From music to tacos and toilet paper, these digital goods sell like exotic 17th-century Dutch tulips – some for millions of dollars.
But are NFTs worth the money – or are they worth the buzz? Some experts say that the digital goods are a bubble that could burst at any time. Others believe that NFTs are here to stay and that they will change the world of investing forever.
What is a non-fungible token?
Non-fungible means in German: not replaceable or interchangeable. And a token is a unit of value. The term appeared for the first time in the field of cryptocurrencies.
A “non-replaceable token” is a digital asset that represents real-world objects such as art, music, in-game items, and videos. The tokens are bought and sold online, often using cryptocurrency, and they are usually encoded using the same underlying software as many cryptos.
NFTs have existed since 2014
Although they’ve been around since 2014, NFTs are only now gaining prominence, especially in the arts. Art objects such as pictures have recently been sold digitally among connoisseurs. As of November 2017, a staggering $ 174 million has been spent on NFTs.
NFTs are typically unique, or at least available in very limited numbers, and have unique identification codes. “Essentially, NFTs create digital scarcity,” said Arry Yu, chairman of the Washington Technology Industry Association. This increases the value when there is a corresponding demand.
Almost $ 70 million for a digital asset
In their early days, NFTs were digital creations that already existed in some form elsewhere, such as illustrative video clips of NBA games or securitized versions of digital art already floating around on Instagram.
For example, famous digital artist Mike Winklemann, better known as “Beeple,” created a collage of 5,000 drawings to create what is perhaps the most famous digital asset of the time. The work entitled “Everydays: The First 5000 Days” went over the counter at the Christie auction house for a record $ 69.3 million.
Why is digital better than physical?
Anyone can view the individual images – or even the entire collage of images online for free. So why are people willing to spend millions on something that they could easily screenshot or even download?
The answer: An NFT allows the buyer not only to own the original item, but also to have built-in authentication that serves as proof of ownership. Some say collectors value the ability to brag about their digital possessions almost more than the object itself.
How is an NFT different from cryptocurrency?
NFT stands for non-exchangeable token. A token is programmed (created) in a similar way to the cryptocurrencies Bitcoin or Ethereum. But this is where the similarity ends.
Physical money and cryptocurrencies are “fungible” (exchangeable) which means that they can be traded or exchanged for one another. They are also of equal value – one Bitcoin is always worth the same as another Bitcoin.
Not so with NFTs. Each token has a digital signature that makes it impossible for NFTs to be exchanged for one another. An NBA clip, for example, is not the same as the Everydays artwork, even though both are tokens.
How does an NFT work?
NFTs exist on the so-called blockchain, a public ledger that records transactions. You may already know the blockchain from the world of cryptocurrencies.
In particular, NFTs are typically kept on the Ethereum blockchain, although other blockchains support them as well.
An NFT can relate to items that are originally physical or already digital. These include, for example:
• Art
• GIFs
• Videos and sports highlights
• Collectibles
• Virtual avatars and video game skins
• Designer sneakers
• music
Even tweets count. Twitter co-founder Jack Dorsey sold his first tweet as an NFT for more than $ 2.9 million.
In essence, NFTs are like physical collectibles, only digital. So instead of hanging a real oil painting on the wall, the buyer gets a digital file instead.
Whoever buys the token also receives exclusive ownership rights. NFTs can only have one owner at a time. The unique signature of NFTs makes it easy to verify ownership and to transfer tokens between owners. The owner or the original artist can also store certain information on the token. For example, artists can sign their artwork by including their signature in the metadata of an NFT.
Where have NFTs been used?
Blockchain technology and NFTs offer artists a unique opportunity to monetize their work. Artists no longer have to rely on galleries or auction houses, but can instead address consumers directly thanks to NFTs. Broker or agent fees are no longer applicable for the artist.
In addition, artists can program in royalties so that they receive a percentage of sales when their art is sold to a new owner. This is an attractive feature as artists typically do not receive future revenue after their art is first sold.
Art isn’t the only way to make money with NFTs. US brands such as Charmin and Taco Bell have auctioned themed NFT art to raise funds for charity. Charmin called his offer “NFTP” (non-exchangeable toilet paper) and Taco Bell’s NFT art was sold out within minutes, with the highest bids coming in at 1.5 wrapped ether (WETH) – that’s a good 3,000 euros at the time of writing of this article.
Nyan Cat, a 2011 GIF of a cat with a body resembling a toast (pop-tart), sold for nearly $ 600,000 in February 2021. And the NBA Top Shots photo series had sales of more than $ 500 million at the end of March. A single NFT showing basketball player LeBron James’ best moments fetched more than $ 200,000.
Even celebrities like Snoop Dogg and Lindsay Lohan jump on the NFT cart and post unique memories, works of art and moments as securitized NFTs.
How can you buy NFTs?
If you now want to start your own NFT collection, you first have to get some kind of basic equipment.
First, you need a digital wallet that you can use to store NFTs and cryptocurrencies. Since NFTs usually have to be paid for with cryptocurrency, you should see which cryptocurrency is accepted and buy it. Well-known crypto exchanges in Germany are Kraken, Coinbase, Binance, Bitcoin.de or Bison.
Note: Most exchanges charge at least a percentage of the transaction amount when you buy cryptocurrencies.
Popular NFT marketplaces
As soon as you have set up the wall and deposited cryptocurrency there, you can start. There are a ton of NFT websites where tokens can be purchased. Currently the largest NFT marketplaces are:
• OpenSea.io: This peer-to-peer platform describes itself as a supplier of “rare digital objects and collectibles”. To buy tokens, you need to create an account that you can use to search NFT collections. You can also sort according to the amount already sold and discover new artists if necessary.
• Rarible: Similar to OpenSea, Rarible is an open marketplace that allows artists and creators to publish and sell NFTs.
• Foundation: Here, artists need to collect enough votes or get an invitation from other creators to publish their art. The exclusivity of the community and additional fees – artists have to buy “gas” to mint NFTs – means that you may find more valuable or better known works of art there. Nyan Cat creator Chris Torres, for example, sold the NFTs on the Foundation platform.
While these platforms and thousands more bring together NFT creators and collectors, you should research your NFT carefully before purchasing. Counterfeiting and fraud have already been avoided