Non-fungible tokens, more commonly known as NFTs, are used to represent a digital file being bought or sold. This can be anything: a piece of art, an audio or video clip, a photograph… if you can transmit it digitally, you can buy it as an NFT.
Essentially, they work as placeholders, stored on digital databases or ledgers known as blockchains. Each NFT is one unit of data, existing to certify a digital file as being unique and owned by a specific person.
Although it is of course possible to access copies of the original file, which are available free to anybody, the NFT is trackable through its blockchain, allowing an owner to demonstrate they own the file in a way separate from its copyright.
This also allows the artist to continue making copies of their artworks and selling them separately, without the value of the original buyer’s version on the NFT blockchain reducing in value as a result. A win-win situation!
You could also compare NFT artwork to something that has been autographed - its metadata allows it to be processed using the cryptographic hash function, which means anybody can verify the ownership of a unique NFT unit.
Other than by digital artists, NFTs have also been utilized as collectibles, such as digital trading cards in the NBA Top Shot platform; where once we traded stickers for our books, in today’s modern age we exchange our best cards as digital metadata.
They have also been implemented as in-game assets by game developers, which allows players to exchange digital assets like plots of land without requiring express permission from the devs. This is one good way to prevent fraudulent hacking!
Musicians and videographers have also been transferring their work into NFTs, most notably the band Kings of Leon, who released their latest album as an NFT for fans to purchase and raised millions of dollars for charity in the process.
One not safe for work usage of NFTs is by sex workers, who have tokenized their pornography (videos audios and pictures) to allow their customers unique ownership of certain assets. This has been met with much backlash from NFT marketplaces.
In a nutshell: NFTs are used to represent the ownership of any digital file. They are unique and individual tokens that prove sole ownership, which cannot be forged, copied or replicated. This is an excellent way to give value to your digital work!
What Is The Point Of NFTs?
They are essentially collectibles: think of them as kind of like Pokemon cards, but incredibly rare, with only one ever made. Or, to look at it differently, in the same way owning one of a kind paintings is considered rare and valuable, so is having NFTs.
Where you might go to a gallery and buy a painting from an artist, now you can buy an NFT, a digital token serving as a form of cryptocurrency. Unlike Bitcoin or Ethereum, each unit in the NFT blockchain is unique and not interchangeable.
Basically, you couldn’t trade your one NFT with any random other people - they were all bought or sold for an individual value, easily proven when it is traced back through the blockchain in order to demonstrate your ownership.
And where buying a painting in a gallery results in you receiving it physically to hang in your home, an NFT does not guarantee you the “original” digital file in a physical sense if it is an artwork. Only the digital proof of ownership should you wish to sell it!
Other copies of the same digital file can appear as NFTs, however, although the original NFT in any blockchain will be worth more financially than any subsequent copies. Think of that like buying a copy of Sunflowers from the Van Gogh museum.
Although some jokers believe that simply right clicking and downloading an image-based NFT gives them ownership of a file, that’s not the case. Your saved version of the file won’t have the digital information to connect it to the blockchain!
Much like cryptocurrency can be bought and sold in stocks, NFTs can also be exchanged for your currency of choice. Rather than receiving anything back, like a visible share in a stock, you simply become the digital owner of said NFT.
As each one has its own individual value, it’s possible that you could make money by investing in NFTs now and reselling them should interest in them spike, though like buying cryptocurrency, this entirely depends on how the market is moving.
It’s impossible to accurately predict what the stock market will do, and it’s also difficult to foresee whether something is going to increase or decrease in value. As such, this is a risky investment that should not be entered into lightly.
You still might be wondering what the point is, but hey: did you ever ask yourself what the point in collecting baseball cards or Tamagotchis or stickers was, back when you were a kid? It’s all part of the fun of being alive!
When Did NFTs Appear?
The very first NFT was created in 2014, by Anil Dash and Kevin McCoy during an event taking place in New York City at the New Museum. Their use of a tradable blockchain marker represents the first time an NFT was connected to artwork.
Mainstream awareness of NFTs is arguably recognizable from approximately 2017. Ethereum’s blockchain began to rise in the cryptocurrency world, gaining popularity over bitcoin based platforms as it allowed users to create and store tokens.
Though you can pinpoint their creation to at least six years ago now, it’s only really in 2021 that NFTs have started to gain considerable prominence, being mentioned thousands of times a day on social media in particular.
This is possibly coinciding with the well known American digital artist Beeple selling his digital artwork Everydays: The First 5000 Days as an NFT via the renowned auction house Christie’s for a whopping $69.3 million in March of 2021.
