Earlier this year, a JPEG image sold for $69 million. That’s $69,000,000 for a a digital pic on a computer.
From an outsider’s perspective, it seems ridiculous, but the technology behind it all is fascinating. You see, the artwork that sold for $69 million was sold as a non-fungible token (NFT) on a blockchain. A blockchain is like a digital ledger that uses cryptography to securely store records. How it all works is beyond the scope of both this article and my understanding, but the point is, blockchain allows us to store records in a way that’s highly secure. It also allows an NFT to be unique and its ownership verified. That’s a game-changer in the digital realm.
Much of the physical world around us has been replicated as files on the internet. But a huge difference between the physical world and the internet is that files can be exactly copied on the internet. It’s difficult to make an exact copy of something in the physical world, but it’s frighteningly easy to do so on the internet.
NFTs bring another physical-world property onto the internet. NFTs allow unique digital objects to be authenticated. This is huge. Let me explain.
Baseball cards are a physical item that some people like to collect. They work great in the physical world. A Mickey Mantle rookie card recently sold for over $5 million. There are a limited number of 1952 Mickey Mantle rookie cards in existence. As far as I know, they can’t be convincingly forged. This is a property of the physical world — physical objects cannot easily be copied. You cannot simply create a new 1952 Mickey Mantle rookie card and pass it off as an original.
Now consider a digital copy of the 1952 Mickey Mantle rookie card. It takes about two seconds to make an exact copy of the file on your computer. Would anyone even pay a dollar for that? Even if you did pay for a digital copy of the card, there would be nothing stopping you from creating hundreds of exact copies of it and distributing it to others.
With NFTs though, you can create a unique file with only one verifiable copy. Sure, you can find ways to copy the content of the file, but anyone would be able to find out that each of the copies is a forgery. It’s the ability to create a unique digital asset on the internet that cannot be replaced or duplicated that’s a game-changer. Now digital assets can be unique, just like assets in the real world.
We’re in the wild early days of NFTs. Right now, people are buying and selling useless files for ridiculous prices. If you look at other game-changing technologies when they first came out, this is not unexpected.
The Apple App Store was opened on July 10, 2008. It was a game-changer, and people immediately began buying and selling useless files for ridiculous prices. Less than a month after the App Store opened, a developer created an app that simply displayed an image of a glowing gem and a short mantra. The developer sold the app on the App Store for $999.99, and eight people bought it.
Obviously, the App Store has come a long way over the past 13 years, and these days it’s extremely useful for creating value and functionality on millions of phones. NFTs are following the same trajectory. Expect these early days to be like the Wild West. Expect a lot of useless, scammy NFTs to sell for millions. Expect the initial “uses” of NFTs to fade away like the fads they are, only to be replaced by more mature, clever, and valuable uses that are yet to be invented.
No, NFTs are not just for digital art. They’re much bigger than that. I can imagine a future world where every digital file sold on the internet will be sold as an NFT, including ebooks, online courses, music albums, games, and objects within games. In our future world, many physical items like our cars, homes, and collectibles may also have NFT counterparts. Perhaps our credit cards, drivers licenses, and contracts will also be stored on the blockchain as NFTs.
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