NFTs explained: These pricey tokens are as weird as you think they areMarch 20, 2021
There’s a new way to spend your money — or potentially earn big bucks — that’s outstripped cryptocurrency in hype and popularity: nonfungible tokens. NFTs are a new kind of collectible. But unlike a , a comic book or a traditional artwork such as a painting, they’re entirely digital, tied to things like a video highlight, a meme or even a tweet.
, well you’re not alone.
NFTs offer a blockchain-created certificate of authenticity for a digital asset such as an artwork, a piece of music or a video. The interest has created a digital market that boasted $250 million in sales in 2020, with NFTs reaching new levels of hype after a at a Christie’s auction last week. The craze has also driven scores of people to put up their own digital art and tweets for sale as NFTs, and even are trying to ride the wave.
Still confused? Here are the answers to your big questions about NFTs.
What’s an NFT?
This is the part that takes a bit of open-mindedness. An NFT is a unique digital token, with most using the blockchain to digitally record transactions. It’s not a cryptocurrency like Bitcoin or Ethereum, because those are fungible and exchangeable for another Bitcoin or cash. NFTs are recorded in a digital ledger in the same way as cryptocurrency, so there’s a listing of who owns each one.
What makes an NFT unique is the digital asset tied to the token. This can be an image, video, tweet or piece of music that’s uploaded to a marketplace, which creates the NFT to be sold. The technology started in 2015 when unique tokens were created for the Ethereum blockchain, but they became a big deal in February.
So buying an NFT means I own the asset, right?
That’s the real kicker to understanding the whole concept. The person who buys the NFT doesn’t own the actual asset.
“NFTs challenge the idea of ownership: digital files can be reproduced infinitely and you do not (usually) buy the copyright or a license when purchasing an NFT,” said Jeffrey Thompson, associate professor at the Stevens Institute of Technology in Hoboken, New Jersey.
For example, the creator of the $590,000. The person who bought the token owns the token but doesn’t actually own the meme. That still belongs to the creator, who held onto the intellectual and creative rights.sold an NFT of it for
What the owner of the token has is a record and a hash code showing ownership of the unique token associated with the particular digital asset. People might download Nyan Cat and use it on social media if they want, but they won’t own the token. This also means they can’t sell the token like the owner can.
Why are NFTs going for such high prices?
As with physical collectibles such as Beanie Babies, baseball cards and toys, there’s a market for NFTs. The buyers tend to be tech-savvy individuals who understand the idea of wanting to purchase a digital good and likely made a killing this past year with cryptocurrencies. Ethereum, for example, went from just over $100 last March to a current price of about $1,800. In some cases, buyers are just flexing their digital wallets to show off how much crypto they have, but for others, there’s a deeper interest.
NFTs for digital art are a big business. Last week, the artist Beeple saw his piece Everyday: The First 5000 Days sell at a Christie’s auction for $69.3 million.
“Specifically for art-related NFTs, there is a huge surge in demand due to their novelty and creativity of early artists,” Jason Lau, chief operating officer of crypto exchange OKCoin, said in an email. “Whether it’s a physical work with an attached NFT (think of it as a digital autograph and proof of veracity), or an entirely digital work (where the NFT is the art), this new medium is opening new ways for collectors and artists to explore their relationship with the artwork itself.”
It’s also great for the artists, says Lau. By selling digital art directly to those interested, an artist can begin monetizing work without having to try to sell it in a gallery.
What kind of NFTs are there?
NFTs can be tied to any digital asset. Twitter CEO Jack Dorsey sold the . Tampa Bay Buccaneers tight end Rob Gronkowski created his own limited-edition trading cards that sold as NFTs for a total of $1.8 million. Kings of Leon sold NFTs of their newest album and made over $2 million. There’s even one guy who sold NFTs for his farts.
If you don’t want to jump right in bidding six figures, there are multiple NFT marketplaces out there, with Opensea being the biggest. Buyers can search for art, domain names and random collectibles to bid on without having to break the bank.
Basketball fans might want to check out NBA Top Shot, where they can buy video highlights via packs, similar to how collectible trading cards are sold. A rare highlight like a two-handed reverse windmill slam by Lebron James sold for $179,000.
As the hype for NFTs grows, expect more digital assets to come up for sale and bring in some big money.
What are the downsides?
A drawback is the hundreds of dollars in fees required to create an NFT. If you’re making your own token on the Ethereum blockchain, you need to use some Ethereum, which as mentioned earlier is kind of pricey. Then after you make an NFT, there’s a “gas” fee that pays for the work that goes into handling the transaction and that’s also based on the price of Ethereum. Marketplaces simplify the process by handling everything for a fee when an NFT is sold.
There’s also an environmental cost. Like Bitcoin, Ethereum requires computers to handle the computations, known as “mining,” and those computers require a lot of energy. An analysis from Cambridge University found mining for Bitcoin consumed more energy than the entire country of Argentina. Ethereum is second to Bitcoin in popularity, and its power consumption is on the rise and comparable to the amount of energy used by Libya.