Whether it’s a digital artwork, tweet or sports card, NFTs are the new asset investors and punters are spending millions on.
But what actually is an NFT and why are people so excited about them?
Basics first: what is an NFT?
An NFT is a non-fungible token which exists on the blockchain.
That means there is only one version of the asset in question ever made.
Essentially, purchasing an NFT is the digital equivalent of buying a rare, signed, first edition of a famous novel, or artwork: there are plenty of later editions, copies and even free versions around, but the original, rare item holds an inherent value.
And as the blockchain is transparent, everyone can see who owns the NFT. That means it’s essentially impossible for anyone else to pretend they own the NFT. The tokens use unique identification codes and metadata to prove they are the original and unique product.
Fungible means an asset that is easy to exchange for an equivalent asset. For example, a dollar is fungible as it is easy to receive and spend: one dollar is always equal to another dollar.
The same goes for cryptocurrencies, which are all identical units and can therefore be used to make transactions.
Non-fungible therefore means an asset that isn’t easily exchangeable: no NFT is equal to another. They’re an asset that will shift in value on its own terms, and the terms of the market.
“Owning any digital content can be a financial investment, hold sentimental value, and create a relationship between collector and creator. Like an autograph on a baseball card, the NFT itself is the creator’s autograph on the content, making it scarce, unique, and valuable,” NFT auction platform Valuables summarised.
And they’re taking off. The NFT market is now valued at US$250 million (AU$325 million).
Okay, I get it. So how are people using them?
NFTs have so far gained popularity as a means of trading and selling collectable items like sport cards and artworks.
Twitter CEO Jack Dorsey has put his first tweet on the market as an NFT. Its current bid has reached US$2.5 million (AU$3.25 million).
Singer Grimes has also sold artwork as NFTs for US$5.8 million (AU$7.46 million). She made that staggering amount within 20 minutes.
In February, auction house Christie’s sold its first purely digital artwork as an NFT. The collage of 5,000 pictures by digital artist “Beeple” has seen bidding hit US$3.75 million (AU$4.8 million).
And in the world of digital sports, fans of basketball have spent US$230 million trading NBA Top Shot cards as NFTs, with one LeBron James highlight going for US$200 million.
However, NFTs also offer a means of converting proof of a physical asset into a digital one. That means they could be used in place of proof of identity documents like passports.
For musicians, it’s also a game changer.
Kings of Leon recently released its new album ‘When You See Yourself’ both on streaming platforms and as an NFT through platform YellowHeart for US$50.
The NFT features limited edition artworks and front-row-like experiences as part of its “golden ticket” product.
“Over the last 20 years — two lost decades — we’ve seen the devaluation of music,” YellowHeart CEO and founder Josh Katz told Rolling Stone.
“There’s been a race to the bottom where, for as little money as possible, you have access to all of it.
“It’s early stages, but in the future, I think this will be how people release their tracks: When they sell a 100,000 at a dollar each, then they just made $100,000.”
YellowHeart will mint 18 “golden tickets”, with six to go to auction and another 12 to be held in a virtual vault for the future.
“Each one of those is a unique NFT with the most incredible Kings of Leon art you’ve ever seen,” Katz said.
“Each ‘golden ticket’ also unlocks an actual concert ticket — marking the first time a music ticket has been officially sold as an NFT.”
How do I buy one?
Investments in NFTs climbed 299 per cent last year as investors and digital collectors flooded into the market.
Platforms like Nifty Gateway, which Grimes used to sell her artwork, allow buyers to buy NFTs using their credit cards.
However, other platforms like Valuables, which Dorsey is using to sell his tweet, only accepts payments in the cryptocurrency Ethereum.