What are NFTs, and why is everyone talking about them?

In March this year, the then Twitter CEO Jack Dorsey's first tweet was sold for over Rs 21 crore. The tweet, which read "just setting up my twttr," was first published on March 21, 2006, and was auctioned off for charity by Dorsey. It was sold to Malaysia-based businessman Sina Estavi, the chief executive of the technology firm Bridge Oracle. Similarly, in the same month, a 10-second video clip was bought by an art collector from Miami, US for Rs 49 crores. Now, you may be wondering that this tweet is still in Jack Dorsey's Twitter account and the video can be watched for free, so what's the point of buying it? To know the answer to this, you have to first know what nonfungible token is.

Dorsey sold his tweet as a nonfungible token (NFT). NFT is a buzzword these days and is being discussed a lot on the internet.

What exactly are NFTs?

NFTs stand for Non-fungible tokens. Basically, it’s a cryptographic token that represents something unique and cannot be changed. They are unique tokens or rather digital assets that generate value. 

When we say cryptographic, some people might confuse them with cryptocurrencies like bitcoin. However, the two entities are completely different as bitcoins can be exchanged while NFTs cannot. To explain it more clearly, a bitcoin is a digital asset, but an NFT is a unique digital asset. This means, the ownership of an NFT remains with just one person and cannot be duplicated. Owning an NFT would thus mean that you have a digital asset that nobody else in the world has.

Say, there's a 10 rupee note. It can be substituted by another 10 rupee note and the value will remain the same. Similarly, a ten-gram gold coin can be substituted with another gold coin of equal weight. Now, say there's a handwritten letter by Mahatma Gandhi or a painting by a popular artist, they cannot be substituted because they are unique. If you extrapolate the letter or the painting to the digital world as a collectible, you'd have an NFT.

When you send bitcoins to someone, an entry is made on the digital ledger. A similar entry is made in the case of NFTs as well, but here, the file address is also recorded, which establishes the ownership of the NFT.

In the recent past, news about NFTs is doing the rounds and naturally, people are curious about it. NFT has become hugely popular among people as they want to buy and own items that are exclusively available only in digital form. The trend is perplexing those who might wonder why so much money is being spent on items that only exist in digital form and can be viewed by anyone for free.

What can NFTs be used for?

NFTs can be used for digital assets that are indistinguishable from each other. This is what proves their worth and uniqueness. All kinds of digital objects – images, videos, music, text and even tweets – can be bought and sold as NFTs. From virtual games to artwork, NFTs can be used to own any such asset. They cannot be traded on traditional exchanges and can only be bought or sold in digital marketplaces.

Some of the most high-profile sales have been in the form of digital art, while in sports, fans can collect and trade NFTs relating to a particular player or team.

How big is the NFT market?

Even though they have been traded since 2017, the sales of NFTs have seen an enormous hike recently. NFTs surged in popularity in early 2021 and then had another explosive jump around August. According to data from market tracker DappRadar, sales volumes of NFTs surged to $10.7 billion in the third quarter of 2021, up more than eightfold from the previous quarter.

In the past few months, some pieces have got sold for millions of dollars apiece. In October this year, there were $2.6 billion of sales on the biggest NFT marketplace, OpenSea. This was a massive increase from the $4.8 million in October 2020.

Even billionaire Elon Musk's partner, Grimes had launched a digital crypto art collection this year that was titled 'WarNymph'. Within 20 minutes, the singer sold 10 NFTs and earned $5.8 million (approx Rs 42.74 crores) from the collection.

What are the risks?

Just like cryptocurrencies, NFTs are largely unregulated. Anyone can create and sell an NFT and there is no guarantee of its value. Losses can stack up if the hype dies down. Fraud and scams are also a risk.

NFTs in India

In India, the concept of NFT is completely new. It may take some time to catch the trend here, say experts. However, crypto exchanges in India like WazirX and NFTically have started to sell non-fungible tokens as well and in less than two months, India has seen three new players dealing in NFTs.

There was a sudden frenzy about NFTs in India last month after superstar Amitabh Bachchan broke all records by coming up with India's first rare art NFTs, including Madhushala NFTs, The Loot Box NFT, Iconic Vintage Posters NFT and BigB Punks and NFT Arts went were auctioned $966,000 or Rs 7.18 crore, the highest ever in India.

T 4085 - Looks like The Punks and Art is talk to the town .. Lets rock it with the laser focus .. Last few hours to go ..@beyondlifeclub #AmitabhNFT #AmitabhBachchanNFT #NFTCommmunity #NFTverse #NFTartists #NFTart #nftcreation pic.twitter.com/TyQsVdMfgH

— Amitabh Bachchan (@SrBachchan) November 4, 2021

Salman Khan has also promised the launch his own line of NFTs soon. Other personalities, which seem to be carrying the torch for NFTs in India include Sunny Leone, Vishal Malhotra, music producers Ritviz and Nucleya and Designer Manish Malhotra. As NFTs gain prominence, more celebrities are likely to join the party.