The Curious Case of NFTs
Written by Vishvesh Trivedi
Would you ever spend 69 Million USD (roughly INR 500 Crore) for a JPEG image file? You read that right, sixty-nine million! And the bigger catch is — the image is ‘not exclusive to you’ which means anyone could view and download the image from the internet. You might think, why would one ever invest in such an item? Well, a Singapore-based, Indian-origin entrepreneur recently bought one such JPEG image in an online auction at 69.3 Million USD. The file simply consisted of a collage of random digital art pieces, created by an American digital artist popularly known as Beeple. Moreover, the entrepreneur believes that it “would yield and earn (him) a profit, pretty soon” and astonishingly, he is right! All of this sounds outrageous, doesn't it?
These seemingly bizarre trade deals can be explained by the relatively new and ground-breaking concept of digital NFTs. Explained simply, an NFT stands for Non-Fungible Token. An object or entity which is unique, can’t be duplicated, and is present in a scarce quantity, can be regarded as an NFT. In the digital world, these tokens are traded in exchange for cryptocurrency. Such entities usually don’t have an inherent value and hence the value is decided on the principle of demand and supply. Now an obvious question arises, why pay for such digital assets when you can easily download and save them onto your computer?
Think of it this way, there are thousands of Mona Lisa copies sold to people every year, all across the world. However, this doesn’t make them the owner of the Mona Lisa painting. Likewise, an NFT provides to the buyer, a ‘digital certificate of ownership’ of the particular ‘digital entity’ on the blockchain. To some, this might sound like the stock market; in fact, it effectively functions as the stock market — just digitally.
Like any other new technology that comes in, NFTs have captured the spotlight and created a sort of gold rush. Crypto-investors are flooding the market with sky-rocketing bids on digital collectibles. For digital artists, it has been a miraculous turnaround of fortunes as their work is being sold at handsome amounts. Some have termed this phase as a ‘glimpse of the future of fine art collecting’.
However, serious concerns regarding the trade of NFTs are beginning to pop up. An online movement that kicked off to help independent digital artists sell their artwork has now turned into an enormous source of income for ‘opportunist corporates’. Big corporations like the NBA are selling thousands of short clips from NBA games as NFTs and pocketing millions. Plenty of other corporations have started to emulate this technique of selling digital assets in return for huge lumps of crypto money. Now you might think what’s wrong in auctioning cat stickers to filthy rich meme-lovers. But what if I tell you that buying any of such crypto-art is in turn melting the Greenland Ice Caps?
Surprised, right? To decipher this paradox, we need to dig deeper into the fundamental concept that enables an NFT transaction — The Blockchain. Most NFT trade deals are powered by the Ethereum blockchain. To secure crypto transactions, Ethereum uses a consensus set-up called ‘proof of work’. Vaguely speaking, this system requires incredible computing power to verify crypto transactions which ‘mines’ (creates) Ethereum coins. Besides that, with the exponential rise of crypto transactions in recent times, the ‘proof of work’ consensus progressively makes crypto-mining even harder to maintain its security and prevent fraudulent transactions. Hence, to keep-up with such humongous computational demands, these establishments are consuming gargantuan amounts of electricity, predominantly coming from fossil fuels. And what do fossil fuels produce? Tonnes of greenhouse gases which are warming the earth and melting the ice caps.
Moreover, to put things in perspective, a GIF called ‘Space Cat’ sold as an NFT generated the carbon footprint equivalent to a regular EU resident’s two months’ worth of electricity usage! Needless to say, investing in a technology that is reserved to fulfill the luxuries of the rich and effluent at the cost of an irreversible climate catastrophe is simply not logical, or acceptable.
So then? Is that the end of the massively hyped-up NFT scheme?
Fortunately, the tech space is always bubbling with new and improved solutions. In-case of NFTs, environment-friendly remedies have come thick-and-fast. The rudimental solution proposed is to substantially shift to renewable sources of energy for electricity generation. However, at the moment, this solution seems far-fetched and more of a pipe-dream.
A practical alternative is to embrace an improvised form of blockchain security system called ‘proof of stake’. To give a technical sneak-peak, the ‘proof of stake’ setup essentially abolishes the high computation requirements in ‘proof of work’. This is because it replaces the ‘competitive mining’ with randomly selected ‘stake-holders’ who verify transactions. A ‘stake-holder’ is basically a ‘miner’ who deposits a certain amount of cryptocurrency on the blockchain in order to be eligible to verify transactions. The probability of getting picked to verify a transaction for any ‘stake-holder’ is directly proportional to the amount of their crypto deposit. On a small scale, besides being environment-friendly, this setup has proved to be even more decentralized than the current consensus in use. In fact, a bunch of new blockchains in the market like ‘Flow blockchain’ have implemented this concept and recorded almost negligible electricity consumption. Taking note of such recent developments, Ethereum has proposed to shift to a ‘proof of stake’ setup in the foreseeable future, thereby completely negating the environmental impact of crypto transactions.
But wait a minute! If the NFT concept can digitally secure a transaction of a computerized entity, then how about replacing the ‘computerized entity’ with a ‘real-world object’? A house, a car, a pair of shoes, in fact, any real-world object can be digitally traded while utilizing the impeccable security of a blockchain. Sportswear company Nike has even patented such a system where Nike shoes named ‘CryptoKicks’ can be purchased just like an NFT. Down the line, this can fundamentally revolutionize the way we trade goods and services, making it immensely secure and hassle-free.
Nonetheless, in order to accomplish any of these, we first need to improvise our technologies to be carbon-neutral, and the moment that happens, you might find THIS VERY ARTICLE listed as an NFT! (If that’s the case, please don't hesitate to spend $69 to buy it)