What is NFT and How NFT Works? Is NFT Bad for Environment

What is NFT Non Fungible Token

There is some super strange stuff happening on internet right now, and I need to tell you about it.

 

The first tweet ever tweeted in the history of twitter. The tweet was by Jack Dorsey. He is a co-founder of tweeter. And this tweet was somehow purchased for $2,915,835.47.

Recently, a single jpeg sold for 69 million dollars.

 

The NBA is selling little movements of basketball games for hundreds of thousands of dollars.

 

There are three simple letters that you need to understand what’s going on here.

 

Those letters are NFT

 

What is an NFT?

NFT stand for Non Fungible Token.

 

There it is, that’s the explanation. Non-Fungible Token, make sense, right?

 

No!

 

My issue is that people throw around things like block chain, crypto art, NFT, and they just expect me to understand what they are talking about, but in reality I didn’t.

 

But I don’t want to do the same thing with you all, so let’s learn about NFT.

 

Non Fungible Token

Let’s talk about the word fungible. It’s a very specific word that economists use; it has a very precise definition.

 

I want to use a different word for fungible for a second. Let’s just use the word replaceable. Non-fungible means non- replacement, you can’t replace it, there’s only one of them, it’s unique.

 

Everything in the world is fungible or non-fungible.

 

A sack of rice is fungible, you just want a sack of rice, you don’t care which one it is. The Mona Lisa, non-fungible, there’s only one.

 

Unsurprisingly, non-fungible things are way more valuable than fungible things.

 

So the NF in NFT is non-fungible.

 

Now let’s talk about the T, which is a token. To define this, we have to understand the block chain.

 

Luckily, there’s a way to understand this, and I’m going to make it as painless as possible.

 

Let's assume, I want to buy three slices of pizza from my friend John. He asked me for six dollars for these three slices. So I take out my debit card and as soon as I swipe my card, a message is sent to my bank, and he says, "Hey, this guy who has an account with your bank wants to spend six dollars on pizza, and The money needs to go to John's bank account.

 

Banks document every transaction and at the end of the day they have a tally of the money that went out of your account and into your account.

 

So, they can say based on all of these transactions, you have $50 in your bank account. And so when the request comes in as I swipe my card, my bank is like, based on all of your transactions, you have $50 in your account, I can send six dollars, and they approved the transaction.

 

Once that money comes into John’s bank, John’s bank is doing the same thing. They’re like oh cool, you had $80 and now you have $86, and they added it to his record.

 

Your money is just a number on a screen. It’s the result of a bunch of transactions.

 

You don’t barter with physical things; you don’t use cash so much. So the bank keeping meticulous records of every transaction becomes really important.

 

We trust the bank to do this correctly. Banks and other middle-men have been keeping stuff like this, running smoothly for centuries.

 

I mean kind of smoothly!!!

 

With the rise of the internet, people wondered, is there a way that we could do this same thing, coordinate this same transaction of transfer of money without the bank?

 

The result is a very clever concept called the block chain.

 

What is Block Chain?

The blockchain accomplishes the same thing that the bank was doing, but instead of talking to my bank account and John's bank, all transactions are actually recorded publicly on the Internet.

 

So let’s redo this example in a crypto world.

 

What is NFT Crypto?

Now lets understand how NFT works?

 

John charges me six NFT crypto coins for my three slices of pizza. I go to swipe my proverbial bank card to say yes; I want to pay you six coins.

 

Instead of the bank seeing that request for a transaction and trying to validate it, it goes on this public record where a bunch of people’s computers all around the world are keeping track of every single transaction of everyone always.

 

If I don’t indeed have the six coins in my account to pay John, all the people’s computers who are keeping track of every single transaction will notice that there’s a discrepancy.

 

They’ll be like dude, you don’t have six coins. (Ohh Poor Boy!!!)               

 

We’re looking at every transaction ever, you don’t have six coins. Your transaction is rejected.

 

If I have six coins, all the computers looking at the public record will see that request for a transaction and they’ll approved it.

 

You had six coins, and now John has six coins. And they’ll write that transaction into the public record.

 

Now John having those six extra coins is now the business of everybody, everybody now knows that.

 

The point here is that the group verifies the legitimacy of every transaction by monitoring every transaction to make sure that it adds up.

 

You might wonder, what does the block chain and this public record have anything to do with cat GIFs that sold for $600,000?

