Aren’t NFTs Just Expensive JPEGs?
No. NFTs are more than just the image, it’s ownership.
NFTs might not always have a fair value. Art has been used for money laundering and other illegal practices for decades, and maybe NFTs are next. But besides that, NFTs are more than a way to avoid tax and they are definitely more than just an image file anyone could download for free.
What is an NFT?
An NFT is a certain type of smart contract on the blockchain, mainly the Ethereum blockchain. There are a few types of tokens on the Ethereum blockchain. Mainly the following types:
- ERC20. These types of tokens imitate real currencies. They are fungible tokens and can be fractional and replaced by any other token of the same type. A dollar bill can be exchanged for another dollar bill or a fractional dollar coin. They might be different, but they’re all a type and amount of a dollar.
- ERC721. These are NFTs. They are non-fungible tokens and they cannot be exchanged for another one of the same kind. An NFT is a token of ownership. Mostly used for art or collectibles at the moment. An NFT might have a contract such as Crypto Punks, an owner such as yourself, and a price if you’d sell it. You cannot split a Crypto Punk, and not one is the same as yours. They’re unique.
- ERC1155. These are semi-fungible tokens. I don’t know much about these and haven't worked with them yet. These might be similar to Pokémon cards or other trading card games. There are a number of the same cards, but it's a limited number that cannot be fractionalized.
So an NFT is an ERC721 token. You might’ve heard of this term before. It is a standard created by the Ethereum Foundation, and multiple blockchains use the same standard.
What makes it so pricey?
A point of confusion for a lot of people is the price of NFTs. These are influenced by multiple variables. Some of which are:
- Gas fees. Ethereum and other blockchains use a sort of fee for creating, minting, and transferring tokens. This fee is called a gas fee. At times, the ETH gas fees can run very high, in the few tens of dollars.
- Scarcity. Because there is a limited supply, the price will rise as the number of people who want to buy one will increase. If 10.000 people want to buy 2000 NFTs, they might have to increase their offers to get what they want. This is basic economics and can be seen in the regular stock market as well.
- Hype. Projects such as Weird Whales and Crypto Punks receive hype at some times. This will create more scarcity which will increase the price. Especially if it’s a very nice NFT with unique properties.
In some cases, the price may rise due to illegal practices. But that cannot be avoided in any field. As I’ve said, it is done in other fields already.
Conclusion
An NFT is more than just a JPEG or PNG. Instead of just downloading a picture from the internet, you will own it. Anyone could still download it since it is likely saved decentralized on IPFS, but you will be the owner. Depending on the license, you could use it commercially, and you can definitely sell it for a higher price if the demand is met.
Thank you very much for reading and have a wonderful day.
