So-called NFTs have been in the headlines for quite some time now. Time and time again, impressive amounts of money are reported in this context. Just a few days ago, for example, the news circulated that a seller had sold an NFT for less than a cent instead of more than a million euros due to a stupid mistake. But what are these mysterious NFTs anyway? What gives them value?
What are NFTs?
NFT stands for
Irreplaceable icons, which in German means something like: a non-replaceable symbol. This means above all, and not only, digital things. In principle, the NFT can also be assigned to physical objects. For example, Nike sold its Cryptokicks shoe collection as NFTs. However, for the most part, it’s virtual images, text, and sounds, like the ones highlighted not least the message linked above.
Usually, digital objects have no intrinsic value, or at least not much value, since they can be reproduced essentially as required.
The blockchain does that
With the help of blockchain technology, NFTs are allocated to things like the Etherrocks mentioned above or artwork, tickets and other digital things. Thus it can be clearly identified.
Specifically, a certificate is issued for a virtual stone, for example. Even if there are billions of identical versions of that one stone, NFT still refers to one specific stone. Additional NFTs can be engraved onto other stones, even those that look the same. This is how you often work with groups. Objects in the group are also often slightly modified, as with Etherrocks, for example. Each ether skirt differs slightly from the others in terms of color. Each stone is associated with its own NFT.
This is ensured by the blockchain technology known mainly from cryptocurrencies such as Bitcoin and Ethereum, as most of the NFTs are based on the Ethereum blockchain. A blockchain is basically nothing more than a series of records linked together in cryptography. Specifically, each new data record, that is, each new block, contains the hash (scatter value) value of the previous block, including data for various transactions and timestamp.
Importantly, it is the reference it contains to a clearly identifiable image, audio, or text file, which is usually located on a third-party server. Digital objects are not stored in the NFT itself. It could in theory work, but NFTs or blockchains aren’t really designed for that.
One problem with NFTs is that they can be on multiple blockchains. This means that in theory there can be two or more NFTs for an object, regardless of whether it is digital or physical. Since there is no higher authority, both are valid in principle. However, in practice, NFTs almost exclusively use the Ethereum blockchain, which is why there aren’t any issues here – at least not yet.
Can anyone create an NFT?
In principle, anyone can create or create an NFT. Artists often use it to make money from their work. A digital wallet, wallet and appropriate trading platform are sufficient. The latter takes over the creation of the NFT, which in most cases is initially free. Fees only apply when the item is sold.
The first publisher introduces controversial NFTs into games
Why are NFTs expensive?
We have now demonstrated how NFTs can become valuable. But why are some of them so expensive? How can it be worth hundreds of thousands and even millions of euros?
To answer that, let’s take another look at the mentioned ether rocks: In December 2017, exactly 100 of them were manufactured and connected to the Ethereum blockchain. Only 30 of them were sold in the first three years. Then, when famed entrepreneur and influencer Gary Vaynerchuk tweeted about EtherRock in August 2021, the rest was sold out and prices soared to six figures.
So the aetherrock is a good example of the hype that has arisen around NFTs. The so-called CryptoKitties and CryptoPunks are an equally interesting case. Virtual cats and villains are also based on the Ethereum blockchain. One of the best selling NFTs is from the CryptoPunk chain and changed hands on December 9, 2021 for 2500 Ether. As of March 21, 2022, this was just over €6.6 million.
The most expensive NFT to date is the artwork
Every day – the first 5,000 days By Mike Winkelman aka Pebble. The collage was sold on March 11, 2021 for 42,392 Ethers – the equivalent of more than €112 million today.
How are NFTs traded?
NFTs are traded through dedicated platforms. These set the respective object to NFT. Buyers and sellers, in turn, are represented by their crypto wallets. If a purchase is made, the trading platform processes it and adds the transaction data to the blockchain in the form of a block via a smart contract. The most popular payment method is cryptocurrency ether, which also feeds NFTs as speculative objects.
Are NFTs redundant?
Even if it seems like that with respect to virtual stones, NFTs are not redundant. On the contrary: there are digital objects that must be identifiable as individual elements. A good example of this is artwork. Even if they are in JPEG format, someone has to create them. Basically, this is no different from the physical world. Paintings can be copied and even forged, but only one can be the original.
However, NFTs are also subject to criticism. On the one hand, they have long become objects of speculation, which primarily benefit those who already have a lot of money. On the other hand, building an NFT and running a blockchain requires a lot of electricity, which raises questions about its usefulness, especially in times of climate change and rising energy costs.
How can NFTs persist?
If EA has its way, NFTs will play an important role in the future. The publisher cites Ultimate Team as an example. Especially when it comes to collecting and reselling items in games, NFTs are naturally a good choice. For the so-called Metaverse, where we’re meant to work, play and live, at least when it comes to big tech companies like Meta (formerly Facebook), perhaps that technology is also essential. Hear more about the Metaverse on the GameStar Podcast:
Link to podcast content
One way or another, NFT will likely stay with us, no matter how we think about it. However, it is also important to prevent transgressions such as the hierarchical scheme which has been mentioned over and over again in this context. In the end, governments and companies are invited to act here.
What do you think of NFTs? Or to be more precise: What do you think of the hype surrounding NFTs? Write it to us in the comments!