Non-fungible tokens (NFTs) are no longer the obscure fringe element in the blockchain world, waiting to showcase their potential. They have come out from the shadows to bask in all their glory in the crypto town. “NFT” has become Collins dictionary’s Word of the Year. And in October 2021, the global NFT market cap reached $43 billion, to the utter rejoice of crypto folks. So, what are these NFTs and why are people going crazy? Let us find out!
NFTs: What, Why, How!
First things first. Before we dig deeper, it is important to understand what NFTs are. To put it simply, they are unique and non-interchangeable digital tokens representing physical or virtual assets on the blockchain. NFTs leverage cryptography and blockchain technology to immutably record data, thus storing your assets securely on-chain. These assets can be your online racing car, digital artwork, a video clip, your land deed, insurance papers, and so much more; the possibilities are endless.
But why call them non-fungible? To grasp that, we must begin with fungibility or the characteristics of being divisible. So a fungible asset comprises smaller units or denominations, each unit at a certain level having the same value. Because of this property, they are also interchangeable. If that’s confusing, consider the U.S. dollar, for example. One dollar is divisible into cents, and each cent is identical in value. Similarly, any two, say, $10 bills have the same value or purchasing power. The same applies to assets like bitcoin, ether, or other cryptocurrencies.
On the contrary, NFTs are non-fungible — they aren’t divisible into smaller units of identical value. And by extension, NFTs are not perfectly interchangeable. Food for thought — splitting an NFT would usually amount to a paradox, of sorts, analogous to certain real-world situations. Suppose, there’s some NFT representing your house or car or something similar. Splitting it up into two or more pieces is obviously absurd and will entail unwanted complications.
However, ongoing innovation is exploring the possibility of fractional NFTs, especially as means to enhance liquidity. The prospect is interesting, but these attempts introduce a whole new range of problems, which are much beyond this article’s scope. Anyway, now that we know the basics of NFTs, some insight into their history is welcome. Because, why not?
The exact origin of NFTs is a mystery. But anyhow, internet lore broadly identifies Colored Coins as the first-ever NFT, released around 2012–13. The so-called NFT boom came only in 2020 and onwards, but their mainstreaming began with CryptoKitties and CryptoPunks. Now, which of these two came first is a different debate altogether. Let’s not get into all that and instead explore some of the cool things we can do with NFTs.
NFTs: Your Passport For Digitized Media, Games, And More
NFTs are slowly becoming a part of our everyday culture, courtesy of the rapid use and adoption in certain industries. And the paragraphs that follow evidence this fact substantially.
Creative Media And Collectibles
NFTs have brought in a paradigmatic shift to the way we understand and consume art, music, and fashion. For example, CryptoPunks and Bored Apes are now selling for millions in Christie’s and Sotheby’s auctions. These series of finite algorithmically generated characters are revolutionizing the art scene with their unique artwork.
On the other hand, music bands like Kings of Leon are releasing their album as an NFT. Some other NFT platforms are planning to sell concert memories as NFT moments. Fashion brands are experimenting with NFT wearables as well. Luxury fashion companies like Gucci, Dolce & Gabbana, Louis Vuitton are offering NFTs or utilizing the technology for business operations. So much so that NFTs have now become a part of the London Fashion Week.
NFT enthusiasts buy the aforementioned artworks, albums, and wearables as part of their digital collectibles collection. These collectibles serve two purposes. First, they give access to an exclusive community of NFT collectors with their own special events and offerings. Second, they work as a status symbol and people often showcase them as their Twitter profile pictures. In fact, Twitter is coming up with an in-platform verification procedure to authenticate NFT holders and their profile pictures.
Suppose, one fine Sunday you decide to do some retail therapy and end up buying a Bored Ape NFT for $1 million. You completely forgot that you were supposed to buy your next house and needed the money for the down payment. You really love the Ape’s artwork and don’t want to sell it. There is no need to worry!
NFT protocols are coming up where you can use your NFTs as collateral to take loans. If you default, the NFTs will automatically get transferred to the lender, thus eliminating intermediate debt collectors’ commissions.
