What are NFTs and why is everyone talking about them?

For some time now, the tech world has been talking non-stop about NFT. In the last year, the topic, which was in its infancy until the start of the pandemic, has become a real fever. To give you an idea, the digital artist Beeple, whose real name is Mike Winkelmann, sold a 10-second video, available for free on his Instagram, for 6.6 million dollars, and another famous person who got in on the fever was Neymar, who bought two items from a collection for more than 1.1 million dollars.

The NBA, the American basketball league, is raking in the big bucks in the Top Shotan NFT trading platform, where fans can buy rare cards, with only one edition, and more common cards (with up to 1,000 editions). The cards can be static figures, images of players or events, or special videos of the players' best shots.

Twitter founder Jack Dorsey auctioned off his first tweet, dated 2006, in which he was testing the platform, for 2.9 million dollars. It doesn't stop there. Whistleblower Edward Snowden, who revealed the US National Security Agency's (NSA) massive spying program, sold for 5.3 million dollars an image of his face created from pages of the court decision confirming the violations committed by the NSA.

But why are people spending millions to acquire digital objects that are freely available on the internet? Let's break it down.

What is NFT

The acronym NFT stands for Non-Fungible Token, but it has nothing to do with mushrooms. Fungible is the key word for understanding what lies behind NFTs. 

A fungible object is something that can be replaced by another like it: for example, a R$1 coin, a gold bar or shares are all examples of fungible objects. Leonardo da Vinci's Mona Lisa painting, on the other hand, is a non-fungible object because, although replicas may exist, the original is one and the same. 

This concept of uniqueness explains NFTs. Despite their strange name, Non-Fungible Tokens are nothing more than unique digital objects. Basically, the NFT is a new type of asset that has attracted the interest of many people around the world, especially after the outbreak of the pandemic.

NFTs are built on the blockchain (the same technology as cryptocurrencies). cryptocurrencies) and stored in different places on the internet at the same time. Simply put: the NFT is a seal that guarantees that a digital item is the original, even if there are other copies circulating.

What cryptocurrencies have to do with NFTs

As has often been the case over the last few years, when the issue gets complicated it's because at some point cryptocurrencies enter the game, virtual currencies that are unlinked from national central banks and which, for many, will replace traditional currencies in the future. 

What NFT and cryptocurrencies, such as Bitcoin and Ethereum just to name two of the main ones, have in common is that they share the same technology. What lies behind both is blockchain technology, which allows digital objects to be publicly authenticated as originals, although they can be replicated. In addition, NFTs are traded in cryptocurrencies.

"You can go to the Louvre and take a photo of the Mona Lisa, but the photo has no value because it doesn't have the provenance or the history of the painting," explained Rodriguez-Fraile, the man who bought the work of art from Beeple. Because of the sale, the artist became the third most valuable living artist in the world. 

In the case of the arts, the market is so promising that auction companies are embracing the buying and selling of digital works which, transformed into NFTs, gain uniqueness and value.

The impacts of NFTs 

The creation of NFTs has some important consequences. The first is that Non-Fungible Tokens are demonstrating that blockchain technology has another function, which goes beyond cryptocurrencies, and that this is likely to increase in the future.

On the other hand, the transformation of a digital object into an NFT is directly related to the concept of scarcity, i.e. items that are freely available on the internet and that anyone can obtain and replicate, almost magically become unique pieces. In short, scarcity is being created where it didn't exist.

But the main concern raised by the spread of NFTs is the impact that this trade in digital items could have on the environment. At first glance it seems difficult to understand the connection between bits and climate change, but the issue is serious.

The global banking system consumes around 264 terawatt hours of energy per year, according to a report by the NASDAQ index of the American Stock Exchange. Bitcoin, the world's most popular and energy-hungry cryptocurrency, consumes just under half that. This is because what is popularly known as "mining Bitcoin" - i.e. creating blockchain blocks - is an energy-intensive activity.

The popularization of NFTs could exponentially increase the demand for electricity, increasing the consumption of fossil fuels, which will have a direct impact on the environment, and causing price increases in electricity bills worldwide.

The NFT art sector is undergoing a revolution and speculators, who buy up cheap works in the hope that they will soon become valuable, are multiplying. The question now is: will this craze continue or will it collapse?