This year, non-fungible tokens (NFTs) appear to have exploded from the ether. Digital assets ranging from art and music to tacos and toilet paper are selling like 17th-century unique Dutch tulips, with some fetching millions of dollars.
Are NFTs, on the other hand, worth the money—or the hype? Some analysts believe they, like the dotcom mania and Beanie Babies, are about to burst. Others feel that NFTs are here to stay and will forever revolutionize investment.
What Exactly is an NFT?
An NFT is a digital asset that is used to represent real-world artifacts such as art, music, in-game items, and films. They are often encoded using the same underlying software as many cryptos and are bought and sold online, often with bitcoin.
Despite the fact that they’ve been there since 2014, NFTs are gaining popularity currently as a popular means to buy and sell digital artwork. Since November 2017, a whopping $174 million has been spent on NFTs. NFTs are usually one-of-a-kind, or at the very least limited-edition, and feature unique identification numbers.
“Essentially, NFTs generate digital scarcity,” explains Yu, managing director of Yellow Umbrella Ventures and chair of the Washington Technology Industry Association Cascadia Blockchain Council. This is in sharp contrast to the vast majority of digital products, which are nearly always available in endless quantities.
If a certain asset is in demand, cutting down the supply should theoretically increase its value. However, many NFTs have been digital works that already exist in some form elsewhere, such as legendary video clips from NBA games or securitized versions of digital art that are already floating around on Instagram, at least in these early days.
For example, acclaimed digital artist Mike Winklemann, better known as “Beeple,” created “EVERYDAYS: The First 5000 Days,” possibly the most famous NFT of the moment, which sold at Christie’s for a record-breaking $69.3 million. Individual images—or perhaps the full collage of images—can be viewed for free online.
So, why are individuals prepared to spend millions of dollars on something that they could easily screenshot or download? Because the buyer can own the original item with an NFT. It also comes with built-in authentication, which acts as proof of ownership. The “digital bragging rights” are almost as valuable as the item itself to collectors.
What is the Difference Between NFT and Cryptocurrency?
The abbreviation NFT stands for non-fungible token. It’s usually programmed in the same way as cryptocurrencies like Bitcoin or Ethereum, but that’s where the similarities end. Fungible means that physical money and cryptocurrencies can be traded or exchanged for one another.
In terms of value, one dollar is always worth another dollar and one Bitcoin is always worth another Bitcoin. The fungibility of cryptocurrency makes it a secure way to execute blockchain transactions.