Just as with paintings or sculptures, NFTs (or unique digital tokens) have started to become big collectable items. NFT stands for non-fungible token – this means it has unique properties and cannot be interchanged with something else because it is one of a kind. While NFTs can be bought and sold with money, when you buy an NFT you don’t get the asset itself but a digital certificate for the virtual ownership of it.
Think of it like this, when you purchase an NFT you’re purchasing the original code or digital asset so it’s yours to keep. The equivalent in physical form is similar to purchasing the original, autographed, Mona Lisa. Other people can have copies of the asset but they don’t own the real thing and therefore they are worth significantly less. NFTs cannot be directly exchanged with one another.
What’s more, it’s not just art that can be tokenized and sold. Twitter’s founder Jack Dorsey sold an NFT of the first-ever tweet, for just over $2.9 million. Indeed, anything that can be converted into digital form or represented digitally has the capacity to be an NFT, so the potential for value creation is astronomical.
Although they’ve been around since 2014, NFTs are gaining notoriety now because they are becoming an increasingly popular way to buy and sell digital artwork. A staggering £123 million ($174.5 million) has been spent on NFTs since November 2017. However, in 2021 alone we’ve seen the sale of some classic digital art including an animated Gif of Nyan Cat – a 2011 meme of a flying pop-tart cat, which sold for more than $500,000 in February.
As with cryptocurrency, a record of who owns what is stored on a shared ledger known as the blockchain. Transactions on a blockchain platform are written to a digital ledger. That ledger publicly records every NFT transaction to confirm the item’s ownership.
Many collectors are interested in owning digital content as a form of financial investment. Just as with autographed items, these tokens are unique, scarce and valuable – meaning they may gain value overtime and could be resold at a higher price later in time. However, there are plenty of sceptics who think it is all a bubble that is going to burst.
There’s also concerns that sales of NFTs may be conducive to money laundering – with thousands of collectors utilising the anonymousness and decentralisation of NFTs to store their illegal money. The art trade historically has been susceptible to criminality due to issues of anonymity, high-valued transactions, and limited global regulations.
NFTs are purchased through a third-party online marketplace, or NFT exchange. One example of a marketplace includes OpenSea, which was founded in 2018, is the world’s largest digital marketplace for crypto collectibles and NFTs. Other popular sites for NFT transactions include Rarible, Ethernity, Superfarm, and more.
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