You may have heard about the newest craze for blockchain enthusiasts. About auctions for art sales, memorabilia, and collectibles in general, are being held on the Ethereum blockchain.
Now, you ask yourself how it works and who can create NFTs and why it is gaining popularity. Where Bitcoin was hailed as the digital answer to currency, NFTs are now being touted as the digital answer to collectibles.
But there are plenty of skeptics who think it is all a bubble that is going to burst.
What is an NFT?
NFT stands for non-fungible token.
Okay, that doesn’t make it any less confusing.
Non-fungible means it has unique properties, so interchanging is not an option.
It could be a house or a painting such as the Mona Lisa, of which you can take a photo or buy a print, but there will only ever be one original painting.
NFTs are such “one-of-a-kind” assets in the digital world that can be bought and sold like any other piece of property, but they have no tangible form of their own. Think of it as certificates of ownership for virtual or physical assets.
How do NFTs work?
NFTs are part of the Ethereum blockchain. So, they are individual tokens with extra information stored in them. Because they hold value, they can be bought and sold just like other types of art and, like with physical art the value is largely set by the market and by demand.
With NFTs, artwork can be tokenized to create a digital certificate of ownership that can be bought and sold.
And don’t go thinking you’ve hacked the system by right-clicking and saving the image of an NFT, either. That won’t make you a millionaire because your downloaded file won’t hold the information that makes it part of the Ethereum blockchain. Make sense?
The records cannot be forged because the ledger is maintained by thousands of computers around the world. NFTs can also contain smart contracts that may give the artist, for example, a cut of any future sale of the token.
What’s stopping people from copying digital art?
Nothing. Millions of people have seen Beeple’s art that sold for $69m and the image has been copied and shared countless times.
In many cases, the artist even retains the copyright ownership of their work, so they can continue to produce and sell copies. But the buyer of the NFT owns a “token” that proves they own the “original” work.
Some people compare it to buying an autographed print.
How much are NFTs worth?
In theory, anybody can tokenize their work to sell as an NFT. But interest has been fuelled by recent headlines of multi-million-dollar sales.
On 19 February, an animated Gif of Nyan Cat, a 2011 meme of a flying pop-tart cat — sold for more than $500,000.
A few weeks later, musician Grimes sold some of her digital art for more than $6m.
It is not just art that is tokenized and sold. Twitter’s founder Jack Dorsey has promoted an NFT of the first-ever tweet, with bids hitting $2.5m.
Christie’s sale of an NFT by digital artist Beeple for $69m set a new record for digital art.
But as with crypto-currencies, there are concerns about the environmental impact of maintaining the blockchain.
Characteristics of NFTs.
- Non-interoperable: A CryptoPunk cannot be used as a character in the CryptoKitties game or vice versa. This goes for collectibles such as trading cards, too; a Blockchain Heroes card cannot be played in the Gods Unchained trading card game.
- Indivisible: NFTs cannot be divided into smaller denominations like bitcoin satoshis. They exist exclusively as a whole item.
- Indestructible: Because all NFT data is stored on the blockchain via smart contracts, each token cannot be destroyed, removed, or replicated. Ownership of these tokens is also immutable, which means gamers and collectors possess their NFTs, not the companies that create them.
- Verifiable: Another benefit of storing historical ownership data on the blockchain is that items such as digital artwork can be traced back to the original creator, which allows pieces to be authenticated without the need for third-party verification.
NFTs promise to be the future of auctions, not just art or trading cards alone. Technically, anyone can create work, turn it into an NFT on the blockchain, and put it up for sale on their marketplace of choice. You can even attach a commission to the file, which will pay you every time someone buys the piece, including resales.
Much like when buying NFTs, you need to have a wallet set up, and it needs to be stuffed full of cryptocurrency.