If you’re hearing talk of NFTs but still don’t quite what they are, you’re not alone. NFT stands for Non-Fungible Token, but that explanation still might not help you. Let’s break it down.
What are Non-Fungible Tokens?
First, token. Tokens are crypto tokens, a tradeable currency on the cryptocurrency market – like bitcoins.
Next, tokens are fungible, meaning they can be owned or traded. If you trade one for another one, just like any currency, you receive the same thing. If I exchange a $1 coin for another one at the bank, I get the same thing.
Making a token non-fungible makes it absolutely unique. It can still be traded, but it can’t be replaced with anything else.
Think of an autographed baseball card. There are lots of copies of the card out there, all exactly the same, but there’s only one that’s signed. The big difference with NFTs is, these are digital cards. NFTs represent ownership of any virtual item – an image, a video, a music file, a piece of text. We’re used to thinking about digital files as endlessly copyable and shareable, so the idea of claiming possession of one seems non-intuitive. But that’s just what NFTs are – a means of owning a unique digital asset.
Like any cryptocurrency, NFTs are “minted” – or written to decentralized blockchain technology. In the case of NFTs, it’s the Ethereum blockchain. I can own one of Ethereum’s ETH coins at the same time as you, but when we trade them, any coin is like any other one. With NFTs, an extra piece of information is created and stored that ensures a given NFT can only be owned by one person at a time. Other blockchains, besides Ethereum, are starting to support NFTs as well. The presence of NFTs on the blockchain is what certifies their authenticity and, if you purchase an NFT, you acquire the ownership record of an asset and access to the actual asset.
Who’s Buying NFTs?
NFT technology is creating a market for digital art and revolutionizing the art world and art collectors new and old are the early adopters. As with physical works of art – their uniqueness is a considerable part of their value. Countless people have Van Gogh Starry Night wall prints, but there’s only one real painting. For buyers and collectors, NFTs offer that chance to own that singular, authentic digital piece. As with any high-end art, there’s an opportunity to make money as NFTs increase in value. NFTs are speculative assets and can be bought and sold, just like physical art pieces. Even if, like many NFTs, it’s a cartoon of a cat. Or a monkey. Or a pet rock.
Before NFTs took off in the art world, in fact, they were used inside a game called Crytptokitties, that let players buy and sell virtual cats. As reported in The Verge, an NFT of one such cat recently sold for $170,000. People are buying NFTs in droves. In just three years, according to Forbes, the NFT market grew by $296 million, up from $42 million to $338 million by the end of 2020.
Building Community with NFTs
People build communities around things they own. Car makes, shoe brands, and now, groups or sets of NFTs. It’s like membership in a club. People signal their membership in NFT communities like Pudgy Penguins and the Bored Ape Yacht Club with their NFT avatars. CryptoPunks is another exclusive NFT group, and an early NFT project led by a community of crypto-enthusiasts. The Visa company even purchased one of the CryptoPunks’ iconic pixellated avatars to show support for NFT artists and their enthusiasm for the new tech trend. Group activities depend on the community but, like many Internet groups, it means hanging out on Discord, sharing memes and complimenting each other on their avatars.
How Brands are Leveraging the NFT Trend
Forward-thinking brands and businesses are working to leverage the NFT trend and integrate it in their marketing and products. Well-known gaming company, Ubisoft, has started offering NFT items, like helmets and weapons, available for in-game purchase. Legacy is an NFT-powered game that has reportedly sold virtual plots of NFT land worth millions before the game has even launched. Nike is launching special sneakers called CryptoKicks that are authenticated by a unique blockchain identifier that, like virtual artworks, certify authenticity. For now, having or integrating NFTs is a sign of being ahead of the trend and having the crypto-savvy and crypto-coin to invest in it.
More Than Just Hype
Critics wonder why anyone would want to own a piece of non-physical art and doubt that the “certificate of ownership” stored on blockchain is worth the hefty price tag. But, like any art, the beauty is in the eye of the beholder. And much of the popularity of NFTs has to do with finding community and gaining proximity to a fresh new way of collecting, owning and trading things. It’s exciting for people to get in on the ground floor of blockchain and cryptocurrency and see how these technologies are transforming art markets and creating new value.
An added allure of blockchain-powered NFTs is that it keeps a special record of each transaction, making virtual art and asset purchases potentially more secure than physical artwork, that can be stolen or forged. At the same time, there have been cryptocurrency thefts. NFT buyers and collectors are still asking questions about how NFTs are protected and what it would take to retrieve stolen virtual items.
The most important thing to know about NFTs is that they’re hot commodities and interest is rising. Companies that can leverage NFT opportunities and communities today have the potential to leapfrog ahead of today’s technology and culture.