What are NFTs and why are they so popular?

What are NFTs?

If you own an electronic device and have access to the internet - which of course you do since you are reading this article - then presumably you've heard of NFTs before. NFTs are taking over the internet, sometimes selling for millions of dollars. The most expensive NFT artwork sold so far was created by an artist called Pak and sold for $91.8 million USD.

Wonder what such an expensive artwork could possibly look like? Don’t worry, we attached it below. But what are NFTs and why are so many people now arguing that they are "bad"? We will answer all those questions and enlighten you in this article.

The Merge. Image Credit: Pak

NFT stands for non-fungible token, which generally means something digital that is unique and can’t be replaced. Most NFTs are being sold as part of the Ethereum blockchain, which is a cryptocurrency second to Bitcoin in the market. NFTs are generally created using the same programming as cryptocurrencies, however a cryptocurrency is fungible and can be traded, while a NFT is unique. A NFT is a digital artwork that can be created and bought by anyone. Pictures, animations, essays, in-game items, a domain name - NFTs are unlimited. 

So why are people so obsessed with NTFs now?

NFTs have actually been around for quite a while. Kevin McCoy created the first NFT called Quantum and he minted it even before the crypto art market exploded. His NFT is a pixelated image of an octagon that changes shapes around the center in a hypnotically way. As of 2021 6.1 million NFTs have been traded across six main NFT categories (art, games, collectibles). NFTs are claimed to be part of the evolution of fine art collecting in the digital space. The uniqueness of the NFT with its specific code and spot on the blockchain is what makes the art so scarce and desirable. For digital artists, NFTs are a highly lucrative way to monetize their artwork.

Kevin McCoy, Quantum

So why can’t I just take a screenshot of the art?

The short answer to that question is you can. Nothing can stop you from taking a screenshot or make multiple copies of the digital art and make it your wallpaper. However, a screenshot will not give you the unique code of the NFT which grants you ownership of the original work. It is like taking a picture of the Mona Lisa, you will have a copy on your phone but the original does not belong to you.

How can NFTs be bad?

This is where it gets tricky. Many people refuse to participate in NFTs or any kind of cryptocurrency exchange. Part of the problem is the environmental impacts of the blockchain and NFTs. Creating an NFT requires an enormous amount of raw computer power and therefore electricity. Mining Ethereum for example consumes about 26.5 terawatt-hours of electricity per year. That is almost the amount of electricity that is used by the entire country of Ireland per year!

Therefore blockchain and cryptocurrency produces a lot of carbon-emissions - including NFTs. When thinking about cryptocurrencies and blockchain many people do not realize that all this data has to be stored. Cryptocurrency companies mine and operate warehouses all over the world that are filled with endless high power computers and air conditioning. 

In addition to the environmental effects, there have been reports that NFTs are possibly being used to launder money. On Feb. 4, 2022, the U.S. Treasury Dept. released a report that indicated that a number of schemes were centered around the digital art industries, potentially leading to financial crimes. The report examines the potential vulnerabilities of NFTs allowing criminals to move money and evade law enforcement scrutiny. 

Should I invest in NFTs? And protect them?

Wether you would like to invest in cryptocurrency or NFTs is your choice. NFTs are known to be riskier to invest in than crypto because they have a blurry future. If you decide to invest in NFTs, make sure to do proper research beforehand. We at GoodTrust are not crypto experts and advise you to do your own research. You can however secure your own digital accounts such as Coinbase or eTrade with GoodTrusts online vault here.

And just for fun, here are some of our favorite NFTs:

CryptoPunk #7523 sold for $11.75 million and is one of the nine CryptoPunks in a collection.

Image Credit Sotheby's

The GIF of a cat with a Nyan Dogecoin body sold for 45 ETH, which is around $69,000!

Image credit Nyan Dogecoin

And last but not least: The Gucci Ghost! A handmade drawing of a ghost dressed in, well... Gucci.

Image Credit Trevor Andrew