You may have read about NFTâs a lot in the news lately. But what are these obscure digital tokens that are suddenly making people rich? NFTâs, or Non-Fungible Tokens, seemingly popped up overnight, and the hype around them reached a peak when an NFT of a digital art work sold for $69 million on March 11. The artwork was a collage, part of a project that the artist known as Beeple, worked on. Over 5,000 days, he made a digital piece of art every day. The images ranged widely in style and subject matter, and he collected them into this collage. Heâs still going by the way, the collage just contained the images for the first 5,000 days since he started in 2007.
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To understand NFTs, you unfortunately have to understand the blockchain. If youâre an absolute beginner to that, check out our blog post on the subject here. â
NFTs are very similar to cryptocurrencies. They both live on the blockchain, and are meant to be individual, digital instances of something, unable to be duplicated or copied. But instead of a currency, an NFT is a certificate of authenticity. Thatâs where the name comes in. Unlike a piece of currency, which is fungible â one bitcoin is identical and interchangeable to any other bitcoin â NFTs are unique. Theyâre non-fungible.
If youâve ever bought an expensive original piece of art â donât worry, I havenât either â you know that in order to prove your piece isnât fake, it comes with some sort of certificate. These are issued by the artist, usually as a piece of paper, and have some sort of rubber stamp or something similar to verify it.
An NFT is the same thing, but on the blockchain. Itâs a purely digital certificate. The thing it certifies can be real or digital â and the latter is where things get interesting.
Until now, itâs been hard to create a piece of digital art that can be collected like a physical one. Anything digital can be copied, and though digital rights management software has tried to prevent people from doing that, it can always be circumvented.
An NFT doesnât try to prevent people from copying a piece of art. Instead, it verifies that only one instance of the art is the true original. It says âthis picture is the original, everything else is a copy.â Collectors who buy and sell NFTs donât own the art in the same way they might own an original Rothko, but they can say they have the rights to the original.
This is a question that goes back to why the art world works as it does. And thatâs a bigger question than we can answer in a single blog post. But simply put, in art, some things suddenly are worth millions of dollars because people decide theyâre worth that much. If you scribble a few lines and squares on a piece of paper, youâll be lucky if your mom hangs it on her fridge. When Cy Twombly does it, it sells for $38 million.
The point of NFTs isnât that theyâre suddenly more valuable than before. Itâs that theyâre gaining popularity. There were some attempts in 2017 to make NFTs more popular, but when Bitcoin and other cryptocurrencies crashed in December 2017, the attention moved elsewhere. Since Bitcoin and other crypto coinsâ rises recently, that attention has come back, and companies like Dapper Labs have started creating NFTs for small videos of popular basketball game moments. Like trading cards, they can be as rare or common as their creators decide, and their popularity can make them more or less valuable.
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Come on, you know better than to ask us for investment advice. As always, that decision is up to you.
However, hereâs what you should know before investing into an NFT. For one, theyâre not cheap to get into. You can of course create a piece of art, create an NFT for it and auction it off, hoping for millions, but youâll run into the same problem as most of the art world â itâs very hard to make a living off art. If you want to buy a piece of art and resell it, youâll usually already be starting at auction prices over $10,000, especially for popular pieces.
And keep in mind that when something is hyped up, like NFTs are at the moment, thereâs a chance that hype will die down and people wonât be willing to fork over the same huge prices as before. Itâs very hard to see if a new trend is a bubble, but if you canât know for sure, you should be prepared for the risk.
In the meantime, you can check out Beepleâs Everydays series completely free here.