Similarly, NFTs can also make their way into derivatives. If you have a highly valuable in-game asset like a racing car, you can let it trade in the derivatives market. Who knows, you can actually buy a real Ferrari with your in-game NFT Ferrari?
Gaming and Play-to-Earn (P2E)
The gaming industry is a highly valuable sector with the total number of online gamers reaching 932 million in 2020. This demographic is contributing $65 billion to the video game market in the U.S. At present, gaming companies have a revenue model where gamers can purchase in-game assets to upgrade their gameplay. But these virtual assets, such as racing cars, weapons, and so on, are mostly illiquid with little or no real-world utility.
NFTs can make your online gaming assets truly liquid with transactional value in the real world. Thus, winning games and getting valuable in-game NFT assets is now becoming a trend in blockchain-based gaming. Gamers can either retain their NFTs or sell them in the NFT marketplace in exchange of fiat or cryptocurrency. These kinds of NFT-based ‘Play-to-Earn’ (P2E) games have become immensely popular in certain parts of the world.
For example, a large section of the Southeast Asian population is playing Axie Infinity and earning $1,200 per month. The devastating economic effects of the Covid-19 pandemic have made these people choose gaming as a replacement for their underpaying jobs.
NFT gaming has become so popular that game tokens have now reached a market cap of $50 billion. But this is not necessarily a good sign. NFT games prioritize the earning capabilities in the gaming ecosystem, often at the cost of the gaming experience. Developers plug in simplistic gameplay mechanics with basic visuals from the Unity Asset Store or other free software. Thus, serious gamers detest these games and go back to the mainstream brands.
P2E games with a sole focus on earning attract the wrong kind of gamers to the platform. These gamers are not interested in the gameplay mechanics or gaming experience and contribute little to its development. Their only goal is extracting the maximum value from the game, thus making it unsustainable in the long run.
Usually, in this highly competitive setup, experienced gamers exploit new and inexperienced players to earn profits. Eventually, the players who can’t make money leave the game en masse, devaluing the gaming assets. Once that happens, the experienced players leave as well, collapsing the entire game.
The overabundance of NFT assets in these gaming ecosystems poses another serious threat to human existence, something we will focus on now.
The Case Of Ubiquitous NFTs and Missing Oxygen
Samuel Taylor Coleridge wrote in his 1834 poem ‘The Rime of the Ancient Mariner’, “Water, water, everywhere, nor any drop to drink”. These haunting lines depict a sailor in the midst of an ocean with no water for consumption despite its abundance. If Coleridge was living in 2021, he perhaps would have written, “NFTs, NFTs, everywhere, nor any oxygen to breathe”.
The status quo is indeed very grim as most NFT protocols are relying on Ethereum blockchain for their project development. Since Ethereum uses an energy-intensive Proof-of-Work (PoW) consensus mechanism, it consumes approximately 28 terawatts of energy every year. In fact, a single Ethereum transaction uses 76 kW energy per hour. If NFT projects continue to grow on Ethereum, the world might have no energy left. Worse, we will all choke to death.
NFTs will continue to grow and will eventually permeate every aspect of our everyday living. If we want to be alive to witness this future, we need a sustainable and environment-friendly solution. NFTs and their corresponding projects thus need to move away from Ethereum to a carbon-neutral blockchain like WAX.
WAX uses an energy-efficient Delegated-Proof-of-Stake (DPoS) consensus mechanism for validating transactions, thus consuming only 0.000223 terawatts every year. This makes the WAX chain 125K times more economical in terms of energy usage compared to Ethereum. Moreover, WAX NFTs are offsetting the environmental damage inflicted by Ethereum by erasing their carbon footprint.
The WAX chain records 15 million transactions on a daily basis over 30K dApps. If WAX NFTs were minted and transacted on Ethereum, it would add 4 million tons of carbon dioxide to the environment. In other words, WAX NFTs have reduced emissions equivalent to 6 billion pounds of burnt coal.
NFTs will eventually become ubiquitous in our lives. But we need to keep our environment safe and green to make way for an NFT-enabled future. The way forward lies in sustainable blockchain solutions like WAX.
Author: Mohammad Musharraf
A blockchain and crypto writer, traveler, poet, and a few other interesting and foolish things in between.