So-called non-fungible tokens (NFTs) seem to be the trend this year. From art and 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 the fuss? Some experts say that the digital goods are a bubble that could burst at any time. Others believe that NFTs have come to stay and that they will change the world of investing forever. What is a non-fungible token?
Non-fungible means to German: irreplaceable or interchangeable. And a token is a unit of value. For the first time, the term appeared in the field of crypto currencies.
An “irreplaceable token” is a digital asset that represents real objects such as art, music, in-game objects, and videos. The tokens are bought and sold online, often with cryptocurrency, and they are usually encoded with the same underlying software as many cryptos.
NFTs have existed since 2014
Although they have been around since 2014, NFTs are only now gaining notoriety, especially in the field of art. Among connoisseurs, art objects such as pictures are now often sold digitally. Since November 2017, an incredible $174 million has been spent on NFTs.
NFTs are usually unique or at least only available in very limited editions and have unique identification codes. “Essentially, NFTs create digital scarcity,” says Arry Yu, chair of the Washington Technology Industry Association. This increases the value if there is a corresponding demand.
Nearly $70 million for a digital asset
In their early days, NFT’s digital creations were already available elsewhere in some form, such as illustrative video clips of NBA games or securitized versions of digital art already buzzing around on Instagram.
For example, famed digital artist Mike Winklemann, better known as “Beeple,” created a collage of 5,000 drawings to create perhaps the most famous digital asset of the time. The work, titled “Everydays: The First 5000 Days,” went over the counter at Christie auction house for a record-breaking $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 they could easily take a screenshot of or even download it?
The answer: An NFT allows the buyer to own not only the original item, but also built-in authentication that serves as proof of ownership. Some say collectors appreciate the opportunity to brag about their digital possessions almost more than the object itself. How is an NFT different from cryptocurrency?
NFT stands for non-interchangeable token. A token is programmed (created) in a similar way to the cryptocurrencies Bitcoin or Ethereum. But that’s where the similarity ends.
Physical money and cryptocurrencies are “fungible” (interchangeable), meaning they can be traded or exchanged for each other. They are also of the same 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 each other. An NBA clip, for example, is not the same as the Everydays artwork, although 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 usually held on the Ethereum blockchain, although other blockchains support them as well.
An NFT can refer to items that are originally physical or already digital. These include, for example:
• Virtual avatars and video game skins
Even tweets count. Twitter co-founder Jack Dorsey sold his first tweet as NFT for more than $2.9 million.
Essentially, 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. So NFTs can only have one owner at a time. The unique signature of NFTs makes it easy to verify their ownership and 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 an NFT’s metadata. Where have NFTs already been used?
Blockchain technology and NFTs offer artists a unique opportunity to monetize their work. As a result, artists no longer have to rely on galleries or auction houses, but can address consumers directly thanks to NFTs. Brokerage or intermediary fees are thus eliminated for the artist.
In addition, artists can program in royalties so that they receive a percentage of the revenue when their art is sold to a new owner. This is an attractive feature because artists usually don’t receive future proceeds after their art is first sold.
Art isn’t the only way to make money from NFTs. U.S. brands such as Charmin and Taco Bell have auctioned off themed NFT art to raise funds for charity. Charmin called his offer “NFTP” (non-exchangeable toilet paper) and Taco Bell’s NFT art sold out within minutes, with the highest bids coming at 1.5 wrapped ether (WETH) – the equivalent of a good 3,000 euros at the time of writing this article.
Nyan Cat, a 2011 GIF of a cat with a body that resembles a toast (pop tart), sold for nearly $600,000 in February 2021. And the picture series NBA Top Shots achieved sales of more than 500 million US dollars at the end of March. A single NFT showing basketball player LeBron James’ best game moments fetched more than $200,000.
Even celebrities like Snoop Dogg and Lindsay Lohan jump on the NFT car and publish unique memories, artwork 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 with cryptocurrency, you should look at 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 Wallte and deposited cryptocurrency there, you can start. There are a lot of NFT websites where tokens can be bought. Currently, the largest NFT marketplaces are:
• OpenSea.io: This peer-to-peer platform describes itself as a provider of “rare digital items and collectibles.” To buy tokens, you’ll need to create an account that you can use to browse NFT collections. You can also sort by the quantity already sold and discover new artists if necessary.
• Rarible: Similar to OpenSea, Rarible is an open marketplace that allows artists and creators to release and sell NFTs.
• Foundation: Here, artists must collect enough votes or receive an invitation from other creators to publish their art. The exclusivity of the community and other fees – artists have to buy “gas” to mint NFTs – means that you may find more valuable or well-known works of art there. Nyan Cat creator Chris Torres, for example, sold the NFTs on the Foundation platform.
Although these platforms and thousands more bring together NFT creators and collectors, you should do some research on your NFT before buying. Counterfeits and fraud have already existed. For example, works of art were sold without artists knowing about them.