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There’s been a lot of talk about non-fungible tokens lately. In a brief departure from all things A.I., this week I’ll go over exactly what NFTs are and how people are using them.

What is an NFT?

NTF stands for non-fungible token. The fungible part refers to something that can be exchanged for something else that is equal to it. Say you have a note worth 20 Euros and you exchange it for two 10-Euro notes. You’d have the same amount of Euros. You could also swap that 20 for another 20 and still have the same number of euros. That’s because currency is fungible like that.

Something that’s non-fungible cannot be exchanged for something of the same value. Think of a single autographed photo, for example. There can never be another. Copies, sure, but never two or more originals.

An NFT is unique and can never be duplicated.

The “token” part refers to a certificate of ownership, granted to the buyer of the NFT from the seller. This is where the (usually Ethereum) blockchain comes into play. The NFT is registered on the blockchain along with information relevant to the sale. Think of the blockchain as a very reliable ledger that stores transactions, providing proof of ownership of the original NFT. This ledger can never be altered (in theory).

So, an NFT is essentially a certificate of ownership of some digital or physical assets that protects its value for future transactions. And that’s where the hysteria comes in. More about that in a moment.

How are NFTs Created?

Nowadays it’s as simple as creating an account with an NFT issuer such as OpenSea, a platform for anyone to upload metadata about an asset, such as a description, a photo, video, or audio file, and create a unique NFT. They also allow anyone to list the item for purchase on their marketplace. For a comprehensive overview of how to create an NFT, see this article.

NFTs are big Business

For better or worse, NFTs have blown up recently.

Songwriters have created NFTs for their music and sold them for millions. Does this mean that the owner of the NFT tied to a song has any rights to the music? Not necessarily.

It usually only indicates that the owner of the NFT has the right to sell that NFT later. And some NFTs are created in such a way that the original artist who created the NFT can be entitled to a percentage of future sales.

In some ways, NFTs are like unique playing cards; they don’t give the owner any rights to the person pictured on the card, but rather a sense of satisfaction from owning something unique that can potentially be sold for a profit later.

And for art collectors, it’s a way to directly support artists in a manner not available before NFTs.

How Much are NFTs Worth?

This is where things get crazy. There’s no intrinsic value to the tokens. Rather, the value of NFTs comes from what others will pay for them. And others will sometimes pay a fortune.

Of course, you can’t own a tweet, but for $3.8MM you can own a token, created by the original owner, and in a very traceable way, transferred to you.

What’s the Real Cost?

The dark side of the blockchain and its incredible strength is its carbon footprint. The blockchain is made strong and reliable by all the computers around the globe mining for digital tokens. This process uses a LOT of energy.

Here’s an excerpt from a Verge article:

Proof of work acts as a sort of security system for cryptocurrencies like Ethereum and bitcoin since there’s no third party, like a bank, that oversees transactions. To keep financial records secure, the system forces people to solve complex puzzles using energy-guzzling machines. 

Solving the puzzles lets users, or “miners,” add a new “block” of verified transactions to a decentralized ledger called the blockchain. The miner then gets new tokens or transaction fees as a reward. 

The process is incredibly energy inefficient on purpose. The idea is that using up inordinate amounts of electricity — and probably paying a lot for it — makes it less profitable for someone to muck up the ledger. As a result, Ethereum uses about as much electricity as the entire country of Libya.

I hope this helps demystify a few things about NFTs.

Enjoy your week!


Of Interest

How Leaders Capture Exponential Returns
Where many companies tire of marginal gains from early A.I. efforts, the most successful recognize that the real breakthroughs in A.I. learning and scale come from persisting through the arduous phases. Read more here.

3D Human Shape Estimation Developments
Recent advances in image-based 3D human shape estimation have been driven by the significant improvement in representation power afforded by deep neural networks. Although current approaches have demonstrated the potential in real world settings, they still fail to produce reconstructions with the level of detail often present in the input images. This group of scientists have, however, introduced a multi-level framework that infers 3D geometry of clothed humans at an unprecedentedly high 1k image resolution, retaining the details in the original inputs without any post-processing.

Is A.I. Music the Best Medicine?
Ever tried to relax after a stressful day by putting on some music – a little Mozart, some gentle jazz – or perhaps a little Natalie Imbruglia? Well, now a start-up tech company says it is proving that the right playlist can have medical benefits. Read more here.