Non-fungible tokens (NFTs) have skyrocketed this year. From art and music to tacos and toilet paper, these digital goods are fetching millions of dollars. But are NFTs worth the hype? Experts claim they’re a bubble like tulips or dotcoms. Others think NFTs are here to stay and will permanently revolutionize investing.
What is an NFT?
Digital assets including art, music, in-game items, and videos are called NFTs. A lot of them are bought and sold online, and they use the same software as many cryptos. NFTs, which have been active since 2014, are gaining popularity as a mechanism to buy and sell digital art. Since November 2017, NFTs have racked up a whopping $174 million in sales.
NFTs are typically generally one-of-a-kind or limited-run, with unique identification codes. Contrast this with most digital products, which are nearly always limitless. If an asset is in demand, restricting supply should increase its value.
But many early NFTs were digital works that already existed elsewhere, like legendary NBA video clips or securitized versions of digital art already circulating around on Instagram.
You can learn more about what an NFT is in our article: What is an NFT and how does it work?
An artist named Beeple
For example, “EVERYDAYS: The First 5000 Days” by digital artist Mike Winklemann (aka “Beeple”) was sold at Christie’s for a record-breaking $69.3 million. Let that number sink in. “Beeple” created an image that is basically a collage of many different images and someone thought it was worth $69M.
Anyone can view the photographs individually or the complete collage for free online. Who pays millions for something they can easily screenshot or download? Your guess is as good as mine, but trust me, I wish I’d paid more attention during art class growing up.
While anyone can view the creation for free, only one person, now poorer by $69M, can claim to own the original.An NFT lets the buyer keep the original item-no matter the price paid. It also has built-in authentication as proof of ownership on the blockchain.
In some circles, the digital bragging rights are almost as valuable as the object itself.
In my circles it would be a tough sell telling people I spent $69M for something that anyone can look at for free. Maybe I need more sophisticated friends.
What makes an NFT unique?
Non-fungible tokens (NFTs) are designed using comparable technology to cryptocurrencies like Bitcoin and Ethereum, but that’s where we come to a fork in the digital road. They are both “fungible,” meaning they can be traded for one another. A fiat dollar is always worth a dollar, and a Bitcoin is always worth a Bitcoin. The fungibility of crypto makes it a trusted way to complete transactions on the blockchain.
NFTs are unique. Due to their digital signatures, NFTs cannot be swapped for or equaled (hence, non-fungible). Because they’re both NFTs, one NBA Top Shot clip isn’t equal to EVERYDAYS. (Or that one NBA Top Shot footage is necessarily equal to another NBA Top Shot clip.)
Final thoughts
Blockchain and NFTs give artists and content creators a new way to monetize their work. Artists no longer need to sell their work through galleries or auction houses. Instead, the artist can sell it as an NFT directly to the consumer, keeping more of the earnings. Artists can also program royalties so they get paid a percentage of sales when their work is sold. This is appealing because artists rarely get subsequent sales revenues after the first sale. NFTs also hold sway over investors looking to own a piece of history.
I write about blockchain, crypto, NFTs and other disruptive technologies and innovations.
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