Hey, I’m Julián and this is FutureNow. Imagine a world in which people are buying and selling
digital art, digital trading cards, and even digital land. Well, you’re already living in it,
all of that and more is being done with NFTs. You’re either in the know and have been into NFTs
for months or even years, or you’ve suddenly noticed that everyone’s talking about them,
or you have no idea what I’m talking about. If you’re in that last camp you’re gonna want
to stick around because you’re going to be hearing a lot more about NFTs in the near future.
Okay so what does NFT even mean? It stands for Non-Fungible Token, not as catchy. Non-fungible
means something that has a unique value attributed to it, as opposed to something fungible. In most
cases, a dollar bill is fungible, because if I have a dollar and you have a dollar and we trade,
we both still have a dollar that is just as valuable. I said in most cases, because some money
is collectible and rare, at which point it becomes non-fungible. Cryptocurrencies like Bitcoin are
perhaps even more fungible because unlike physical money, a Bitcoin can’t become a collectible.
A dollar bill could have some sort of misprint or be from a specific year that is highly valuable
and collectible, but a Bitcoin is just some data in a computer and it will always be worth just as
much as another Bitcoin. That’s fungibility. More common examples of non-fungible items are things
like a rare Pokémon card, the year it was made, whether or not it’s holographic, the condition
it’s in, and even previous notable owners are all important factors in the value of the card.
Okay so that’s what the non-fungible part means, but what’s a token? That part just
means that it represents some sort of value. Poker chips are a great example of a token,
you can turn them in at a casino for cash. The same goes for gift cards
and even cryptocurrencies themselves like Bitcoin, and like Bitcoin, NFTs are digital.
So an NFT is a digital item that is unique and holds value
that you can exchange with someone else for money.
Also like Bitcoin, NFTs are bought and sold on the blockchain, although on the Ethereum
blockchain. You’ve probably heard of blockchain technology and its decentralized nature. The
blockchain is essentially a digital ledger that keeps a record of every transaction that is made
and that information is held on multiple computers across a network of computers, rather than in one
single place. And because all this information is viewable publicly by anyone and it’s not possible
to change it, it makes fraud nearly impossible. You know that the NFT you’re buying is authentic,
unlike say a Pokémon card that is much more difficult to verify and easier to create fakes of.
Sure you can send it off to an expert third party, but that takes a lot more time and money.
Meanwhile this verification is done in seconds on the blockchain.
So you may be thinking that digital assets aren’t a novel thing, heck you undoubtedly already own
some! Most video games these days are chock full of the stuff, most famously in the form of skins,
like in Fortnite. Skins are basically appearance changes for your character that you can buy
in the game. Similarly games like Runescape let you buy cosmetic items and super rare
items that are worth a lot in the game. Other common digital assets are concert tickets. You
buy them on Ticketmaster and pay some exorbitant convenience fees. But you can’t sell those tickets
outside of Ticketmaster. And similarly you can’t buy and sell Fortnite skins with other players
outside of the game and you don’t ever really own them, the game developers could delete them at any
point. These are all centralized interactions controlled by these individual platforms.
And in fact one of the first, and probably most famous implementations of NFTs
was a game called CryptoKitties. The premise of the game is pretty simple, you can buy,
sell, and breed virtual cats that come in all sorts of different appearances.
Each cat is an NFT on the blockchain, meaning even the game developers can’t take away or
change your CryptoKitty once you have it. There are about 4 billion possible types of cats thanks
to the multitude of traits that were coded into them, or cattributes as they call them. Some are
rarer and more coveted than others. Honestly it reminds me a lot of when I played Neopets.
In Neopets, there were paintbrushes you could buy in the game using Neopoints, the in-game currency,
that would change the appearance of your Neopet. Some were fairly basic, like a blue paintbrush
that went for a few thousands neopoints, but others were some of the most expensive and rare
items in the game like the Stealthy paintbrush which could go for millions of Neopoints.
Well, in the CryptoKitties world, some of these cats have sold for over $100,000.
That’s real money, not game currency. It seems totally wild that what is essentially a digital
file of an image of a cute cat can be sold for that much money, or even any money at all.
We’re used to being able to copy any digital files we want and share them with friends.
If I have an image on my computer and I want to send it to a friend, I can just hit
share on the file and Airdrop it to a friend or text it to them or share it through Google
Drive or Dropbox or something. But in all of those situations, I still have my copy on my computer.
With CryptoKitties and other NFTs, if you give someone else your NFT, you no longer have it.
Sure, you can send someone the image of the cat, if you want,
but what really shows ownership is the code behind that image that is only on the blockchain.
And so NFTs have become a way to create scarcity out of digital goods, something that simply didn’t
exist before. It’s what made piracy such a massive problem for record labels and film companies.
Before the internet, if you bought a hard copy of an album or a movie it was much harder to
make a copy and give it to a friend. If you gave a friend your prized copy of Princess Bride on VHS,
they now had it and you didn’t. Obviously, these days you can just
send someone an MP4 file of the movie or even a link to stream it online somewhere.
This digital scarcity has allowed digital files, NFTs, to demand
actually high prices just like Pokémon cards, Beanie Babies, and other physical collectibles.
And perhaps my favorite use of NFTs is for artists that can create digital art or photographs and
sell them as NFTs online as unique originals just as they might sell at a real-world art gallery.
But even more awesome is that the code of NFTs and the fact that every sale
is recorded on the blockchain, allows artists to set a royalty fee. This means an artist can sell
their digital art for $200 to someone and set a 10% royalty fee and if that person turns around
and resells it for $400 to someone else, the original artist still makes $40 on that sale.
