In the month of August, OpenSea a marketplace for NFTs (Non-Fungible Token), recorded $3bn in trading volume. With the boom of NFTs I wanted to get a better understanding of the ins and outs of what exactly are NFTs, specifically how they are used with digital artwork.
Non-fungible means unique, something that can't be replaced with something else. A dollar is fungible, if we swapped $1 bills, we would both still have a value of $1. Concert tickets with seat assignments on them are non-fungible. Nose-bleed seats don't have the same value as front-row seats. A non-fungible token is a token that shows the digital asset it's connected to is unique.
This token is stored in a decentralized database called blockchains. Decentralized means it isn't controlled by one entity. Blockchains are exactly like their name. They are blocks of data chained together in chronological order. Once a block is stored on the chain, it is set in stone. This makes it very difficult to hack a blockchain. Also since blockchains are decentralized, anybody on the blockchain has access to the data. This means there are always many eyes making sure there are no irregularities.
Cryptocurrency is a digital currency. Crypto is built on blockchains. Instead of a centralized bank keeping track of transactions, every crypto transaction is recorded on the blockchain. This allows for transparency and more trust in the currency. NFT transactions are done with the crypto the blockchain uses.
Smart contracts are digital contracts stored on a blockchain that run when predetermined conditions are met. It is essentially a program on the blockchain that contains if/else statements that run when those conditions are met. For example, the transfer of an NFT from one owner to another. The smart contract will execute when payment is received. This adds to the safety of blockchains because there's no third party involved. The blockchain handles the transaction and the records of the transaction is stored on the blockchain.
All these mediums allow for digital artwork to have ownership. A common talking point from those questioning the crazy prices on some NFTs is, "I can just right-click and save". I can get a copy of the Mona Lisa but that doesn't mean I own the actual Mona Lisa. NFTs prove ownership of the digital artwork. And that is what drives the price up. We've seen the crazy prices paid for physical art pieces. I believe digital artwork paired with NFTs is the modern version of that.
A cool thing about digital artwork is artists have the ability to combine code with their artwork. Bored Ape Yacht Club, a popular collection, recently had a release that mutated one of their collections into new art pieces when a serum was applied to it.
Is this all hype or is this the new age of art ownership? Nobody knows but I believe the current system has a good foundation to build on. It's transparent and safe and could explain why people are trusting it for six even seven figure transactions.