I get it, but at the same time I don’t get the hype over NFTs

     Over the past year and a half, three words that I have been hearing a lot almost everywhere in the tech world are “Non-Fungible Tokens,” better known as “NFTs”. Up until a few days ago, I thought that NFTs were digital works that people buy for no real purpose. This is about as far as my understanding of this topic went, so decided to finally sit down and research NFTs.

     While I was trying to learn about NFTs, almost every article used words like “blockchain, cryptoart, and public ledger” and although I am a computer science major, I had absolutely no idea what those words meant. Honestly, I think the best way to understand what an NFT is, and how it’s shifting the way we value things while simultaneously exacerbating the climate disaster, is to break down the meaning of each of the words with examples that make sense to you. Let’s first break down the “Non-Fungible” part of NFT. Say that you want to buy a Taylor Swift vinyl. When you order a Red (Taylor’s Version) Vinyl, you’re not placing an order on a SPECIFIC vinyl, you’re not saying “I want vinyl #132639 you’re just telling the order form “I want a Red (Taylor’s version) vinyl, whichever one is sent to me, I’ll take it.” This is an example of something that is fungible, because as long as a red taylor’s version vinyl shows up at your door, you will have no idea how many times they replaced the same vinyl for whatever reason before it showed up on your doorstep, because to you, they’re all the same – they have the same songs and lyric sheets. Now, say that you have a vinyl that you just happened to be holding one day when you saw Taylor walking down the street. Naturally, you respectfully catch her attention and ask her for her autograph on the vinyl, and she ends up writing a special message for you on the vinyl as well. This specific vinyl is now NON FUNGIBLE because there is not a single other vinyl in this world like the one you have autographed by Taylor with a special message. The vinyl has emotional value, material significance, and is very valuable now because it is a scarce product since there is only one of them on the planet. This example can be generalized to basically everything in our world. Everything in our world is either fungible, or non fungible, and it should come as no surprise that non fungible items are often way more valuable than fungible items.

     Now that we’ve explained the NF part of NFT, let’s move on to the T, which stands for “Token.” To understand what a token is, you have to have a basic understanding of how the blockchain works, so here is an explanation based on what I gleaned from going down an NFT/Blockchain related rabbit hole. Say that you want to buy Taylor’s new lover album merch for valentine’s day. You want to buy the 30 dollar necklace, so you get your debit card out and enter your info onto the website. As soon as you enter the information, a message is sent to your bank saying “Hey, Radhika wants to spend 30 dollars on more Taylor Swift Merch, and the money needs to go into Taylor’s bank account” (an oversimplification, i’m sure it doesn’t just go straight to her bank account). The bank has a tally of all the money that went in and out of your account all day, everyday, and based on all of your transactions they have a calculated balance. Once the bank approves the transaction, the money is sent to Taylor’s bank where her bank is doing the same thing – keeping track of her daily transactions. Through this example, you can see that your money is basically a number seen on a screen, since not a lot of people carry all of their money around as cash these days. The bank keeping meticulous records is really important, and we trust them to do this correctly. A basic understanding of bank transactions is important because with the rise of the internet, people started to wonder if there was a way for people to continue performing these transactions without the banks acting as the middlemen – resulting in the blockchain. The blockchain basically does the same things that banks do, but instead of transactions being private between the banks, they are all recorded publicly on the internet. Let’s redo the previous example in a crypto world to see it in action. Say that the merch costs 30 crypto coins instead of American dollars. Now, instead of me entering my credit card information and waiting for my bank to validate the transaction, I enter my crypto information and it goes onto a public record, also known as a ledger, where everyone in the crypto world is connected and is keeping track of everyone’s transactions always, all the time. So, if I don’t have enough crypto currency to pay Taylor, everyone’s computers that are keeping track of everyone’s transactions will notice that there’s a discrepancy between my balance and my request, resulting in my transaction being rejected. If I did have 30 crypto coins, my transaction will be approved and be recorded in the public ledger. The ledger will now state that I have 30 less crypto coins and that Taylor has 30 more crypto coins, and EVERYBODY knows and has access to this information because the crypto world group validates every single transaction. 

     Now, let’s apply this concept to NFTs. Basically anything can be an NFT, there have been many NFTs made in the music industry, art industry, and even the sports industry with the NBA Top Shot NFTs that have gained a lot of popularity over the past year. NFTs can be photos, videos, gifs, tweets, audio clips, or anything that you want them to be. The only relevant and important detail is that since NFTs are digital pieces, they are bought using the blockchain technology, which verifies the authenticity and validates the scarcity of the NFT. Now, instead of people buying and paying crypto coins to just have more crypto coins as an investment, you can see a record on the public blockchain ledger saying “Radhika payed 30 crypto coins for an NFT of a video snippet of Taylor hitting the high note in All Too Well.” However, the description of the NFT will be encrypted so that no one else can copy the original NFT. This means that people can see what my NFT is if they want, and they can even try to reproduce it, but they will never be able to reproduce the original NFT, because it belongs to me and the description of the NFT is private through the help of encryption. 

     If you think about it, NFTs are the physical manifestation of how human psychology places value on things. The ONLY reason that an NFT is valuable, is because an entire group of people validates that what you bought is real and that there is only one of them. Humans have been trying to place value in things that have no inherent value for centuries. A good example of this phenomena would be the entirety of the Art industry. If you think about it, the only reason that certain artworks are worth hundreds of thousands, if not millions of dollars is because a group of people decided that a specific pattern of paint on a canvas is valuable because of its scarcity. However, now, instead of going to art galleries and auctions where you would bid for these valuable pieces of art, we have more sophisticated technology to do so through the internet and the blockchain. 

     It is important to note that the technology that is the backbone of the blockchain relies on computers doing a bunch of little calculations all day and night…forever. Most NFTs are stored on a blockchain called Ethereum, and Ethereum uses over 33 TWH (TeraWatt Hours) of electricity. Unless you know exactly how much power that is, it’s the same amount of power produced by the entire country of Serbia. As a quick reminder, generating electricity and energy usually comes from power plants burning fossil fuels that release carbon into the air, worsening the climate problem we are going through right now. Power consumption of the Ethereum blockchain increased exponentially over the past years and shows no signs of slowing down. Even after learning about NFTs it still blows my mind that this humongous amount of energy, that we can’t even begin to visualize, is being used to crunch numbers – because people are buying into this hype over how “owning” an NFT and having an entire group of people validate your transaction, somehow provides people with the approval they are seeking. TWH worth of carbon is being produced as the byproduct of the energy to merely crunch numbers! I feel like that’s such a trivial task that’s not really even helping improve the living conditions of anyone in the long run. Also, there’s the small added fact that it’s destroying the earth. It’s crazy how although NFTs live in the digital world, and none of it is tangible, however, the popularization of NFTs are having deeply irreversible effects on the real world.