This kind of thing is very difficult to replicate in real life. An artist may sell an original
painting for a couple hundred bucks when they’re starting out and it could suddenly become a highly
valuable work of art in the future, selling for hundreds of thousands of dollars that the original
artist will never get a penny of. In this way NFTs can create a passive income for artists.
And NFTs can basically be any kind of file, a video, a photo, a piece of music, whatever.
You can check some of these out for yourself or make your own NFTs on marketplaces like OpenSea
and Rarible, where they are bought and sold using Ether, the name for the Ethereum cryptocoin.
A game called Decentraland, which looks a lot like Minecraft, sort of combines the art and game uses,
letting folks buy and sell digital plots of land, houses,
and other items, and display the NFTs they buy elsewhere in these digital homes.
Right now all this stuff seems pretty niche and super weird and hard to understand for new people
getting into it. But I think as it grows and the technology is more developed it’ll become
more accessible to mass-market consumers, just as Bitcoin has, except I think NFTs have the
advantage of being likened to collectibles and other real-world items people already buy, whereas
most people are still unsure what exactly to do with Bitcoin besides buy and sell it as if it were
a stock. Personally, I’m hesitant to actually pay for anything with Bitcoin because you might, say,
buy a pizza with $20 worth of Bitcoin and the next day Elon Musk makes a tweet and that $20
you spent is now worth $40. That’s not going to happen with a stable currency like the dollar.
What I think is really going to make NFTs a big deal is the inevitable arrival of good
AR technology. Currently VR is becoming really popular through cheaper headsets like Oculus,
but you can’t exactly walk around with a VR headset on. Companies like Apple have been working
on bringing AR glasses to consumers for years and it’s very possible that in the next decade or so
we will be able to walk around with glasses that display information and objects overlayed
in the real world. Suddenly, you can place NFT art in your actual house or maybe even
wear NFT clothing around that other people with AR glasses can see. If AR becomes as
ubiquitous as smartphones, AR items you buy will be just as valuable as real-world items, because
you no longer have to show people the cool art you bought using your computer or phone. There’s
a whole lot more to NFTs than some of the more basic stuff that you may start seeing at first,
like Logan Paul creating his own collectible NFTs. That’s not very exciting. Another NFT use you
may have heard of recently are NBA Top Shots, which is basically the NBA selling collectible
highlight videos of moments in NBA games, like LeBron shooting a game-winning 3 pointer.
NBA Top Shots have already generated over $31 million in sales. Wild.
Unfortunately, just like Bitcoin, there’s a bit of a dark side to NFTs that I think is important
to mention and that people should be aware of because, in my opinion, it threatens the viability
of the whole thing. Currently, basically anything that happens on the blockchain is massively
wasteful of electricity, which worldwide is still largely produced via fossil fuels.
I feel like I don’t need to explain in this video that burning fossil fuels like coal and natural
gas is the main cause of the world-threatening climate change we seem not to think enough about.
I know that I’ve likely already angered a bunch of crypto fans that are currently in the comments of
this video. Fact of the matter is I actually really like the idea of cryptocurrencies,
I even own some Dogecoin for the memes, in fact originally I was going to make a video
about Dogecoin but halfway through writing the script both MKBHD and Graham Stephan made videos
and it seemed unnecessary for me to do so too. Anyway, the point is that while cryptocurrencies
and NFTs seem like really awesome ideas, it’s undeniable that their underlying infrastructure
is incredibly power intensive and harmful to the environment.
For those of you who aren’t aware, the blockchain is built on the principle of proof of work.
Every time someone buys or sells NFTs or a cryptocurrency or every time a new NFT or
coin is created, known as minting, it sets off a chain of actions for verification.
Explaining exactly how this works is beyond the scope of this video, but essentially computers
around the world, known as miners, compete to solve a complicated math problem. Once they solve
it correctly, they’re able to verify it against a certain set of conditions it needs to meet.
Then the miner broadcasts this to the network and others can also verify that the number is
correct. Hence, proof of work. This system makes it nearly impossible for someone to
add a fraudulent transaction to the blockchain, because it would take an incredible amount of
computational work that is not only unfeasible, but also just not worth any potential reward.
This system works really well to keep NFT and cryptocurrency transactions and minting secure,
but doing that computational work to solve the math problems takes a ton of computer power,
which uses a ton of electricity, produced by a ton of fossil fuels, that put a ton
of greenhouse gases into our atmosphere and speed up the disasters of climate change.
So, how much electricity is being used when a new NFT is created, bought, or sold? Well, it varies,
but as of the writing of this video, an average single transaction on the Ethereum blockchain
uses up 48 kWh of power. That’s more power than the average US household consumes in a whole day.
And each NFT can lead to dozens of these transactions. Minting the NFT, bidding on the NFT,
even canceling your bid, and of course the sales. I’ve put some links in the description to folks
who have done the math on all of these things if you’re interested in looking into it further.
It’s estimated that the median NFT artist is using 3 MWh of power per year, releasing roughly
2 tons of CO2, equivalent to 4 transatlantic flights or about a third of the power consumed
by an American household over an entire year. If you’re an NFT artist or collector, you can
actually check the environmental costs of a particular piece using the website cryptoart.wtf.
It seems there are some changes that can be made going forward to significantly reduce
this power consumption and I hope they are implemented, as currently it just seems
entirely ridiculous to be adding so much carbon into the air to buy and sell digital art.
Let me know in the comments what you think about NFTs. Do you own any? Are
you interested in making or buying some? What are your thoughts on the
environmental angle? I’ll see you in the comments and I'll see you in the future.