What is an NFT? How Non-Fungible Tokens Took Over Crypto

nft non-fungible token
Non-fungible tokens, or NFTs, exist on the Ethereum blockchain(ETH), and this information about who owns them, what kind of media they are, and who created them makes them exist differently than an ETH coin. Credit: QuoteInspector.com, CC BY-ND 4.0

If you’re an avid investor in cryptocurrency or a digital art lover, it’s likely that you’ve heard about non-fungible tokens, commonly referred to as “NFTs.”

So what exactly are NFTs? Non-fungible tokens certify the ownership of a one-of-a-kind piece of digital media — most commonly art, but can include anything from photography, music, memes, podcasts, tweets, etc — when NFT’s are purchased at auction, they are subsequently “minted” on the blockchain, where they become a file that cannot be manipulated, edited, deleted, or copied in their original form.

NFTs exist on the Ethereum blockchain(ETH), and this information about who owns them, what kind of media they are, and who created them makes them exist differently than an ETH coin. Another crucial aspect of this difference is the token’s non-fungiblity.

What are non-fungible tokens?

Their non-fungibility means that these tokens are unique and singular, and cannot be traded with an identical currency. Cryptocurrencies like bitcoin or fiat currencies like the U.S. dollar, where each coin or ten dollar bill are identical in value to each other, are considered fungible.

The concept of non-fungibility has always existed in analog forms, in fact, it is part of what drives the value of rare, one-of-a-kind trading cards and collectors items, and, most significantly, fine art.

The art market has always been built on the concept of scarcity and non-fungibility– paintings are unique, original objects, and while some prints and photographs can run in editions of up to a dozen or more, they still represent only a handful of highly sought after works in a huge market of collectors — the less there are of them, the more they’re worth.

This fundamental compatibility between the model of the art market and that of NFTs has transformed both art collecting and cryptocurrency, synthesizing the two into a booming new community of artists and investors which include everyone from celebrities like Elon Musk’s partner Grimes, Twitter CEO Jack Dorsey, and the digital artist Beeple, who sold one of his NFTs for $69 million at the traditional fine art auction house Christie’s.

The digital existence of NFTs, and the system by which they are minted on the Ethereum blockchain, has lead the crypto community to explore the limits of ownership and digital object-hood.

Dorsey sold the first tweet he ever made on his now ubiquitous social media platform Twitter for over $2.9 million dollars. The tweet reads “just setting up my twttr.”

Many are jumping at the opportunity to make landmark moments in internet culture their own digital asset and transforming the blockchain into an immaterial museum in the process. Minting these moments as NFTs contextualizes them in a digital form that reflects the culture they produced.

NFTs have been met with criticism despite their popularity

But NFTs are far from perfect. These digital assets and the high prices they fetch have created mountains of discourse. Much of that conversation is centered around what it means to buy a work of art or media that is non-physical, and in the case of images, videos, and posts like Dorsey’s, can be easily saved as a .JPG or accessed for free on twitter.

Basically, why would you spend $69 million for a digital art work that you could drag on to your desktop for no cost? Well, the response is a simple one: no matter how easy it is to view or save a copy of the NFT someone owns, they will always be the sole owner of it. Even in the case of a Van Gogh or a Picasso, millions of people can own prints of the Starry Night or Guernica, but none of those people own the original artwork.

Here’s where you might be thinking, well, those are paintings, and NFTs are entirely digital — at least the owners of those pieces get a physical object to call their own.

And you’d be right. NFTs hinge on a belief in the power of investing in ownership more than anything. The crisis of value involved in NFTs’ object-hood is in the eye of beholder: many collectors relish in the support of purely digital work that utilizes contemporary ways of creating and see ownership as the only true lasting aspect of art collecting, rather than the hoarding of physical objects.

This diagram illustrates the differences between physical artworks and NFTs, artworks that exist digitally on the Ethereum blockchain. Credit: Mario Taddei, CC BY-SA 4.0

Another thing to consider is that physical works of art are often kept in storage, out of view from the public or their owners, and are frequently loaned out by their owners to institutions for shows. When artworks are viewed as assets, the imperative is often to own them for long periods of time while they become more valuable during the course of an artist’s career or post-mortem legacy — living with the physical works is secondary.

NFTs have also faced backlash over their toll on the environment, a criticism they share with Ethereum and cryptocurrency at large. The debate over the energy usage involved in minting NFTs rocked the art world, causing heated denouncement from artists who believed the tokens to be a “ecological nightmare pyramid scheme.”

One website, cryptoart.wtf, dedicated itself to tracking the energy consumption involved in each NFT minted on the blockchain, but this information became so inflammatory that the site was forced to take itself offline, leaving a note that read:

“CryptoArt.wtf was designed to share the best available information about the energy use and environmental impact of the growing Proof-of-Work (PoW) based CryptoArt and non-fungible token, or NFT markets. Just as we can find information regarding the ecological costs of flying,iPhones,watchingNetflix, or trainingArtificial Intelligence models, I believe similar information should be available for CryptoArt, so that we can understand the impact of our actions, and we can make informed decisions. Unfortunately, the information on this website has been used as a tool for abuse and harassment, so I am taking the site offline.”

The site’s findings were incendiary throughout the NFT community, with one entry stating that a single NFT of a digital animation of a cat, called “Space Cat,” had the same carbon footprint as an EU resident’s electricity consumption for two months.

Some have objected to the outrage, saying its logic is misguided. Joseph Pallant, founder of the nonprofit Blockchain for Climate Foundation, told the Verge that NFTs should be compared to other energy consumption scenarios where cause and effect becomes hard to trace:

“If youre on the plane, youre obviously responsible for a portion of its emissions. But if you hadnt bought the ticket, the plane probably would have taken off with other passengers and polluted the same amount anyway.”