You may have heard the latest buzzword (or acronym), NFT, and have no idea what it means. NFT stands for non-fungible token. To make understanding this concept a little easier we need to first understand the term fungibility, which is the ability of an asset to be exchanged or substituted with similar assets of the same value. A good example of a fungible asset is money. If you have twenty dollars made of $1 bills in your wallet, but you don’t want to hold that many bills, you can exchange it for a single $20 bill. Although in a different form, the money in your pocket remains the same.
A non-fungible asset is the opposite. Each asset (or token) is unique and cannot be simply exchanged for something similar. An original Jean-Michel Basquiat art piece cannot be exchanged for a recreated print because it doesn’t hold the same value. The concept of an NFT is owning a digital signature that gives owners something similar to a certificate of authenticity.
In terms of cryptocurrency, Bitcoin and Ethereum are examples of cryptocurrency. A blockchain is a distributed database. Cryptocurrencies are powered by blockchain technology, but this technology is now being used by more than just cryptocurrency.
Before we get into additional uses of blockchain technology let’s figure out what it is. A blockchain is a digital record of transactions. The name, blockchain, comes from the structure that these records (or blocks) make as they are linked together in a single list (a chain). It is a system of recording information in a specific way that is impossible to change, hack, or cheat the structure.
You can think of it as a digital ledger of transactions that is duplicated and distributed throughout an entire network of computer systems on the chain. Every block in the chain comprises a certain number of transactions. Every time a new transaction happens on the blockchain, a record of that transaction is added to every single participant’s ledger. This decentralized database is impossible to cheat because multiple people are in charge. Besides being distributed to all participants. Blockchain is secure. All records are individually encrypted. It is Immutable, which means any validated records cannot be reversed or changed. It is anonymous. The identity of participants is anonymous or users use pseudonyms. All network participants agree to the validity of the records. And everything transaction is time-stamped.
An NFT is a cryptocurrency, but unlike Bitcoin, Ethereum, or the many other fungible currencies, every NFT is unique. NFT’s are stored as numbers and letters on a blockchain ledger. NFT’s are built using the same programming as cryptocurrency, but because cryptocurrency is fungible the two are very different.
Again, fungible means that cryptocurrency can be traded or exchanged for an exact amount. Even though cryptocurrencies fluctuate in value, at a particular moment, you know how much a Bitcoin is worth and trading one Bitcoin for another will be worth the same amount. Because NFT’s are non-fungible, there is no set amount for each NFT. This means that trading or exchanging one NFT for another isn’t as simple. While there is a similarity between NFT’s and cryptocurrencies they are very different from one another.
An NFT can be almost anything digital. It represents real-world objects including art, music, and videos. Downloading or saving a digital file onto your laptop doesn’t mean that you own that particular file. An NFT gives a person ownership of the particular file. An NFT buyer gets some basic usage rights, which can be proven by the blockchain entry. NFT collectors hope that these assets will be going up in value.
NFT’s have been around since 2014, but they are only just beginning to gain some traction within the past 5 years when it comes to collectors. Some people believe that this is will be the new form of collecting fine art and art in general, but only time will tell. But NFT’s aren’t solely used for art. Anything digital can be made into an NFT. A single Lebron James highlight can be an NFT, an article from the Los Angeles times can be made into an NFT, a meme or gif can be turned into an NFT, and even a single tweet can be made into an NFT.
The famous Nyan Cat gif was sold for $600,000. One Lebron James highlight clip NFT sold for $200,000. Now, celebrities like Snoop Dogg are releasing exclusive memories as NFT’s for sale.
Anything that has to do with blockchain technology like NFTs will have a major impact on data, data centers, and energy usage. So, what does the carbon footprint of NFTs look like? Many NFT creators are using the Ethereum system. Because NFT’s use blockchain technology, some NFT creators are promising to create work that is carbon neutral or even carbon negative in the future. But until then, NFTs will cause a rise in data and data center usage.
We live in a world that revolves around data. Because of NFTs, now even the art world is consuming a tremendous amount of data. The good news is that the data center industry is going green.
Technology giants like Microsoft, Facebook, and Amazon have already implemented green energy for their data centers. Solar energy, wind energy, and other renewable energy solutions are making data centers more efficient than ever before. All of these tech giants have not only reduced their carbon footprint, but they have all pledged to be carbon negative in the near future.
The rise of non-fungible tokens has proven that we are living in the age of data. Everything has turned into data including art and how people invest their extra money. This is an exciting time for artists, investors, and even the data center industry. The most important takeaway regarding NFTs is the need for sustainability. Many of the largest technology giants and the data center industry have made it a priority to be more sustainable. The NFT industry, its creators, buyers, and collectors need to make this a priority as well.