Understanding NFTs & DeFi Marketplaces
Niki Graham
Posted on March 11 2021
Let me help you understand what this trending “NFT”-talk is all about. Imagine the Mona Lisa, a famous “one-of” original painting. It’s valued at over $850 million USD and, like most authentic originals, comes with an impressive provenance, or history of ownership. There are thousands and thousands of prints or copies which are worth much less but nonetheless, owned by many who appreciate the art. This same concept of originals and prints translates well when learning about NFTs. As Gramatik’s song, “War of the Currents” says, let’s “Learn Bout Something”!
NFT 101
Think of NFTs (Non-Fungible Tokens) as the digital Mona Lisa, or prints of the Mona Lisa, but with other digital goods such as music or digital art. Artists can now publish their originals and copies on Decentralized Finance (DeFi) marketplaces to be bought, sold, and traded, just like stocks and cryptocurrency.
Where physical art provenance may be harder to identify and list (especially for older or unauthenticated works), tokenizing digitally with blockchain is actually a better solution. Not only are all originals authenticated, but the sales and ownership is tracked and traceable with encryption keys, or the exact location the art resides in digital space.
NFT 102
Small digital assets can be uploaded entirely to the Ethereum Blockchain, or other smart-contract Blockchains, where larger files may need to also leverage a Blockchain for decentralized file storage, such as IPFS. Using our previous comparison, the digital Mona Lisa, a single image, could be stored with its provenance entirely on Blockchain. However, a feature-film about the Mona Lisa would require much more space. This does not devalue the content, but is does require utilizing a Blockchain built for large file storage; a lot like how you would want to store a movie on an external hard drive instead of your laptop.
Art is a wonderful space for people to celebrate creativity and originality, but also often a highly-profitable investment and space for collectors and investors. Another benefit of digital art investment is that it’s more accessible: one only needs internet access creating more opportunities for beginners to get involved and invest or collect. Digital art in the cyber world can also be more affordable and attainable for everyday investors on a budget. While there is no direct relationship between the value of an NFT and the price of Ether, one could argue that the success of an NFT is dependent on the success of it’s Blockchain host.
