By now, it is a safe bet that everyone has heard the terms cryptocurrency. blockchain and Non-Fungible Tokens (NFTs), but what are they, really? What makes them work, and why is everyone so enamored by cryptocurrency and NFTs?
To start out, let’s define these terms, so we can better understand what they each are.
Defined by Investopedia, it is “…a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.” It also states that, “Many cryptocurrencies are decentralized networks based on blockchain technology.”
Forbes says that, “A cryptocurrency is a digital, encrypted, and decentralized medium of exchange. Unlike the U.S. Dollar or the Euro, there is no central authority that manages and maintains the value of a cryptocurrency.”
In other words, crypto is a de-centralized virtual currency that’s encrypted so you can’t fake it, and it’s de-centralized so that the theoretical owner of the cryptocurrency can’t mess with the price. Unlike the majority of investments, even if the currency is backed by an institution, that institution has little control over the currency – at least partially because of the decentralization.
A Non-Fungible Token:
According to Business Insider, an NFT is “…a digital asset that links ownership to unique physical or digital items, such as works of art, real estate, music or videos.”
There is more to defining an NFT than just this, which will be discussed below.
Investopedia explains it is “…a type of shared database that differs from a typical database in the way that it stores information; blockchains store data in blocks that are then linked together via cryptography. As new data comes in, it is entered into a fresh block. Once the block is filled with data, it is chained onto the previous block, which makes the data chained together in chronological order.”
Euromoney explains a blockchain as “…a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system.”
So, to sum it up, a blockchain is a way of storing data that takes data and puts it inside blocks. Once a block is filled, it’s encrypted and when new data comes in, you rinse and repeat.
Now that we’ve covered the basic definitions, let’s use one of the most well-known cryptocurrencies, Bitcoin, to explore how to get cryptocurrency.
How do you get a Bitcoin?
To start out, the way you gain crypto is called mining. Investopedia says that, “Mining rewards are paid to the miner who discovers a solution to a complex hashing puzzle first, and the probability that a participant will be the one to discover the solution is related to the portion of the network’s total mining power.”
Here is an explanation based upon a video I saw once: A bunch of CPUs are mining for Bitcoin with pickaxes. Each hit is an equation that could be the one to crack the crypto code. When a CPU hits the right equation, then it collects a Bitcoin. Because of its scarcity and energy costs, Crypto is a risky business, and combined with price fluctuations, it’s even more risky.
Coinario explains price fluctuations as “…supply and demand. For instance, a particular cryptocurrency has a cap. Once it gets reached, it will no longer create any more. In general, the price goes up when the demand cannot keep up with the supply.” Here’s an example that doesn’t involve cryptocurrency: retro video games. The game Super Mario 64 was made for the Nintendo 64, which is a console that discontinued years ago. This means that Nintendo will most likely never re-produce the original Super Mario 64 for the original console. As such, if the game is complete (comes with the manuals, box, insert, game, etc.,) the price skyrockets. Supply and demand dictates that no more will be made, and since many of those in circulation are worn, or missing the paper insert, prices are rather high for complete sets. The same is true for cryptocurrencies with a set supply. As the end of that supply is approached, the price will increase with demand.
The Allure of NFTs
And now, we enter the world of non-fungible tokens. You’ve heard the name. It’s impossible to escape them. Famous rapper Eminem bought one for $462k USD. Nickelodeon has NFTs of their older 2000s TV shows. Someone tried (and failed, in my opinion,) to create an NFT TV show. So what are the benefits and uses of NFTs?
Before we cover why NFTs are so popular, why don’t we expand on what an NFT is, since there is a lot of confusion about what, exactly, they are? Also, while we’re at it, what is fungibility? According to Business Insider, fungible items are mass-produced, more akin to my analogy above. Non-fungible means they’re unique and can’t be swapped. A retro gaming YouTuber who goes by Scott the Woz made a joke that if he drew a line on his copy of Sonic the Hedgehog 2, it was the rarest copy out there. The concept he was trying to get at is: Yes, you could exchange another copy of Sonic 2 for his, but they won’t be exactly the same, since his has a line on it.
So, to sum up what I just covered: NFTs are non-fungible digital assets that assert ownership over certain items, and they’re unique. But here’s the thing – you can just right-click and save it as any image you want, so why buy an NFT of that image? You can copy an image, but you can’t copy ownership, and that’s what an NFT gives you. You can have a ton of images on your computer, but you don’t own the files. And because you don’t, you are extremely limited in what uses you could put those pictures and models to.
If you’ve ever played, or had a child who’s played, Roblox, you know that there’s a multitude of “get free Robux” scams. Robux is Roblox’s form of virtual currency, and the scammers trick children by asking for their username and password so they can “put Robux into their account.” This is Phishing 101, and if they can trick small children, then they can trick grown adults, right? Correct. As it turns out, there are a ton of NFT scams, including a million-dollar rug pull earlier this year, that are often surprisingly similar to Robux scams. So, let’s talk about some NFT scams.
