NFTs and the idea of fungibility.
“NFTs will change the way art is perceived and valued in the future” — Vignesh Sundaresan (the buyer of $69 million NFT artwork by Beeple).
NFTs have been the buzz around the media, especially amongst crypto investors and digital art creators since 2020. From Cryptopunks to the video of LeBron James’ dunk, a lot of these famous pieces have been turned into NFTs and sold for thousands of dollars. So what are NFTs?
In technical terms, NFTs or Non-Fungible Tokens are a proof of ownership of a particular artwork linked to the blockchain. Before diving into NFTs, it is important to understand the concept of “fungibility”. Fungibility is the property of an item to be replaced with something equal in value to all parties concerned. Five ₹100 notes are equal in value to a ₹500 rupee note, if you gave these ₹100 notes to someone and they gave you a single ₹500 note, you would have the same amount of money. Similarly, a penny is equal in value to another penny, however, if you had a lucky penny which you kept with you at all times, and someone took it and gave you another penny, this would not be equal in value to your lucky penny. Which means it is no longer fungible. Fungibility relies heavily on the interchangeability of an item.
A common observation of non-fungibility in our lives are autographed items. Suppose you have an autographed book, and I have the same book but not autographed, the autographed copy is perceived to be worth far more than the unsigned copy. However, the keyword here is “perceived”. Original artworks are largely non-fungible due to their rarity and exclusivity and hence are worth a lot in comparison to mass-produced replicas or likenesses. But in a virtual setting, where a screenshot can essentially replicate an artwork to a fault such that it is impossible to tell the original apart from the copy, how would one preserve the individuality of the art? This is where the blockchain comes in.
A blockchain is a chain of individually linked blocks that contain information. They are essentially just 0s and 1s arranged in a specific order that allows parties to engage in transactions. It can be imagined as a public ledger of transactions that is distributed and synced around the world. It can be visualized as a linked list, every single block contains the data of transactions, a unique hash and the hash of the previous block. The hash is like a unique fingerprint of the block which identifies the block. This is calculated only after a block is created or after every time the block is altered. Hence, every bit of change inside the block is logged by the hash and it is helpful to track changes in the ledger. Every block is then linked to its previous block with the help of the unique hash. The first block is called the Genesis block since it cannot connect to a previous block.
Blockchain also provides a system of validation that does not require a central authority to maintain this ledger. Every single registered user will receive a list of all transactions ever executed. And they must agree on the validity of all these transactions. Therefore, no one person is the final authority over the blockchain. Another important mechanism that strengthens the blockchain is the Proof of Work. It is a mechanism designed to slow down the creation of new blocks. This ensures that independent miners cannot lie about or tamper with any transactions. It makes it more difficult to alter data over time. This ensures that the record of the owner of a particular token becomes permanent and established.
NFTs are comparable to rare art displayed in museums. Which means they are owned by an authority but can be viewed by everyone. This expands the reach of the artform while giving credibility to the owner and the creator of the art. Digital artists get to showcase their creations and also get paid for creating them while the buyers of the NFT get the prestige of owning a rare or sometimes singular piece of art.
While the need for NFTs may not seem viable to you immediately, you have to understand that this is a new concept. It will take a while to be adopted and it will go through the motions. However, this is very in sync with our ever evolving, digital society. Concepts like online videogames, virtual classrooms and even virtual relationships seemed vague and highly improbable in the past. But we are currently experiencing these concepts and seeing them slowly become adjacent to the norm.
The lack of physical manifestation of NFTs does not discount the impact that it is having on modern art creation, distribution, and appreciation. This new paradigm will be crucial in the expansion of the applications of blockchain into our everyday lives. The applications are endless, and we are witnessing just the tip of it via NFTs.