NFTs use blockchain technology to authenticate ownership of physical art and digital assets, but some question the large amount of energy required.
There has been quite a bit of buzz recently in the world of technology and art about NFTs and cryptocurrency. NFT stands for Non-Fungible Token, which might be an unfamiliar term for a unique digital code within a blockchain that is not easily replaced, but knowing this general definition can still leave many questions unanswered. Here’s an overview of what NFTs are, how they work, and why these intangible digital tokens are selling for thousands (and even millions) of dollars.
NFTs are based on blockchain technology, a form of which was discussed as far back as the 1980s. Bitcoin is recognized by most as the first implementation of a modern blockchain. While bitcoin is used as a digital cryptocurrency, blockchains can serve various purposes for storing information that is unrelated to currency. The overriding usefulness comes as a result of the tremendous difficulty in hacking a blockchain. It’s a distributed network of encrypted data that is layered upon itself with each added block and checking the validity is relatively easy for any ‘miner’ in the network. This means policing and correcting errors is simple and the odds of theft or alteration are low. That said, some smaller platforms have been taken over when a group of miners achieved 51-percent control, but there is little chance of this happening on large and popular networks.
NFTs are used as a form of authentication for art and other collectible items. They take the form of blockchain transactions that encode information about the collectible item. While physical art can be backed by an NFT, it is more common at the moment to use them with digital collectibles, such as the first Tweet posted by Twitter CEO Jack Dorsey/Twitter. However, owning an NFT for publicly available digital content makes it hard to see the value. The Tweet is embedded below, for example, so what exactly is owned? The idea is that while anyone can embed the Tweet, copy the text of the Tweet, even take a screenshot, those will all be copies, while the original will be owned by one person and the ownership can be confirmed with the NFT. It’s not an easy concept to embrace, but the technology seems to be enjoying a surge of interest. Complicating matters, CoinDesk recently reported that an NFT was created for a Banksy original, then the physical art was burned.
NFTs & Climate Change
A reply to Dorsey’s Tweet about the NFT, pointed out the common complaint that minting NFTs causes pollution. Although this is technically inaccurate, it likely is in reference to the relatively large amount of energy required, with some estimating 76-kilowatt-hours for each NFT while others calculate as high as 340-kilowatt-hours used. Even at the lower power estimate, this would be enough to fully charge a Tesla Model 3 with the long-range option, which gives a range of 353-miles. It is a significant amount of power used and most power generation is still reliant on fossil fuels, hence creating pollution.
Traditionally, some art is sold with physical tokens or signed documents to confirm ownership. The NFT is much harder to fake, so there is value there, but it is a fair point to question if some other technologies should be used given the urgent and more important concerns regarding climate change. There is some irony that the fees charged for transactions on the Ethereum blockchain platform are called gas. The blockchain industry is aware of this issue and work is being done to reduce the energy consumed for NFTs and other transactions, so the conflict with environmental efforts may be greatly reduced in the future.
Blockchain technology, cryptocurrency and NFTs are inevitably tied together. Some form of cryptocurrency is required to purchase an NFT and both intangible digital products are based upon blockchain networks. Bitcoin or Ethereum are fungible, as in easily replaceable and exchangeable. For example, one bitcoin equals one bitcoin and that presumably will never change. NFTs, on the other hand, are non-fungible and trading for another NFT may or may not be possible since each can represent a different item and have different values. The burned Banksy incident mentioned above was an intentional act, with the owners stating that the value from the physical piece had been transferred to the NFT by burning the original. NFTs are quite interesting and although they have existed for a few years, attention has grown significantly in the last few weeks, largely thanks to sales of NFTs reaching into the millions.
Source: Jack Dorsey/Twitter, CoinDesk
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