sold for $ 69.4 million after the auction that started on February 25.
Why Does a Person Pay for NFTs?
Think of it this way: If you’ve played video games for a while in your life and have been in the game, you may have purchased “skins” (clothes) or special weapons (or “items” in general) for your character. especially in online games. This is the essence of the NFT! Think about it: What good is it if an outfit or gun you bought in the game is on fire? It looks almost useless; but still you understand! Why is that? Because this game world is valuable to you, and so you are ready to spend money on these products, even if we have no other benefit than “bragging”.
Of course, hardcore game fanatics will know that sometimes “skins” or special “items” can give characters a variety of traits, so they’re not completely dysfunctional. This also applies to NFT: digital products that can be bought and sold as NFT are not necessarily functional all the time. For example, if a company like Burger King manufactures and sells an NFT like “golden hamburger”, the owner of that NFT can have free meals at Burger King for life. This will give unmatched power to the owner of that NFT.
To better understand this, consider works of art. The rich invest in the stock market or precious metals as well as paintings; Because those unique products can maintain their value in our culture for decades, sometimes even centuries. In another article, we discuss the problems of art trade among the rich in more detail; However, in essence, art is a very important investment tool for pragmatic reasons such as gaining tax advantages, gaining prestige and satisfying aesthetic feelings. NFTs, which are digital versions of this, will also have the same feature.
What is a blockchain?
Blockchain technology, which is often associated with cryptocurrencies, is actually a technological breakthrough that enables digital trust between two people without the need for a third person, while at the same time allowing everyone else to validate the trust between these two people. This trust is built on cryptographic (cryptographic) methods that protect you while you are currently connecting to the internet or shopping with your credit card.
But in blockchain technology, in addition to ordinary cryptographic applications, whatever is stored on distributed computers around the world and follows the authenticity of the blockchain (it could be a cryptocurrency or, as the subject of this article, it could be a piece of digital art), its current owner. and “ledger” that keep track of all the roads it travels until it reaches its current owner. Since these notebooks are not collected in a single center, no single malicious person can change these notebooks in line with their own bad intentions.
All ledgers contain information of all blocks from the beginning block of the respective blockchain to the present day. In other words, data on all purchases and sales of Apple company is available not only in Apple’s accounting department, but also only in China, Turkey, Brazil, Canada, Somalia, and computer users in Apple’s own accounting department. Imagine all these messy and contradictory requests based on the consensus view of the users.
Of course, in this example, “This could consolidate and ruin Apple’s accounting!” You can think. But imagine that this way there are not 3-5, but tens of thousands, or even hundreds of thousands of parties. It is almost impossible to get all of them to have a common behavior; Moreover, they can focus their ambitions on a common goal and act at the same time … Moreover, thanks to cryptographic problems that are difficult to solve, a single party is completely prevented from manipulating the blockchain in a systematic way.