That one sale alone rocketed NFTs into popularity, as did several other high profile sales, such as a video of LeBron James on the NBA Top Shot NFT marketplace - although he only brought in a comparatively tame $208,000.
There was even a skit on Saturday Night Live in March 2021 about NFTs, poking fun at the way this niche moneymaking endeavor has all of a sudden made its way into the popular social consciousness. You know you’ve made it when SNL burns you!
Why Are NFTs Hard To Explain?
Possibly because they are entirely based in abstract concepts! Let’s break it down into the simplest possible terms. When Beeple sold his digital artwork at Christie’s auction house for $69.3 million, the bidder did not receive a print or painting.
What they got was an NFT, or non-fungible token, a unique digital collectible that can be exchanged, but in a different way to cash. For instance, money is a fungible asset, so its units can be interchanged very easily.
Two five dollar bills make a ten dollar bill, right? Well, because an NFT is a non-fungible token, it is unique and therefore impossible to interchange with other NFTs, because they all have their own individual values.
This is difficult to explain because like when you buy a painting, you get a tangible, physical object in the form of the framed original artwork. With an NFT, however, you just get a token that represents that data - even said token is essentially just a file.
If you’re not familiar with cryptocurrency or very technologically savvy in general, it can be very difficult to wrap your head around. When you buy art in person, you exchange physical money for a physical object, like a print or a painting.
Buying an NFT artwork, however, involves using cryptocurrency - most prevalently Euretheum - instead of money, and the purchaser does not in most cases receive a physical copy of the art itself, just access to the blockchain where that NFT is stored.
As they never actually come into contact with anything physical in order to purchase or receive that art, some people can struggle to realize exactly what the point of an NFT is. Try comparing them to an autographed CD from your favorite band, maybe!
How Is Selling Art As NFTs Different?
When your art exists in a more traditional form like a painting, it’s easy to preserve its value because only one original exists. Visitors can take photos and scammers can replicate the paintings themselves, but you’ll only ever have one true original.
With more modern digital art printed onto fancy paper, it’s easy to make copies to sell. Even those copies can become valuable, with the artist adding a signature and which number of the limited run that print is on the back of the work itself.
However, where digital and even traditional art is easy to download, save, duplicate and redistribute, art sold as an NFT is equipped with a unique digital certificate, tokenizing an artist’s work in a way that can be easily traced.
Like with cryptocurrency itself, there is a huge database or ledger known as a blockchain where the record of who owns which NFTs is kept. This is impossible to defraud or fraud, being constantly maintained by thousands of computers globally.
It is also possible for an artist to input a so called smart contract into their NFTs, which can afford them a cut of any subsequent resales, for instance, or prevent the token from being resold altogether depending on their preference.
Although it’s true that nothing is stopping anybody from downloading digital art for themselves, or even making prints of it to sell, the owner of the NFT has access to the digital “token” that indicates their actual ownership of the art.
What Is The Point Of Owning An NFT?
Well, it’s comparable to getting an autographed copy of your favorite artist’s new album, or a limited edition item of clothing from a fashion house. Although someone can forge a signature or make a dupe for the designer clothes, they aren’t valuable.
A signed album might come with a certificate of authenticity for instance, and a limited edition piece of clothing will have a certain label or marking to indicate its value and importance. These make them distinguishable from false impersonators.
In the same way, an NFT is a non-fungible token, which basically means it’s unique. Nobody else in the world can own the same token, and even if they claimed to, anybody can trace the blockchain, find the NFT and your name on the digital data.
Likewise, its value is not equal to that of all the other NFTs, nor are other versions of that art worth the same amount of cryptocurrency or money. Like a signed album is worth more than one that’s unsigned, the NFT version is the only one of its kind.
It is the belief of many that eventually, NFTs and digital galleries will replace the tradition of viewing art at an in person institution. Hopefully, that isn’t the case, but it’s clear to see that selling art digitally by using an NFT token is increasingly popular.
Anybody can go into a museum gift shop and pick up a print, but only one person, if anybody, can own the original painting. In the same way, anybody can download the digital image equivalent of your art, but only you will own the NFT you buy.
For artists, there is value in selling your work as an NFT: it’s possible to input a digital contact that means any time the NFT is sold or exchanged in the future, you as the artist will receive a certain amount of any profits made.
For collectors, it’s another way to support the artists you love, whether they paint, sing, draw, write poetry or just take pictures of their naked bodies. You can brag that you own whatever NFTs you buy, too, which is admittedly a bit of a flex.