Everything You Need to Know About NFTs and Cryptocurrency Are you still in the dark as to what NFTs are?
By Mike Koenigs Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
Has your newsfeed been inundated with articles, news and podcasts about NFTs?
Did you know that one NFT by the artist Beeple, recently sold for $69 million dollars at the world-famous Christie's Auction House, while a rare CryptoPunk sold at Sotheby's for over $11.7 million?
Are you still in the dark as to what NFTs are? Why does everyone seem to be obsessed with them?
By the time you're done reading this article, you'll have an understanding of NFTs, blockchain and cryptocurrency and how they can affect you and your business. You'll see why you should pay attention to them because these digital currencies are here to stay and can change the way music, media, intellectual property and ownership are managed.
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What is an NFT?
An NFT is a Non Fungible Token. A Non Fungible Token is described as "using relatively nascent technology that certifies the authenticity and ownership of a token through a digital ledger of all its past transactions." In other words, a blockchain, which is the backbone of cryptocurrency.
What this means is any object can be "wrapped" in a digital package and authenticated with a unique signature that certifies its authenticity and rarity.
What it means for you is you have an opportunity to certify a unique object or piece of art is authentic. It can be used for anything an alarm for an easy transfer of ownership. There are an infinite number of applications for NFTs.
This technique is gaining an enormous amount of popularity because it's so flexible in determining and proving the ownership of an asset.
The digital world is exactly the same as the physical world in the respect that certain things are more valuable than others. It's also a medium for great creativity. The entire music industry has shifted to the digital world.
Brick and mortar record stores are few and far between because it's not a convenient way to sample music but with digital platforms like iTunes and Spotify it's super easy to sample and download whatever you want instantly.
The rules that govern property in the physical world don't apply in the digital world. The creators of physical things have been at risk in the digital world because it's easy to copy anything.
How do you know if an NFT is real?
NFTs are a digital version of property.
The word "Non Fungible" means one of a kind. On the other hand, the most fungible thing in the world is an American $100 bill. If you look at world trade, 85% of all transactions are done in American dollars because it's fungible. $1 gets you something, it doesn't matter where you are.
Non-fungible is the opposite because there's just one of them. You can have copies of it, but ownership resides with one person.
This is how the digital artist, Beeple, sold his NFT at Christie's for $69 million dollars.
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How does blockchain factor in?
Without blockchain, you have no non-fungible tokens and assets because you can't prove who the owner is. The blockchain is absolutely crucial. You had to have it in the digital world or there would be chaos because you'd have no way of proving the authenticity of a "one off."
In accounting, we use a dual ledger system that determines where the money is coming from or where it is being spent. Every transaction in a business is tracked. In blockchain, there is a unique address that determines where something came from and where it is going to. That blockchain is replicated and thousands or even millions of computers So it can't be forged. One of the reasons cryptocurrency is so powerful is because neither it nor the black chain where all the records are kept can be forged easily.
Some of the practical applications are if you own a digital asset, now there is a mechanism where you can set up a rule in the blockchain for monetizing contracts.
For example, every time someone sees a piece of art, the owner could get a fraction of a penny per view. If someone listens to a song that is owned by someone, they're getting a fraction of a penny. A digital contract governs the rules and makes this happen automatically.
For a creator, this is a godsend. If a piece of digital art is embedded on a wall in a museum or a website, or a service like Apple Music or Spotify triggers a listening event, a smart contract can be set up to schedule a daily payment directly into your bank account. That means no more shenanigans and manipulation that has taken place since the dawn of time in the world of the music, movie, literary or art business.
Let's pretend you're a musical artist or any kind of creator of intellectual property. You can go out in the digital marketplace and say, "I'm looking for partners. I'm going to create something you can invest in." In the blockchain, every time someone reads it, you're going to get paid. You basically become a business owner.
This is going to turn the entire world of money raising upside down. You could build this mechanism for paying your partner's dividends and it won't go through Wall Street any longer. This will eventually happen with virtually everything.
I believe it will change licensing, patents, ownership and use of computer software and music.
There's also Second Earth. The best way of describing it is they have divided a digital version of Earth into trillions of squares where you can buy property. What does this mean, and why is it important? I recently bought some "land" that my son told me about and it increased in value 20% in a week. People are going crazy buying up virtual real estate right now.
Why should you care? Because virtual real estate, virtual billboards, advertising and games are going to start using the properties. You'll be able to play games on "Earth" that you can view through augmented reality or virtual reality glasses in real life.
These are universally accepted properties that "applications" will be built on and in the very near future with augmented reality glasses, (which are right around the corner) instead of putting billboards on physical streets, there will be virtual billboards that you'll be able to lease. Anyone who is wearing glasses will see them but they won't exist in the physical world. No pollution advertising. Woah.
I recently published a podcast episode with Dan Sullivan about this subject. Check it out here.
