What do a piece of art which sold for $69 million, and Twitter CEO Jack Dorsey’s first tweet, which sold for $2.9 million have in common? They are both NFTs… but what does NFT mean? An NFT stands for non-fungible token. This article will explain what an NFT is, why people are buying them, and how much they are worth.
There are two types of tokens in the Cryptocurrency world: fungible and non-fungible.
A fungible token is something with units that can be interchanged - like currency. For example, if you swap one $2 bill, for two $1 bills, the value will remain the same. If something is non-fungible, it cannot be transferred. Its unique properties stop it from being interchanged with anything else (BBC News).
A non-fungible token (NFT) is a unit of data on a digital ledger, referred to as a blockchain. These transactions are structured as individual records (blocks), linked together in a single list (a chain).
By design, a blockchain is resistant to modification of its data. Once recorded, the data in a given block cannot be altered retroactively without alteration of all subsequent blocks. (Wikipedia).
As such, each NFT can represent a unique digital item, rendering them non-interchangeable. An NFT can represent digital files such as art, audio, videos, GIFs, items in video games, and other forms of creative work (like Tweets).
Recent examples of NFTs are Twitter CEO Jack Dorsey’s first tweet, the first ever tweet:
The Nyan Cat GIF was also sold as a NFT for $531,000.
Another example of NFT art is Everdays: The First 5000 Days which was sold for $69 million. It is a JPEG created by the artist known as Beeple. The image consists of a collage of 5000 images.
Technically, any digital asset can be sold as an NFT.
Buying a piece of NFT art is proof of ownership of the original, this applies to any NFTs, and whilst you could copy an NFT, it would not be the original. Putting the sale of NFT art into the context of physical paintings - anyone could buy a print of the Mona Lisa, however only one person can own the original artwork. This is the same principle of NFTs - anyone could download the Nyan Cat GIF, but only one person can own the original.
Like the purchase and sale of physical arts, the commercialization of NFTs occurs in virtual galleries specialized in this type of content. Among the main ones, we highlight OpenSea, which aggregates sales from other platforms, and Foundation, focused on visual arts. On these sites, it is possible to bid on the arts offered and obtain the NFT if your bid is the highest.
NFTs have no real intrinsic value, they are only as worth as much as someone is willing to pay. If somebody decides to pay $2.9 million to own the first tweet, then that is their prerogative.
The NFT trend will certainly be interesting to watch over the coming months and years, to see how they continue to develop.
A NFT is an investment modality with the potential to generate significant profits for investors, but it can also be an excellent alternative for artists. At this time of pandemic, with concerts and other cultural activities compromised, this option may be even more attractive.
In addition to the value obtained from the initial sale of the NFT, there are mechanisms in place to ensure that the author of the work can earn long-term gains, such as a percentage of all future sales.
Photo: Unsplash, Beeple