The ABCs of NFTs
What you need to know about these one-of-a-kind digital assets.
We admit it: “Non-fungible tokens” isn’t exactly self-explanatory. So it’s not surprising that despite all the recent headlines about NFTs, plenty of folks are still mystified as to what they’re about. Before understanding how they put unprecedented power in the hands of creators to build audiences and monetize their work, you need the basics: What are NFTs, how do they work and what do they mean for visual creators?
First things first: What is “non-fungible”?
Simply put, a fungible asset is something that can be exchanged for another item of identical value. The best examples are cash and commodities: Every dollar is the same as every other dollar; likewise, every euro, every peso, every bitcoin and every pound of solid gold.
A non-fungible asset is anything else, from real estate to baseball cards to art. (You can’t swap a Rembrandt for a Warhol and call it a day.)
Where does the “token” come in?
A non-fungible token is a digital certificate of authenticity, which functions like a property deed or receipt — it proves that ownership of a certain digital item is unique to one buyer. The NFT can represent anything: photography, animation, music, literature, and so on.
The NFT’s proof of ownership can’t be altered or duplicated, but it can be traded or resold by its owner. Those transactions happen via blockchain.
How does blockchain work?
Blockchains consist of individual data records (called blocks, no surprise there) that can record just about any data, including an NFT.
Each block contains a unique code called a hash, linked to the block before it, creating an unbreakable chain. Because of those links, and because the data is “distributed,” (i.e., dispersed among all users of the blockchain), it’s essentially tamper-proof.
That means that a buyer’s stamp of ownership is permanent, and so is the identity of the NFT’s creator. As we’ll learn in a moment, that’s a big deal.
Why is all this important for visual creators?
There’s a good chance you’ve heard of the wilder examples of NFT valuations: a clip of DJ Steve Aoki’s music that sold for $888,888.88, or an NFT by digital artist Beeple that auctioned at Christie’s for a cool $69 million.
But those headline-grabbing transactions don’t capture the real spirit of NFTs: empowering creators to build their careers and generate revenue from their hard work.
How do NFTs do that?
- NFTs allow creators to connect directly with buyers, fans and patrons, bypassing traditional sales avenues. That means power shifts from intermediaries, like agents and collectors, to visual creators themselves.
- That direct connection promises to open new opportunities for all creators, but perhaps especially women, people of colour, LGBTQ2S+ individuals and others often excluded from traditional markets.
- Cases in point: These Black female creators are embracing the autonomy and power provided by NFTs, and members of the feminist-dissident punk band Pussy Riot are using NFTs to subvert government-controlled channels of expression in Russia.
- Thanks to the permanence and security of blockchain, every NFT is forever linked to its creator. That means every time it’s re-sold, the original creator could a cut of the transaction (if that’s what that particular NFT has been programmed to do).
- As digital artist Ruth Catlow has written, “NFTs have the potential to automate the payment of resale royalties, create (new types of) profit-distribution, and do it transparently.”
- NFTs can be collected or traded but they can also act as a ticket of sorts, enabling creators to sell access to exclusive and unique content. Think of it like a vernissage 2.0.
What does a future with NFTs look like?
In 2008, tech thinker and Wired magazine editor Kevin Kelly wrote an essay called “1,000 True Fans.” In it, he described how the Internet can “transform the economics of creative activities,” connecting creators to fans without intermediaries or centralized platforms.
“To be a successful creator you don’t need…millions of dollars or millions of customers, millions of clients or millions of fans,” he wrote. “To make a living as a craftsperson, photographer, musician, designer, author, animator, app maker, entrepreneur, or inventor you need only thousands of true fans.”
According to Internet entrepreneur Chris Dixon:
“The thousand true fans thesis builds on the original ideals of the Internet: users and creators globally connected, unconstrained by intermediaries, sharing ideas and economic upside…NFTs give us a new way to take the money. Let’s make it happen.”
And most anything can be an NFT?
Just as long as it’s digital.
Written by: Matthew Halliday