• NFTs: more than just a JPEG file

  • You may have noticed that NFT has exploded this year and prices have gone through the roof. The most expensive piece sold for $69.3 million. 8-bit artworks regularly change hands for life-changing ETH amounts. At Christie’s and Sotheby’s auctions, big names from Banksy to, most recently, Jimmy Kimmel have joined the ranks.

    However, with all of this going on, there are a lot of people scratching their heads about what NFT really is, with some concluding that there are a lot of cryptocurrency rich weirdos who have suddenly gone crazy and started dropping millions of dollars on JPEGs.

    That’s only partly true: they’re actually throwing millions of dollars at digital tokens linked to JPEGs, and they’re not just cryptocurrency rich, they’re now rich in real life.

    But that’s not the whole picture, either. Because while most of the NFTs you read about do connect you to a hosted JPEG where you have proof of ownership – admittedly, that sounds a bit strange – NFTs are much more than that, because a whole new online/offline integrated reality may be about to open up (call it a meta-universe, if you will), and NFTs are an integral part of it.

    But before we tackle any dazzling new frontiers, let’s take a look at JPEGs. For the sake of accuracy, it should be noted that while many NFTs are tokens that prove ownership of works stored off-chain, most likely on IPFS, this is not always the case, and some NFTs have their content stored on-chain, that is, actually encoded on the blockchain itself.

    But anyway, to the point, the world of art and design, and the world of programming and computer science, is and has been a bit off the beaten track, doing things that don’t immediately resonate with the indifferent masses, but then become hugely popular. If you really stop and think about it, those JPEG images start to make sense.

    After all, art is collectible, some is expensive, and some works are so reliably sought after that they can be used as a store of value. But that desirability and value relies on authenticity and scarcity; your item must be the real thing, and its supply must be limited, often to one.

    But in this case, the digital artist gets a raw deal, because anything digital can be copied endlessly and with virtually zero effort or cost, with no difference from the original. To make matters worse, the digital realm is expanding, and more and more creative work is being expressed primarily digitally and online, where it can be copied freely.

    So, too bad for digital artists? Yes, maybe. Or at least it was until NFT came along.

    NFT accurately identifies that there is a verified original work – a Genesis project – and that any copy is, well, a copy. Essentially, what NFT creates is scarcity in the online digital art medium, which didn’t readily exist before then.

    With digital art and NFT, there can be an endless supply of perfect copies, but there can be zero credible fakes.

    Basically, you can’t make saleable torrents because you can’t beat the blockchain, which stores provenance for eternity. Saying you can right-click and save NFT makes as much sense as me saying I can right-click and save your bitcoins, in terms of the value and plausibility of our knockoffs.

    NFT is a symbol of your receipt and ownership, and by being those things, it is a creator of value.

    But anyway, none of this matters if you’re not a curator and happen to be a diamond-handed investor or trader flipping NFTs for quick gains. In this case, what matters to you is that you can buy these blockchain-based receipts and that there is a bubbly, volatile market making good deals on blockchain-based receipts. And of course, you have the ability to read the dynamics of this market and know when to enter and exit.

    Then, you might want to take into account the macro view about where the world is going. You can’t avoid the discussion about the metaverse right now, and plenty of people who own cryptocurrencies are spending a lot of time online and using their digital assets.

    What’s more, the generations that are growing up now see digital trade, transactions and ownership as completely natural and have little affection for traditional financial institutions and funding means in which they have little stake and no say in the rules.

    In contrast, in the world of NFTs, DeFi and cryptocurrencies in general, these people can play a role in setting the rules if they choose to participate, as few rules currently exist.

    Remember, JPEGs and digital art are just the opening salvo. nfts bring secure digital ownership at a time when the world at large is moving towards new ways of trading and blurring the lines between digital and physical wealth, whether you like it or not.

    That’s not to say there aren’t bubbles, bull and bear markets, or that some, perhaps most, of the boom we’re currently seeing won’t disappear in one serious correction.

    But consider that many of the key players driving what’s happening now were doing it for fun when there was no hype at all, understand technology better than anyone else, and have built ambitious communities that are richer now than they were a few months ago. The carousel will slow down at some point, but zoom out and it’s in motion for the long haul.

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