What are NFTs?
NFTs or Non-Fungible Tokens represent digital ownership of unique items. Non-Fungible means an item has unique properties that are not replaceable. An example of non-fungible is the Mona Lisa at the Louvre Museum in Paris, France. There are replicas of this painting, but there is only one original painting by Leonardo da Vinci, which is not replaceable. An example of something fungible is money. $1 will always have an equal value to $1 and can be replaced with four quarters, ten dimes, 20 nickels, or 100 pennies. Fungible items are replaceable because they are defined by their value, not their unique properties.
NFTs can represent ownership of a range of things like in-game items, music, paintings, and even real estate. On Feb. 10, 2022, a home in Florida was sold in an NFT auction for $654,310. Today, NFTs are known for their role in the digital content and art space. NFTs offer artists an opportunity to create and profit from their artistry without intermediaries. For example, much of a music artist's sales go to the record label. If that same music artist created a series of NFTs, they could distribute their music independently and profit from it without needing a record label. The artist could also set up royalties, so if a new owner resold their NFT, the artist would receive part of the payment.
A common misconception is that NFTs are just JPGs and can be owned simply by copying and pasting the image. NFTs have data stored on the blockchain, and this data allows anyone to verify the owner of the NFT. Saying you own an NFT by simply copying and pasting the image would be like saying you own an original piece by Pablo Picasso because you found an image on Google and saved it on your phone.
There are many environmental concerns about NFTs and their carbon footprint. Some of these concerns are valid, but NFTs are not to blame. NFTs are minted (created) on Blockchains, and the process that some Blockchains use is energy-intensive. When an NFT is minted on Proof of Work blockchains like Ethereum, the NFT must be confirmed on the blockchain, the owner’s account must be updated to include the NFT, the transaction must be added to the blockchain so ownership can be verified, then the transaction needs to be confirmed on the blockchain to verify that all the information is correct. The Ethereum Foundation is aware of the energy this requires and is working towards making Ethereum a proof of stake network which will reduce Ethereums carbon footprint by roughly 99.95%. This process began in December of 2020 and will take approximately two years.
While Ethereum may require a lot of energy to mint NFTs, a few proof of stake blockchains have solved this issue. Fantom uses roughly 8,200 kWh in a year; this is less than the average US home, which uses approximately 10,200 kWh. Fantom is built to minimize its carbon footprint. Fantom's low energy consumption allows NFTs to mint by using less energy. The Fantom blockchain uses roughly 35 million times less energy than the Ethereum blockchain.
NFTs are endless in use cases, from in-game assets to art, real estate, music, and vehicles. As our physical world becomes increasingly digital, ownership of our items will need to be digitally verified. NFT technology allows you to verify your real-world assets digitally. This technology is only at the beginning stages of its development, but its potential to create opportunities in the real world and digital space is astounding.