WHAT IS AN NFT? WHAT DOES NFT STAND FOR?
NFTs can certainly be anything digital (such as drawings, music, your brain downloaded and turned into an AI), but a lot of the current anticipation.
There’s nothing like a blast of blockchain news to leave you thinking, “Um… what’s happening?”
Now, months after we first published this interpreter, we’re still seeing headlines about people paying house money for clip art of rocks — and my mom still doesn’t really understand what an NFT is.
Non-fungible tokens (NFTs) seem to have detonated out of the ether this year.
From art and music to tacos and toilet paper, these digital assets are marketing like 17th-century exotic Dutch tulips—some for millions of dollars.
But are NFTs worth the money—or the hype? Some experts say they’re a bubble poised to pop, like the dot-com trend or Beanie Babies. Others believe NFTs are here to stay, and that they will change investing forever.
What Is an NFT?
Though they’ve been around since 2014, NFTs are gaining notoriety now because they are becoming a gradually popular method to buy and sell digital artwork. A surprising $174 million has been spent on NFTs since November 2017.
NFTs are also commonly one of a kind, or at least one of a very limited run, and have unique identifying codes. “Effectively, NFTs create digital scarcity,” says Arry Yu, chair of the Washington Technology Industry Association Cascadia Blockchain Council and managing director of Yellow Umbrella Ventures.
This stands in stark contrast to most digital creations, which are almost always endless in supply. Theoretically, cutting off the supply should raise the value of a given asset, assuming it’s in demand.
But many NFTs, at least in these early days, have been digital formations that already exist in some form elsewhere, like iconic video clips from NBA games or securitized versions of digital art that’s already floating around on Instagram.
For instance, famous digital artist Mike Winklemann, better known as “Beeple” crafted a composite of 5,000 daily drawings to create perhaps the most famous NFT of the moment, “Every day: The First 5000 Days,” which sold at Christie’s for a record-breaking $69.3 million.
Anyone can view the individual images—or even the entire collage of images online for free.
So why are people keen to devote millions to something they could easily screenshot or download?
Since an NFT permits the buyer to own the original item. Not only that, it comprises built-in authentication, which serves as proof of ownership. Collector’s value those “digital bragging rights” almost more than the item itself.
How Does an NFT Work?
At a precise high level, most NFTs are part of the Ethereum blockchain. Ethereum is a cryptocurrency, like bitcoin or dogecoin, but its blockchain also supports these NFTs, which store further information that makes them work differently from, say, an ETH coin. It is value noting that other blockchains can contrivance their own versions of NFTs. (Some already have.)
NFTs subsist on a blockchain, which is a spread public ledger that records transactions. You’re perhaps most acquainted with blockchain as the underlying process that makes cryptocurrencies possible.
Explicitly, NFTs are classically held on the Ethereum blockchain, although other blockchains support them as well.
An NFT is formed, or “minted” from digital objects that signify both tangible and intangible items, including:
• Videos and sports highlights
• Virtual avatars and video game skins
• Designer sneakers
Even tweets count. Twitter co-founder Jack Dorsey sold his first-ever tweet as an NFT for more than $2.9 million.
Fundamentally, NFTs are like physical collector’s items, only digital. So instead of getting an authentic oil painting to hang on the wall, the buyer gets a digital file instead.
They also get exclusive ownership rights. That’s right: NFTs can have only one owner at a time. NFTs’ exclusive data makes it easy to verify their ownership and transfer tokens between owners.
The owner or inventor can also store specific evidence inside them. For instance, artists can sign their artwork by including their signature in an NFT’s metadata.