According to Norton, the cybersecurity company, hackers often use practically the same methods as the Robux scams mentioned earlier. They create fake websites, offers, giveaways, impersonations and almost anything required to pull people in. Scammers are just a different breed. Now, here’s one that’s kind of interesting: People will plagiarize NFTs in order to trick people and get money. If anyone reading this ever wants to start buying NFTs, here’s a good way to avoid plagiarized NFTs. Look for verification marks. According to the NFT auction site OpenSea, if there’s a checkmark next to the user name, that should mean they’re a verified seller, and unlikely to scam you. However, if it’s a checkmark for the collection, that means that it belongs to a verified account, and it’s gained some interest.
So why are people selling their left kidneys to get NFTs for ugly images of monkeys? It’s the status symbol of being able to spend all that money on NFTs. Personally, I find this stupid. Spending thousands of dollars just so you can say you own it is ridiculous! I don’t know why people are doing this, and because everyone’s different, it’s hard to nail down the reason. I guess it comes down to a philosophy lesson, where humans are trying to one-up each other constantly.
Now, how would I change NFTs to make them actually useful? Well, for one, I understand that each represents the only one of their kind and that “justifies the price,” but it doesn’t. Social media company Reddit put out avatar NFTs (called CryptoSnoos) that offer benefits on Reddit, but they’re way too expensive to be used practically. Reddit has started giving them out for free to anyone over 18. While it sounds nice to give them out for free, one user explains why they think Reddit did this: “Basically, they’re hoping that others are going to see relatively active users’ (such as yourself) avatars more often than those of relatively inactive users. It’s free advertising and you’re participating in return for a free avatar.”
Even with the giveaways, there’s still hostility towards the concept. One subreddit has gone so far as to ban those who use said avatars! That’s just too far! It barely costs anything to make an NFT. All you need is an image, or a way to make an image, a way to link the image to a piece of data on the blockchain, and if you choose to use a site that’s already up, a couple button clicks to accept the terms of service. The only thing it can cost you if you have those prerequisites is your time and energy, or maybe a small fee if going through one of the sites that charge you. The point is, if it’s a small group of people and not a big corporation making NFTs, nine times out of ten, any amount of payment will make more coming in than what’s going out.
So, what you’d need to do is lower the price, making it more affordable. The whole concept of “one-of-a-kind” is cool and quirky, yes, but… let’s be honest here, NFTs like Bored Apes are not one of a kind. It’s like if I took a Lego minifigure and swapped out one of his parts and accessories and claimed he was one of a kind. So, that doesn’t really justify the price. Now, if it’s was just one ape image and one for every other animal, that’d be worth a bit more. But thousands of dollars? That just screams “too much expendable income.” The prices should be lowered, especially because that’s probably affecting supply and demand.
The second thing I’d change is actually giving physical rewards by buying NFTs, as Business Insider said earlier. I do not believe I’ve seen any actual NFT rewards, aside from lore bits for a horror game and Reddit’s avatars. I believe the reason is that it’s easy to trade digital assets, but not physical. However, here’s an idea for a digital reward that developer Ubisoft has already done: Cosmetics in multiplayer videogames.
Companies such as Epic Games have built empires off the concept of digital assets. Their game Fortnite has made a ton of money off sales of their virtual currency, V-Bucks. How do you use said currency? You use it to buy cosmetic items, or pay to enter a progressive system that allows you to earn cosmetic items. You can play Fortnite without spending a single dime; it just expands the experience if you spend virtual currency on virtual items.
What a company similar to Epic could do with their game is sell NFTs, but, give a unique cosmetic based off of said NFT with each purchase. This could be done by linking the account used for the game to the account used for the NFT site. Then, when a person transferred the NFT, if the transferee had their account linked to the game, they would take possession of the cosmetic. As implied earlier, this isn’t an original idea. While looking for the company that did do this, as I saw it in a Reddit ad a while back, I found that Ubisoft has a similar system, linked above.
Practical Uses for Blockchain
Now, let’s go to the backbone of NFTs and cryptocurrency: Blockchain. What are some other uses for it? Is it used practically?
Well, according to Insider Intelligence, healthcare research is a use. They say that no info would be tied to a single patient, but it could be put on a blockchain with many other patients, to be used by many researchers, which reduces privacy concerns. In their scenario, the blockchain would have basic info such as age or gender, or medical history. Here’s an example: Bob is a 25-year-old male who has his data stored on the blockchain. There are millions of 25-year-old men in the world, and what are the odds that they find Bob based off his basic description without a name? Another use they state that I believe is more practical is real estate. According to them, “The average homeowner sells his or her home every five to seven years, and the average person will move nearly 12 times during their lifetime. With such frequent movement, blockchain could certainly be of use in the real estate market.”
Normally, buying a home seems like a huge ordeal. However, instead of making the title deed a piece of paper, put it on the blockchain as a piece of data. Then, transferring ownership is a cakewalk, which will speed up the process of buying and selling a home. You’ll also be able to view the entire ownership history, which will make it easy to single out bad homeowners. This technology could be used very efficiently outside of cryptocurrency if handled correctly.
So, in conclusion, this technology is still pretty young if you look at it objectively, making it understandable that there are kinks that need to be worked out. The NFT market still deserves a huge overhaul, it’s full of scams, and some large crypto thefts have occurred also.
I hope I’ve provided a better understanding of how it all works and fits together, and explained the practical uses for blockchain, other than storing monkey images.