Over the last few months, the hype around NFTs has been increasing daily. The first tweet in history by Jack Dorsey, one of the co-founders of Twitter, was recently sold for $2,915,835.4. It is not only a tweet. Just last month, a single JPG sold for 69 million dollars. The NBA is selling little moments of basketball games for thousands of millions of dollars. However, this story is much bigger than just a million dollar tweet or a JPG. It is a story about how technology has progressed in such a short amount of time and how the value of things are changing due to technology. There are three letters one must understand to grasp why these things are selling for so much money: NFT.
NFT stands for “non-fungible token.” Analyzing it word by word helps one understand it better. The word “non-fungible” can be thought of as non-replaceable and unique. For example, you just bought a red sweater from Gap. When you purchase one of these sweater’s you do not care which one they give you, this item is fungible, it is replaceable. Now, suppose you have a sweater you have had for many years which you feel an attachment to, which is unusual. That sweater you have is non-replaceable, it is non-fungible. If you went on the Gap website and saw a sweater that looked exactly like the one you have, it will not feel the same as the one you feel an attachment to because that sweater is scarce, there is only the one you have. Everything in our economy is either non-fungible or fungible. A chocolate bar is fungible, but Vincent van Gogh’s original painting, “The Starry Night” is non-fungible. Unsurprisingly, non-fungible things are way more expensive than replaceable things. Now let’s touch on the subject of tokens, a word that is mainly used throughout the internet. To explain this, you need to touch on the subject of the blockchain. With the rise of the internet, people started to wonder if one could coordinate the transaction of money without a bank. With this, came the idea of the blockchain. Instead of transactions going from one bank to another, transactions can be recorded publicly on the internet. This is exactly what is happening with cryptocurrency, where all computers are keeping track of every transaction that happens. So one may wonder, what does any of this have to do with NFT’s and buying tweets?
The blockchain happens by the group checking that the transactions are happening and that they are correct. For example, Elon Musk has a cash balance of 1,000 cryptocoins, and wants to buy Jack Dorsey’s tweet for 83 cryptocoins. In this case, the only thing the blockchain cares about is if Elon Musk has 83 cryptocoins. When the blockchain confirms that Elon Musk has enough coins, it is now written in a public record that cannot be changed. The token has been transferred to someone new. This is what non-fungible token means, NFT. Internet technology is maturing very quickly. This is truly incredible in its own way.
However, there is a flipside to an NFT. The reality is that the blockchain, which is the backbone of all of this, relies on computers doing calculations day and night for eternity. All that these computers do are calculations. Most NFT’s are stored on a blockchain that goes by the name of Ethereum. Currently, Ethereum uses 33 TWH or terawatt hours of electricity, which is the same amount of energy that is being produced by some countries in Europe. This is a very big problem for the environment because this electricity comes from power plants that are burning fossil fuels, which is the main contributor to climate change. The idea that these computers are making little codes to help you buy a token on the internet is mind blowing. Moises Jamri, a 10th grade student touches on the subject, “It is miraculous that such a little thing can affect so much at the same time. The way that the planet is being harmed just by computers coding and generating electricity is insane.” It is very funny how the things that are being bought are not real, they are just on the internet but they are having major real world effects. So, what does this mean going forward?
This surge in popularity around a non-fungible token is definitely “hype.” This is usual when new technologies are created and there is a lot of speculation around the product. People get excited and they invest in it like crazy. For example, with the rise of the internet in the 1990s came excitement. This new idea of being able to search up whatever you want with a few clicks on a keyboard was incredible. The stock market was rising like never before and companies were exceeding expectations, but there was one problem, this was all happening because of the hype people had created. So many people questioned if it was a rise without end, if the stock market would ever go down, or if it would keep surging up and up. This reached its peak in the early 2000s and then, many internet companies started to go under and went bankrupt. This did not mean that the whole internet stopped working. Internet companies went to reshape how humans view the world and elevated the perception of the internet in a whole new way.
This is probably what is happening with the NFT today. Right now, it is all about the hype humans have created around this token. NFTs are being sold for prices that are simply unimaginable and people like the idea around it; because if not, they would not be buying all these digital tokens. Michael Stiberman, a 10th grade Scheck Hillel student says, “Right now, the NFT is in a period in which it is surging and going up in price; this is because humans have made it that way, all the hype around this token is crazy. Nonetheless, I think that the price of NFT’s will soon drop because once the interest of humans starts going away, things drop in price, this is what will happen with NFTs. People will lose interest and prices of digital tokens will stop being so high.” Michael makes a valid point.
NFTs are pushing the human mind to think differently about the way in which we check and validate things. Buying a car right now requires paperwork, someone always checking that money gets to the other person, and people making it clear who and for how much money someone bought the car. If suddenly technology existed that took away this rigorous process of people constantly checking over your shoulder, where all your money could be moved through the blockchain in a much smoother way, it would change the whole dynamic of our world.
Eventually, prices of NFTs will drop, but humans will adapt to this new view of the world. The way that the whole system of how checks and balances work will be modified and humans will adapt, just as they adapt to change in general.