Understanding the token art form that’s got everyone talking.
If you opened any social media app during pretty much the whole of 2021, you’ll likely have heard of NFTs. You may associate them with the blockchain, penguin communities, or even clip art – but what exactly does that all mean? In this article we will give you the full lowdown of what NFTs are, where to buy them, whether or not they’re a worthwhile investment, and what the future holds for the world of NFTs.
Find out everything you need to know below.
What are NFTs?
NFT stands for “non-fungible token”. This means that it is a non-interchangeable unit of data (or, in some cases, a physical object). To clarify that a little further: if something is fungible, it means that it can be replaced with something else that’s the same. For example, each individual bitcoin is fungible, because it is exactly the same as the next, and has the same value. In comparison, a non-fungible token is entirely unique. NFTs therefore, being one-of-a-kind, are popular tradable and collectible items.
While NFTs are generally associated with images, short videos, and GIFs, they can technically be anything. This could include Tweets, music, whiskey casks, etc.
How does an NFT work?
When an owner of an asset (either digital or physical) wants to sell/exchange it as an NFT, they must first have it ‘minted’ on the blockchain. This process generates a unique token for the asset and cements it as a one-of-a-kind piece, ready for auctioning on a marketplace. This is called a ‘smart contract’. These smart contracts are registered and recorded via the blockchain, which acts as an online ledger that keeps a record of all tokens and transactions.
NFTs originated from the Ethereum blockchain, on which the cryptocurrency ether (ETH) is held and distributed from. They are however different from ETH, ERC-20 tokens and other forms of cryptocurrency. They were launched three months after the launch of Ethereum, in October 2015 at DEVCON 1 in London, Ethereum’s first developer conference. However, it is not requisite of NFTs that they are part of Ethereum. Other blockchains, such as Cardano and TRON, have also recently started to introduce NFTs.
An NFT works in a similar way to an original painting. They are created by an artist and sold at a marketplace, usually at auction. You can copy and reproduce NFTs, but only a single person at any one time can own the original. They can be traded for other NFTs, cryptocurrency, or sold for cold hard cash. When you purchase an NFT you are often provided with a digital certificate (though there are other means of verifying NFT ownership) that authenticates you as the legal owner of that particular piece of data.
Where can I buy an NFT?
There are numerous places where you can purchase NFTs. Popular marketplaces include:
- Mutant Ape Yacht Club
- Cool Cats NFT
- Damien Hirst – The Currency
- Lazy Lions
How much do NFTs cost?
While it’s impossible to estimate the value potential of any NFT, they have been known, in the case of a digital artist known as Beeple, to sell for as much as $69 million USD. According to the auction house Christie’s, this ranks him as “among the top three most valuable living artists”.
Are NFTs worth investing in?
This is a complicated question, as there is no way of knowing the intrinsic value of any NFT. Like any other piece of art, it’s only as valuable as the buyer deems it to be, making it a risky investment.
Unlike copies of physical art pieces, such as an original Van Gogh or a Picasso, the replicas made from downloading NFTs are identical to the original. On paper (or more accurately, digitally), this makes actually owning an NFT little more than a financial flex, because what you own can be reproduced a billion times over – at no financial benefit to you, the owner.
On the other hand, isn’t that quite similar to owning many things that are considered capitalistically “of value”? For many people, an NFT is an emotional investment as well as a financial one. You don’t necessarily buy things because of their payback potential, but because they bring you joy. You don’t buy a Versace dress you actually hate because it might be worth more than its current value in 20 years, you buy it because you love it, and you want to wear it and look fabulous. The potential accumulation of value is simply a bonus.
There is also much more to NFTs than just pieces of digital art. As mentioned earlier, NFTs can be anything that’s technically impossible to reproduce.
The future of NFTs
There has been a great deal of speculation as to what the future holds for the world of NFTs. In 2021, NFTs went from strength to strength, with celebrities from Grimes to Snoop Dogg, Linsey Lohan and even Paris Hilton jumping enthusiastically on the NFT bandwagon. In total, the sales volume of NFTs in 2021 was $24.9 billion USD. But has the initial hype fizzled out? Are NFTs really here to stay?
The overarching expert opinion is yes – but not necessarily as we know them now. As we progress further into the metaverse and Web3, NFTs are set to become more of a staple in our daily lives. For example, they are set to revolutionise the way we certify accolades, with the future of students potentially set to receive their degrees as NFTs. This will make it easier for people to prove ownership of their qualifications and will alter the face of the employment industry as we know it.
It is also already revolutionising the way we ticket events. For example, popular NFT art distributor Clay Nation currently holds open bar festival events and community meet-ups around the world for NFT ticket-holders. Because NFTs cannot be forged or faked, this kind of ticketing process enhances the exclusivity of such events.
Founder of Clay Nation, Lenna Onto says that “NFTs are and will be much more than digital art in terms of utility and use cases. There are endless possibilities.”
The company are also building a full scale digital environment in which holders will be able to attend immersive events and be part of a digital festival – as well as being able access physical events, just by holding the applicable NFT.
The creation, minting and trading of NFTs has made millionaires of many people across the globe in various forms; from artists and curators to agency owners and traders. This blockchain-based market has revolutionised the way we think about art consumption and engagement.
Investing in NFTs is undeniably risky, but if you do your research and compare your marketplace options, you may potentially find yourself in a lucrative trading position, (or the sole owner of your much-loved piece of art!). That being said, you should always be prepared to lose anything you spend on an NFT, as there are no guarantees.