 

So in my pizza example, we talked about blockchain as a way to verify currency transaction. I pay you this much; you pay me this much, and everybody knows how much everybody has because it’s all public.

 

But this is where it starts to bend my mind a bit. What if we apply this to something that isn’t money or currency?

 

One day a transaction comes to light that a person wants to give three million dollars worth of coins to Jack Dorsey in exchange for a token or digital certificate, which says the tweet is now owned by that person. The only thing that blockchain cares about is, does the Malaysian businessman have three million dollars' worth of coins?

 

And so a bunch of computers all around the world look at the entire list of transactions and say like yeah, this guy has more than three million dollars’ worth of coins, they approve the transaction and now it is written in a public record that is unalterable that says that this Malaysian businessman owned this tweet.

 

The NFT token has been transferred to someone new.

 

This is what we call non-fungible token, NFT!

 

If there’s anything that gets human psychology to value something, that is, if an entire group validates that it’s real and that there’s only one of them.

 

There is a huge non fungible tokens list. Some music is being given tokens, lots of art is being minted as tokens and being brought and sold, and then of course there’s NBA Top Shots NFT.

 

It’s the weirdest thing.

 

As soon as humans have enough abundance to their basic needs met like, food, shelter, warmth, etc. The next frontier is to create value in things that have no inherent value.

 

The value turns into psychological hype. Excitement around a certain thing. We’ve been doing that forever.

 

I mean, the whole art industry is based on the idea of ​​a group of people who decide that this painting, canvas and a little of wood and paint is valuable, and thus it is valuable.

 

The only different from now is we now have the technology to do this in a non-physical way using this very sophisticated internet technology (NFT Digital Art) that is maturing very quickly.

 

So this is a lot of hype, and I know you’re thinking like cool, there’s a bunch of rich people online buying and trading digital art, and there're millions of dollars’ worth of cards, and it have the potential to change the world.

 

And I’m getting there, but first I need to talk about the crazy flip side to the NFT craziness.

 

The reality is that the technology that is the backbone for all of this, the blockchain stuff that we’ve been talking about, relies on the public ledger thing that I talked about.

 

That is the sort of heart conceptually, but mechanically, like physically, what it relies on is computers doing a bunch of little calculations all day and night forever.

 

Is NFT Bad for Environment?

Most NFTs are stored on a block chain called Ethereum. So the question is, how much energy does an NFT use? as of now, when I’m writing this, the Ethereum block chain is using 33 terawatt hours of electricity.

 

We all know that electricity usually comes from power plants that are burning fossil-fuels that are putting carbon into the atmosphere, which is a big freaking problem.

 

The power consumption of the Ethereum blockchain is exploding, it quadrupled in the like eight months, and it is showing no sign of slowing down.

 

It is a lot of energy that is not being used to like, move people around or produce things, it’s used to crunch numbers in a weird computer warehouse somewhere so that somebody can buy a fake token

 

Yes, it’s all digital, it’s all fake, it’s not real, but NFT is responsible for climate change, global warming, etc.

 

That means NFT is bad for environment.

 

I just want to finish this article now, talked about what this might mean in the future. This is definitely hype, and that’s the whole point.

 

I mean, these speculation markets are all about hype. We see all the time new technologies and new things that people get excited about. And they swarm it with their investments and the prize goes up, and then something happens.

 

In the 90s the internet was talking off and people were just realizing that you could make money on the internet you could make big businesses on the internet. The stock market was surging 400% in five years, mainly fuelled by so much hype excitement around these new internet companies.

 

This rise peaked in March 2000, and then bubble burst, and a lot of these companies either went under or completely lost of this excitement valuation that they had.

 

But did that mean that the internet went away? Did that mean that internet businesses didn’t come back? No companies want on to reshape our world. Right now I think we are probably in that stage of NFTs. It’s hype, its novel, it’s exciting, but what it’s pushing our minds to think differently about how we validate and verify things.

 

I’m not here to say the bubble’s going to burst, or whatever I don’t know. I just know that this is crazy moment where we’re getting our heads around a new technology and what it means, and eventually will adapt. This won’t be crazy, this won’t be novel anymore, prices will go down, but the technology that allowed it all to happen will probably stick around. 

 

I hope this article was helpful to clear all your doubts about NFT. Share your thoughts in the comment section below.

 

You can also check out the Future of Bitcoin that we have discussed in our previous article,

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