Art + Blockchain + Inclusion

Learning Center: NFTs Demystified

What are NFTs, and What Does “Fungible” Even Mean?

NFTs are tokenized versions of digital assets taking the form of art, music, games, tickets, memes, and other types of collectibles. They are made using coded smart contracts, which are then permanently minted into digital tokens on a blockchain.

“NFT” stands for a non-fungible token. To understand what that means, let’s discuss the difference between the term “fungible” and “non-fungible.” Fungible describes an asset or item that can be easily replaced by an item of the same type and value. For instance, a $10 bill is identical to another $10 bill in both value and appearance, making them interchangeable. Non-fungible assets are the exact opposite of this in that they are unique in their features, value, and aesthetics.

Each NFT has an identifying code that creates a one-of-a-kind digital asset. While NFTs use the same blockchain technology that powers cryptocurrencies, they differ in regards to their non-fungibility factor. Cryptocurrencies are interchangeable, and therefore they are fungible. Like in our example of a $10 bill being the same as another $10 bill, a bitcoin is the same as any other bitcoin.

Clean NFTs

The most widely used blockchain network for the creation and issuance of NFTs at this time is the Ethereum Blockchain. Ethereum uses the Proof-of-Work (PoW) algorithm, which is a mechanism of blockchain validation.

As NFT creation has increased in popularity, it’s become clear that a large carbon footprint is associated with using the Proof-of-Work (PoW) process. PoW requires a large amount of computing power for processing, resulting in a high level of energy use.

Due to growing environmental concerns over the Proof-of-Work consensus mechanism, there is a demand for solutions that allow NFT creation with less energy consumption. As a result, many artists and other individuals are now minting NFTs on blockchains that employ the more environmentally friendly Proof-of-Stake (PoS) consensus mechanism. For more on energy usage of PoW and PoS go to Lesson 2: How Blockchain Works.

One example of a blockchain that has emerged as a leading energy-efficient network is Tezos which is estimated to use two million times less energy than Bitcoin. Several NFT marketplaces built on the Tezos network have recently launched, such as the very popular Hic et Nunc.

Tezos NFTs are “Clean Non-Fungible Tokens” and Bit.Shes features Tezos-backed NFT’s in our gallery.

An Example of a Clean Tezos-backed NFT:

by artist Christina Strok

How Are NFTs Used?

NFTs have seen a significant growth spurt recently. Let’s explore some examples of how creatives, businesses, and charities are using NFTs. 

Creative Use
NFTs are creating alternative routes for artists to display their work and connect with fans and collectors while sidestepping the art institutions that have often been exclusionary.

The art world has long been known for its discriminatory exhibition practices regarding the work of women, people of color, queer artists, and others. This study of 18 major U.S. museums, published by Plus One, found that 85% of the exhibited artists were white and 87% were men.

NFT technology lays the foundation for creators to have more control over the value and the conditions of sale for their digital creative works. Likewise, this same technology enables creators to form new distribution channels for art and performance access.

Another benefit of NFTs for creators is that royalties can be programmed into smart contracts. It is rare for artists to be compensated for their work beyond the initial sale. With NFTs, the artist can opt for a percentage of automatic royalties for every resale transaction. 

Business Use
Creatives, celebrities, companies, and others, are using NFTs to connect with their respective audiences, to generate additional income, and as a means of brand awareness, 

Some companies use NFTs to create a marketing buzz, such as Sneaker brand RTFKT which designed an NFT sneaker for the Chinese New Year and put it up for auction. The auction generated interest surrounding the brand, and the digital sneaker sold for close to $30,000.

Another example of brands utilizing NFTs for marketing purposes, but this time with a charitable slant, is the toilet paper company Charmin. They auctioned off NFTs (dubbed “NFTP” or “non-fungible toilet paper”) and donated all of the proceeds to charity.

Businesses are turning to NFTs as a way to combat counterfeiting. Tickets and other products can now be encoded on the blockchain with a unique snippet of code. This makes each ticket or product a one-of-a-kind verifiable NFT that can significantly reduce counterfeit sales.

Charitable Use
An increasing number of charitable organizations are choosing to engage with NFTs in order to further their missions. Tokens for Humanity, for instance, is the first charitable organization to issue NFT collectibles to benefit charitable organizations.

On that note, BIT.SHES B.Give Initiative commissions NFTs, all proceeds of which benefit inspiring charitable organizations.

Key Takeaways:

  • NFTs are tokenized versions of digital assets such as art, music, games, tickets, memes, and other types of collectibles.
  • “NFT” stands for non-fungible token. This means that NFTs are not interchangeable as they are unique in their features, value, and aesthetics.
  • The creation of NFTs can carry a hefty carbon footprint when they are created on a blockchain that utilizes Proof-of-Work (PoW) validation.
  • Due to growing environmental concerns, many people are seeking more energy-efficient solutions to NFT creation by utilizing blockchains such as Tezos, which employs the more environmentally friendly Proof-of-Stake (PoS) consensus algorithm.
  • NFTs have a wide array of uses for creatives, businesses, and charitable organizations.