If you are finally starting to venture into the social world again, you might find that a new acronym has been added to the small-talk vernacular at every table. NFTs—what are they even? Everyone has an opinion: some say that it has to be a fool’s game—you are paying a whole lot of money for what seems like nothing in particular. Others, especially those who have taken interest in the crypto-everything craze that has taken the world by storm, swear by the novelty and legitimacy of this new form of digital ownership.
As it becomes increasingly difficult to parse through the jumble of information available on- and offline about this elusive new tech-term, we turn to the experts. As the head of NFT at one of the world’s largest cryptocurrency exchanges, Binance, Helen Hai may just know a thing or two. Here, she answers all your questions about what NFTs really are, what a layman can do with them and how they can help artists and creators make a better living.
Could you explain what an NFT is to a complete layman?
NFT stands for non-fungible token. If something is non-fungible, it implies it is rare or unique. Therefore, the phrase “a rare or unique token” pretty much sums up the term ‘NFT’. In technical terms, NFTs are blockchain tokens representing a unique digital item, and can be nearly anything: art, music, gaming assets, videos, images and the list goes on. They can be entirely digital or tokenised versions of physical assets.
“NFTs can prove an item’s provenance and scarcity—and this is the very basis of high fashion and art”
Bitcoin, for example, is fungible. If you trade one bitcoin for another, you’ll have the same thing. Unlike bitcoin, every NFT is unique and cannot be replaced or exchanged like-for-like. Just like in the physical world, scarcity is what gives value to NFTs. The blockchain helps to establish their ownership, which is instantly visible and authenticated, providing proof that the collectible in your possession is special.
Are NFTs physically tangible?
NFTs are, by nature, not physically tangible as they are digital assets on the blockchain. However, NFTs can bring along physical tangibility. Some examples are how creators use NFTs as “tickets” to enjoy physical rewards. A recent example on the Binance NFT Marketplace was how Alphonso Davies rewarded his NFT buyers with a signed UEFA Champions League shirt and a golden ticket to meet him in person! So, NFTs are definitely not limited to being digital assets.
How can you determine how valuable an NFT is?
There may not yet be a precise way to determine the value of an NFT as the asset class is relatively new, but there are three key factors to have a good gauge:
Rarity refers to how ‘hard-to-get’ an NFT is. Good examples of rare NFTs are a first-of-its-kind artwork from a famous creator in the digital art industry, or an NFT created by a famous celebrity. Such NFTs have a premium value as they give people a sense of exclusivity. People are drawn to their intrinsic value, as the owner holds the blockchain proof of ownership. Solid examples of the unique effect of rare NFTs in the crypto-industry are the first CryptoKitties and Everydays: The First 5000 Days by Beeple.
The utility of an NFT comes from its real application, either in the physical or digital world. For example, some NFTs are more than just collectibles, since they can be used in games, like virtual lands, spells, or characters. This gives them immediate value, which accumulates over time depending on the popularity of the underlying project.
This is related to what I mentioned earlier—how far the NFT is tethered to real-world experiences or rewards. In terms of market practicality, NFTs with tangible value are best suited for short-term trading on the marketplace. This is because such NFTs have expiry dates, like tickets. Meanwhile, other collectibles like NFT-tethered limited edition sneakers can accrue value over time as the number of items in circulation dwindles.
“You can also use NFTs as a form of investment. But remember, while NFTs hold vast potential, they are relatively new”
So what do NFTs have to do with art and digital fashion?
Artists, designers and fashion brands are able to express their art via NFTs and use them as a platform to reach out to a bigger audience. Most importantly, NFTs present a new opportunity to turn digital designs and art into luxurious, exclusive, collectible and highly scarce pieces.
How are NFTs different from regular pieces of digital art or fashion?
NFTs provide digital art and fashion with a stamp of ownership and authenticity. They can prove an item’s provenance and scarcity—and this is the very basis of high fashion and art. To elaborate, NFTs are powered by smart contract programming, so every art or fashion design is protected. There may be duplicates but there is only one unique, original NFT created. This can be tracked through the origin of the smart contract.
How are NFTs relevant for the average art or fashion consumer? Basically, what can the average Vogue reader do with NFTs?
There are many ways to enjoy NFTs, but for an average art or fashion consumer, I think it’s extremely important that you buy an NFT because you genuinely like it. You can also use NFTs as a form of investment, but remember, while NFTs hold vast potential, they are relatively new. When it comes to investment, be responsible and aware of what you are buying and how you can define its value. That is why my advice is that even if you are interested in investment, buy an NFT only if you like it enough.
Can anyone start buying NFTs? What are some basic things you need to know before you do so?
Yes! You can simply sign up for a Binance account and you will be able to buy NFTs on the Binance NFT Marketplace. There are three things I recommend users find out before buying an NFT:
- What are you buying? Is it a collectible? An in-game asset? Are you sure it is authentic?
- How are you going to use it? Is it a form of investment or just a collectible?
- Are you going to sell it? If yes, then consider the three factors I shared earlier in determining the NFT’s value.
What sets a good NFT in the art or digital fashion world apart?
This is very subjective. Everyone has different preferences when it comes to art or fashion and the same goes for NFTs. I would say a “good” NFT is scarce (created by a famous artist or brand, or is a one-of-a-kind) or holds a unique story, making it very exclusive and timeless.
“NFTs cement ownership rights. This eliminates the biggest challenge creators and artists have ever faced—forgery”
What are some benefits of the emergence of NFTs for artists and creators?
NFTs cement ownership rights. This eliminates the biggest challenge creators and artists have ever faced—forgery. The blockchain acts as the guarantor, allowing creators to focus on what they do best: creativity, expression of identity, emotion and producing works for audiences to admire. Creators may also receive royalties each time their NFT is sold, giving them a sustainable stream of long-term income. The technology also combats the loss of income caused by piracy that demoralises creators and robs them of their rightfully earned revenue. Additionally, NFTs provide buyers with access to top quality pieces not available elsewhere and sellers with the ability to reach millions of people they may otherwise not have access to. In that way, it’s a win-win.
How can we alleviate the environmental impact NFTs may have?
The carbon footprint of NFTs has not been proven statistically. Blockchain transactions related to NFTs are not high in volume and cannot be compared in terms of carbon emissions to transportation, logistics, and industries used in physical artwork production. To elaborate, some NFTs operate on the proof-of-work mechanism and it is the most power-intensive blockchain platform. But many have also been created on the more eco-friendly proof-of-stake model where it is not as energy-intensive.
To alleviate environmental impact, creators or artists can use PoS (proof of stake) NFT platforms. An example is the Binance NFT Marketplace, which uses the Proof of Staked Authority (PoSA) network—a combination of Proof of Authority (PoA) and PoS—which is environmentally friendly, energy-efficient, and sustainable.
What good can NFTs create in the world?
NFTs can actually be used as a form of charity. For example, Binance NFT and Charity recently launched NFT for Good, showcasing artwork from three different contemporary artists, including the pioneering doodle artist Jon Burgerman. Proceeds from sales went to charity projects supporting children in need worldwide—like Binance Charity’s flagship project Lunch for Children, which provides nutritious meals to different schools across Africa, and the Smile Angel Foundation, a charity dedicated to supporting children born with clefts and their families. The NFT for Good campaign launched last month with digital artist Muartive also helped raise money for Crypto Against COVID.