Non-fungible tokens, better known as NFTs, have seemed to become an overnight sensation. In reality, though, they have been around since 2014. The reason these tokens have become so popular recently is because of their connection to the digital artwork. While NFTs seem to have an ever-expanding market with numerous ideas of implementing them in prospective projects, there are many controversies surrounding them‒including their costs to the environment.
What is an NFT?
An NFT is a digital asset with a unique identifying code that ties it to a real-life object like art, music, and even videos. People can buy and sell these tokens via cryptocurrencies. NFTs themselves are encoded with similar software to cryptocurrencies. The hype around NFTs started when Mike Winklemann, also known as Beeple, turned a collage of 5,000 of his artworks into an NFT named “EVERYDAYS: The First 5000 Days”. The token was sold at Christie’s, a famous auction house, for $69.3 million, taking the internet by storm.
How Do NFTs Work?
NFTs are minted bearing in mind that they can represent a large plethora of objects‒including things that do not exist in a tangible form. Besides those already mentioned, NFTs are well known for representing GIFs, sports highlights, collectible items, and even virtual avatars. Twitter has been the most recent addition to the trend, with the platform allowing users to authenticate their NFT and show it off as a special hexagonal profile picture. Of course, this is also beneficial to the company as only premium users can avail this feature using Twitter Blue. Even before the introduction of the new feature, Jack Dorsey, the co-founder of Twitter, made headlines selling his first tweet ever written as an NFT for $2.9 million. Not only tweets, famed basketball player LeBron James’ video of a slam dunk shot sold for $200,000, and the GIF of Nyan Cat, an animation featuring a cat in space, sold for $600,000. The extravagant prices such as these are why NFTs are drawing a lot of attention. The general public can still search up various versions of these items and easily save them and claim them as their own. NFTs still work because they allow the owner to have digital tokens to show that they truly own the assets. Fungible means one thing that can be traded for another, so NFTs work on the basis that each token is separate and unique‒even if it is the copy of the same image. In particular, artists and creators are invested in NFTs because the creator of an NFT can add information inside the NFT’s metadata to customize it with a signature. The creator also has the right to decide how many duplicates of the NFT can be made‒even after the ownership of an NFT is sold. The new buyer needs permission from the original creator to make a copy since each NFT is considered a different object. Sometimes the artists can also design an NFT to receive a portion of the profit from future sales made off of it.
How are NFTs Different from Electronic Currency?
Digital currency refers to electronic money that is stored online. Its value can directly amount to cash and be withdrawn from a bank or ATM. On the other hand, cryptocurrency is encrypted and is not regulated through a bank. Cryptocurrencies are the chosen means to buy and sell NFTs because of their transparency and accessibility. Cryptocurrencies make use of blockchain technology which stores data in a vast network of public computers that allows any user to easily view another’s transactions. This online ledger records transactions and is tamper-proof because it is decentralized and maintained by a community. The main difference between NFTs and cryptocurrencies is that each unit of a cryptocurrency is interchangeable with another unit, but in case of NFTs, each piece is valued differently.
Are NFTs Safe?
The value of NFTs largely depends on the amount of money others are willing to spend on them. It is harder to predict the trends in prices of NFTs compared to stock prices because they are not dependent on economic indicators. The investment into NFTs can go both ways, with either the resale value being lower than the initial cost price or selling them for an outrageous price. Another factor to consider before investing is the tax to be paid on NFTs, which varies from country to country. There may be capital gains tax or a collectibles tax imposed on the ownership of NFTs or even cryptocurrencies, so it is essential to consult a professional before investing in it. There are also many scams to look out for, as was the case with two projects by “Monkey Kingdom” and “Fractal”,, respectively on Discord, a free communication platform. Users of the discord servers had their crypto wallets connected to receive free NFTs but were instead scammed when hackers created a fake link. Users on Fractal lost around $150,000, and those on Monkey Kingdom lost about $1.3 million.
The Controversy Surrounding NFTs and the Environment
The environmental concerns about NFTs mostly stem from the fact that an increase in demand for NFTs will cause an increase in demand for cryptocurrencies. All digital transactions consume energy in one form or the other, and globally, the figures add up to quite a bit of energy consumption. The global banking industry consumes approximately 263.72 Terawatt hours per year in energy, according to NASDAQ. In the same vein, cryptocurrencies consume a lot of energy to work‒with Bitcoin consuming about half the energy of the whole global banking industry all by itself.
Ethereum is the preferred cryptocurrency to buy and sell NFTs for most people and the cryptocurrency works using a security system called “proof of work”. This system is necessary to keep the ledger of transactions secure. A network of high energy-consuming computers is set to solve very complicated puzzles, which only get more difficult as they are completed. Each cracked puzzle gives the user lending their computer’s power to this network a new token. These users collectively are known as crypto miners. The process is made very energy consuming so that users essentially pay in energy to keep the ledger accurate. So, people are less likely to try and sabotage it. The energy consumption of Ethereum has been compared to that of the whole country of Libya.
This proof of work method is not the only way to keep the blockchain safe. Other methods are not as energy-guzzling. Ethereum has made promises to move towards alternatives for the sake of the planet, but there have been no concrete moves yet. Proof of stake is the most likely option they can use which makes users mortgage some of their own cryptocurrency tokens in the network to essentially have a stake in keeping the ledger secure. Besides this, the most probable solution could be to run the cryptocurrency computers on clean and renewable energy. Other companies like CurrencyWorks in Alberta, Canada, is working to create a whole ecosystem that turns this process into an environmentally friendly one. The tech company is converting oil waste into energy that is used to do crypto mining. They are also looking into distributing the movie “Zero Contact” with Anthony Hopkins in the cast as an NFT, which will allow it to have zero carbon footprint.
What Is the Future for NFTS?
NFTs have already diversified a lot from what they started as. In February 2022, the first house ever to be sold as an NFT was bought with a winning bid of $650,000 in the US. The token records the winner’s ownership of a limited liability company in the blockchain network, and the company’s only asset is the house. Other big companies, including YouTube, have shown interest in using NFTs to strengthen experiences for users and creators alike. The potential for the use of NFTs is boundless, according to some, while they are a waste of time to some. Even so, nobody can deny the booming popularity of NFTs in the current world. NFTs are likely to be used even more generously in the future as ticketing tools, tokens to purchase land in virtual worlds, and licensing music. The Metaverse is one of the key sources to likely cause a higher demand for NFTs in the future when or if it becomes even more mainstream. As for Bangladesh, the government stated in 2019 that they would like to create technology to integrate blockchain technology in all the different sectors of governance. However, there is a long way to go for the general public to trust cryptocurrencies and NFTs.
Written by Lamisa Mustafina
