What are NFTs?
NFT stands for “non-fungible token.” This kind of token is like Bitcoin, except while you can trade Bitcoin and have more of the same thing that represents real money at a varying market value, each NFT is unique. You possess the token that says you own something, like an art piece, and you can trade it, but if you do, you’ll be getting an entirely different piece. To keep all the parts in place, there’s enforced (artificial, but isn’t everything?) scarcity.
It’s easy enough to wrap your head around the fact that a piece of art can be created and exist on a screen, be it your phone, computer, tablet, etc. Then, that piece of art can be seen, screen-shotted, and downloaded by anyone online. But the deeper concept of NFT art is agreed-upon value and ownership; even if anyone can see, download, print out and hang up a piece of digital art, only a select few can actually own that exact piece. So NFTs are a form of digital asset, whose ownership is recorded on a blockchain. What’s a blockchain? Good question. Picture a ledger that lives online, keeping a publicly accessible record of who owns what, similar to the kinds of networks that ground cryptocurrencies like Bitcoin or Dogecoin. NFTs are connected to the Ethereum blockchain like this: you buy a NFT (say a piece of art from Beeple Crap) and the unique bit of information about that artwork — including its smart contract — is stored on the blockchain. It proves you own it.
How do NFTs work?
At a very 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 extra information that makes them work differently from, say, an ETH coin. It is worth noting that other blockchains can implement their own versions of NFTs.
How to Buy NFTs
There are a variety of marketplaces on which to buy and sell NFTs: Nifty Gateway, MakersPlace, SuperRare, OpenSea, Decentraland, and Rarible are just a few of many. For NBA highlight collectibles, check out NBA Top Shot — where $230 million has already been spent trading tokens, or “moments.”
YellowHeart, the platform that Kings of Leon used to release their various album NFTs, is a music-centric platform that ensures authenticity of concert tickets and seeks to prevent scalping using blockchain. Some say it’s the future of concert-going, and can put more power back into the artists’ hands.
How to Make and Sell NFTs
Are you an artist or content creator of some kind, looking to make a buck (or potentially several million bucks) off of work that is otherwise not inherently monetizable? You could make your piece an NFT. Say you have a doodle you want to turn into an NFT, or a comic strip, or something like Nyan Cat, the animated cat with a Pop-Tart body and a rainbow trail, which just sold as an NFT for about $580,000. The process differs from site to site, but it can start on platforms like Nifty Gateway, where you can apply to create a project to be sold as an NFT on their marketplace.
Are There Any Problems or Controversies Surrounding NFTs?
Once you peel back the initial layer of NFTs, a number of overlapping issues — ethical, logistical, and environmental, to start — arise.
Many have pointed out the extreme ecological impact that an explosion in NFT minting and trading would have on a planet already wrecked by climate change, climate-change related disasters, environmental racism, and inequity. What do NFTs have to do with climate change? Put simply: the process of minting NFTs by adding the tokens to the blockchains, combined with the tidal wave of trading transactions (bidding, resales, etc.) results in a major use of energy. Multiply that to the nth degree, in a market driven by greed and the desire to keep up, and we could have a new form of environmental destruction on our hands. Ethereum, the platform which hosts the blockchains to which many of these NFTs are anchored, has pledged to switch to a less carbon-guzzling form of keeping their systems secure and working, called proof-of-stake, but this hasn’t yet actually happened. It’s unclear when (if ever) the shift will happen.
From an ethical and equity perspective, the option of selling one’s art as NFTs may not be the ample opportunity it has the potential to be. On Twitter, digital artist RJ Palmer recently warned fellow artists that there was an account ripping off art by minting artists’ tweets of their art and selling them as NFTs. There’s potential for abysmal exploitation of emerging artists’ work, without the proper enforcement or investigation into whether the person minting an NFT is the actual artist, true creator, and copyright owner of the work. The relative anonymity of crypto transactions has created an environment ripe for exploitation, theft, and harm.
Why are they so popular?
The coronavirus pandemic played a big role in the NFT boom. Last year, the total value of NFT transactions quadrupled to $250 million, according to a study from NonFungible and BNP Paribas-affiliated research firm L’Atelier.
That’s in no small part because of stay-at-home restrictions that resulted in people spending a lot more of their time on the internet and saving cash from a lack of commuting. It’s similar to the rise of retail traders betting on GameStop and other historically unloved stocks promoted on the Reddit board WallStreetBets.
Meanwhile, it also arrives at a time when bitcoin, ether and other digital coins have surged in value, with bitcoin briefly topping $1 trillion in market value last month.
“Right now we’re living in a point in the world whereby the majority of the population is spending 50% of their time online and a significant amount of their time on a PC,” Whale Shark, a pseudonymous NFT collector who claims to have amassed a collection worth over $2.7 million, told CNBC.
What’s worth picking up at the NFT supermarket?
NFTs can really be anything digital (such as drawings, music, your brain downloaded and turned into an AI), but a lot of the current excitement is around using the tech to sell digital art.