A cat meme for €500,000. A tweet for €3.4 million. A collage of digital art with a $69 million price tag. Welcome to the crazy world of NFTs.
A what?
NFT, or non-fungible token. The latest investment craze to grip the market, NFTs are unique or limited-edition assets that exist only in the digital world, such as an image, video or piece of music. They can be digital trading cards of sorts.
I don’t get it. Give me some examples.
Aside from the Beeple (aka Mike Winkelmann) and his $69 million "Everydays: the First 5,000 Days" collage? Jack Dorsey sold his first tweet on the platform he co-founded as an NFT, fetching a cool €3.4 million. Canadian musician Grimes netted about $6 million by selling 10 pieces of digital art.
In the United States, the NBA sells collectible NFTs as video highlights of games.
More tangible is Kings of Leon’s approach. The band is using NFTs for their new album and for golden tickets that will see fans bag a front-row seat for gigs on their future tours.
How does it work?
When you buy a digital asset, your ownership is recorded on the blockchain. That allows anyone to verify the ownership and authenticity of items.
While anyone can view the NFTs, the buyer has the status of being the official owner – a kind of digital bragging rights.
Artists can also get a royalty from subsequent sales, meaning they benefit if the value of the item suddenly surges and it then changes hands for a considerably larger sum of money.
Blockchain? Like Bitcoin?
Similar, yes. The underlying technology is the same. Blockchain works as a public ledger, allowing anyone to verify the NFT’s authenticity and ownership.
Do I need to have cryptocurrency to buy NFTs?
No. Although some items are paid for using Ether – Beeple’s artwork was – NFTs are also bought and sold using old-fashioned dollars.
It’s digital though. Can’t I just get it for free?
Yes, you can. But owning NFTs means you essentially have bragging rights. NFTs have a unique digital signature, so while other people can still view it or download a copy, they not the registered owner of the work.
Think of it as similar to the way that you can own an original painting but other people can buy a reproduction. There is the one key difference in that you don’t have anything physical in the same way that you would with a painting, but you get the general idea.
Are they all that expensive?
No. The more high-profile sales have hit the headlines in recent weeks, but NFTs vary wildly in price. Like all art, they are only worth what people are willing to pay for them, so you’ll find items with an offer of a few dollars to a few hundred, to a few thousand and more on the marketplaces.
I want in on this. Where can I buy them?
You can buy NFTs on marketplaces such as Nifty Gateway (see what they did there?), OpenSea, or MakersPlace, among others. Take your pick; there are plenty to choose from. You can buy directly from the creator in scheduled “drops or on a secondary marketplace online.
Where will this end?
Who knows? While NFTs are almost certainly in a bubble at the moment, they aren’t likely to go anywhere when that bubble inevitably bursts. NFTs have been around since 2017, but it is only in recent weeks and months that we have seen the big-ticket items hit the headlines.
It’s hard to gauge true value though. That hot digital art item you paid a few thousand dollars for last month may be worth less in a year’s time. There is also nothing to stop the creator from selling identical NFTs to the one you have just invested in, so choose your artists wisely. It’s all a bit of a gamble.
