If you’re confused by the newest buzzword on the block, fret not. Here’s the lowdown on the latest digital trend flooding the internet.
What do Bollywood stars Deepika Padukone, Ranveer Singh, Salman Khan, cricketer Yuvraj Singh, national daily Hindustan Times, and designer Manish Malhotra have in common? Well, they’re all jumping on the NFT bandwagon.
It’s not just the celebrities. Even brands like Coca-Cola, Nike, Yum! Brands (parent company of Taco Bell, Pizza Hut and KFC) and Mattel (that makes toys like Barbie and Hot Wheels), are creating NFTs of digital assets (images, videos, memes, GIFs, audio tracks, and more). These can be purchased with the help of cryptocurrency.
The buzzword on everyone’s lips these days is made of three seemingly simple letters – NFT. It stands for a non-fungible token. These (virtual) tokens represent partial or full ownership of a non-fungible asset. In both these cases, non-fungible means something which is unique and can’t be exchanged for anything else.
When a clothing brand like Zara, for example, makes a T-shirt, it will manufacture a batch of, say, 50 more or less identical ones, which are both replaceable and interchangeable. However, an NFT is the equivalent of having a hand-stitched lehenga embroidered by designer Sabyasachi himself. It’s a unique work of art that can’t be replicated. The wearer has complete ownership over that particular garment once the purchase is complete.
If you wanted to buy either of the garments mentioned above, one could simply walk into a store and walk out holding a piece in a shopping bag. Or, one could just access a website that stocks these items and receive a parcel at your doorstep in a week or so.
If a person bought a share or a stock of a particular company - then they would hold a portion of ownership of that company. NFTs work in the same principal - the ownership of the asset is virtual; but the asset has to be purchased at specific NFT marketplaces. These digital assets are entirely virtual, existing exclusively on a blockchain, not in the real world.
Hold on, what’s a blockchain?
To put it simply, a blockchain is like a digital ledger that keeps track of transactions. The transactions are coded with information in such a way that it can’t be modified, edited or duplicated. The ledger is made up of these transaction records, called blocks that are linked together using cryptography.
Traditionally, cryptography is defined as the art of writing or solving codes, but it has a slightly different meaning in the context of cryptocurrency. The word crypto means ‘secret’ in Greek and this forms a large part of what cryptocurrency is all about.
According to Coinbase, an American cryptocurrency exchange platform, cryptography is the study and practice of sending secure, encrypted messages or data between two or more parties. These messages are what keep the different blocks on the blockchain ledger encrypted and secure.
Coinbase also mentions that different cryptocurrencies use cryptography to allow transactions to be anonymous, secure and ‘trustless’. Simply put, it means you don’t need to know anything about a person to safely make transactions with him.
In cryptocurrency, cryptography guarantees the security of transactions and participants, as well as independence of operations from a central authority (such as a bank or a financial regulator).
This is part of what makes an NFT so unique – its existence on the blockchain with unique cryptographic messages, can’t be duplicated anywhere else on the Internet by anyone. Even the NFT’s creator can’t modify the encrypted messages once it’s been minted on the blockchain.
What do you mean, minting the NFT on a blockchain?
The process of creating an NFT and uploading it on to a blockchain is called ‘minting’. An NFT can be minted on any blockchain platform, such Bitcoin or IBM’s Blockchain. But right now, NFTs are most popular on the Ethereum platform.
NFTs have been around since 2014, but have been gaining a lot of popularity recently, as digital artists create more artworks that can be minted as NFTs and auctioned off for huge sums of money. Platforms like Mintbase enable anyone with an Internet connection, to mint and create an NFT.
But why are NFTs so valuable?
If you were to download an image off Google Images, you could make 1,000 copies of that image, each of them exactly alike. When it comes to NFTs, they are also digital assets, but the difference is that there is a limited number of them left. An artist or brand or company makes limited versions of these NFTs. They are auctioned off to bidders, who decide their worth.
In January 2022, singer Justin Bieber reportedly purchased a Bored Ape Yacht Club (BAYC) NFT for nearly $1.29 million – 300 per cent higher than its market price. Currently, some NFT marketplaces in India include WazirX, Coinbase, Opensea.io, Nifty Gateway, NFTically, etc.
Where can you use an NFT anyway?
This is the question on a lot of people’s minds. What exactly is the point of buying an NFT of a Burberry bag? Why would you want to own a virtual item? Well, this is where the metaverse comes into the picture.
Oh yeah! I’ve been hearing about the metaverse a lot, but what the hell is it?
Metaverse is a term used to refer to a virtual universe. People mostly access the metaverse when they play video games. Mark Zuckerberg wants to create a metaverse where humans can have social interactions with each other. A big step in this direction was when he renamed Facebook to Meta to increase the brand's association with metaverses and virtual reality.
To access the metaverse, a person needs to use a virtual reality headset (made by companies like Oculus or Samsung Gear). When you enter the metaverse, you can create an avatar. The avatar’s appearance and accessories can be customised to your wish. This is where NFTs really come into their own.
So far, the No. 1 benefit of owning an NFT is the bragging rights that come with owning a rare, collectible item. But NFTs add the e-commerce layer to the metaverse. Your virtual avatar can carry a virtual Burberry bag, wear limited edition branded clothes. This is how brands can leverage the metaverse to reach their customers.
Many brands are creating NFTs. Recently, Viacom18 launched an NFT marketplace called Fully Faltoo, which contained NFTs made based on MTV shows like Bakra (a prank show) and Roadies (a reality show). Automobile brand MG Motors India ventured into NFTs last year with 1,111 units of digital creatives. The collection included pastel art of classic MG cars and murals commemorating their vintage cars.