WHAT IS AN NFT AND WHY DO I CARE?

WHAT IS AN NFT AND WHY DO I CARE? by: Dylan Scott Miller

CryptoPunks? Bored Apes Yacht Club? Axie Infinity?

Do any of these names ring a bell? Do they grab your attention? Because they should. Each and every one of these companies has sold NFTs to the tune of tens of billions of dollars. Now, that’s a market worth knowing about!

For perspective, Sherwin Williams had gross sales of around $20B in 2021. All three of these NFT companies had more sales than Sherwin Williams–the name that comes to mind when anyone needs to do a housing project (which there were a lot of during the pandemic)!

If you don’t know about NFTs, then you need to. It is too large and impactful an industry to ignore. So buckle up as I explain the basics and, hopefully, pique your interest in the world of NFTs, the metaverse, and crypto.

An NFT is a Non-Fungible Token, but what does that mean? To keep it simple, it means it is a completely unique item. In the case of NFTs, these are digital items like images, videos, etc. But can’t I just take a screenshot or download the same video? YES, yes you can! However, that doesn’t show that you are, in fact, the owner of that particular item.

Think of going to an art museum. All those pieces are incredibly unique, right? Unless someone makes a fake of that piece of art… and sells it to a museum.

Oops.

Now there are two pieces of that artwork floating around–how will we ever know which is the real one? We look at the fine details, the little hidden intricacies of the artwork, the artist's subtle signature, etc. That’s how we know the real thing from the fake. The same principle applies to NFTs. The data attached to NFTs will let you know who actually owns that particular NFT. All others are fake.

So What Defines Who Owns an NFT?

Without going into all the intricate details, NFT exists on a blockchain, similar to a cryptocurrency like Bitcoin. Blockchains exist as the modern equivalent of a ledger. It tracks the movements of digital assets through a system.

There are different blockchains that have their own processes, but they all function in a similar fashion. As digital assets, like cryptocurrencies and NFTs, are bought, sold, and traded they are marked on the blockchain. Each piece of the blockchain is directly connected to the piece of information before and after it. Furthermore, each step of the blockchain can only be read or interacted with in order. This creates an order in which new data is added to the blockchain, and no information is removed.

If an NFT, for example, is created on the blockchain then it exists at point A of the blockchain. When it is sold, that transaction happens at point B. After the transaction is complete, point C now carries with it the previous information from points A and B.

These bits of data are now forever linked as one unit on the blockchain. And since more data has been added, previous information can no longer be altered. While this is a bit of an oversimplification of the process, this helps explain exactly how NFT ownership is tracked.

How Can I Use NFTs For Myself or My Business?

This is what it is all about, right?

NFTs are seen by some as an opportunity to build a collection. In the case of the Bored Apes Yacht Club, there are people who try to collect the more well-known NFTs for the sake of having ownership of these pieces of artwork.

Others see NFTs as an opportunity to invest. NFTs fluctuate in price based on the perceived value around the asset, just like with any piece of art. As the creator of the NFT becomes more well-known the NFT becomes more valuable in addition to a plethora of other factors. Buying, selling, and trading NFTs can be similar to investing in other pieces of artwork in this sense.

Now, from a business standpoint, it offers the opportunity to create authentic and unique experiences for your clients. The limits to how this can work rely solely on your ability to think creatively about the technology available and the value you can bring to your clients.

For example, if you provide original and unique images to your clients, can you justify uploading them to the blockchain and selling them to your client as an NFT? If you design a logo for your client, can you create it as an NFT they can use as an asset if they wish? Can you create a marketing plan as an NFT? How about blogs, articles, or books?

Dylan Scott Miller