When a piece of digital art sells for 69 million dollars and makes its creator the third most expensive living artist in the world, no one is left indifferent.
NFTs have been a source of gossip around the world in recent months and this new trend baffles those wondering why there are people who spend so much money on articles that only exist in digital format and that everyone can look at for free on the Internet.
But what is an NFT?
NFT is the acronym for “Non-fungible tokens”. These are digital representations of assets such as images, videos, drawings, music, etc., which are stored in blockchain, and most of which use the Ethereum blockchain. Each token has a unique and unchangeable identifier that uses cryptography to ensure its authenticity.
The NFTs are recorded in a digital book in the same way as cryptocurrencies, so there is a list of who owns each one. However, they are not a cryptocurrency like Bitcoin.
Unlike Bitcoin, NFTs are “non-fungible”. This means that they are unique and cannot be replaced by anything else. A ten can be changed for two fives and they will be worth the same, but if you exchange one work of art for another, you will have a completely different work. That means what makes an NFT unique is the digital asset linked to it.
Another reason why NFTs are different from cryptocurrencies is because they are indivisible. You can buy a fraction of a Bitcoin but you can’t buy a fraction of an NFT.
NFTs really can be any sort of digital item. One of the first uses given to NFTs was a game called CryptoKitties that allowed users to exchange and sell virtual kittens. Someone once managed to spend over 170,000 dollars for a virtual cat.
But NFTs have gained a lot of strength in 2021. The case that has popularised the subject has involved Twitter founder, Jack Dorsey, who sold his first tweet for just under 3 million dollars. But we have more examples: the creator of the Nyan Cat meme sold it for 590,000 dollars, a Toronto artist sold a digital home for more than 500,000 dollars, and even Nike has patented a method to verify the authenticity of its trainers using an NFT system called CryptoKicks.
Monthly sales in OpenSea’s NFT market reached 95.2 million dollars in February 2021, while just 8 million dollars were netted in January. According to the website NonFungible.com, the total volume of NFT transactions in the Ethereum blockchain amounts to more than 400 million dollars.
The NBA Top Shot platform, which allows fans to market their basketball moves, has 683,000 users and has raked in 396 million dollars in sales, a figure not included in NonFungible.com data.
Why do NFTs attract so much money?
NFTs are designed to offer something that cannot be copied: ownership, even though the artist may still retain copyright and reproduction rights, as is the case with physical works of art. To make it easier to understand; everyone can buy a Van Gogh painting, but only one person can own the original. Many enthusiasts see NFTs as the future of property.
In addition, NFTs are creating opportunities for all types of creators and unlocking new revenue streams, as they can represent a wide variety of assets: virtual collectibles, gaming items, digital artwork, tickets to events, virtual worlds, property, identity documents, certifications and much more.
NFTs have numerous possibilities and great potential thanks to their easy transferability (NFTs are decentralised, so there is no requirement for a central issuing agency), proof of ownership and they are capturing the hearts and minds of people in a way that cryptocurrencies had not yet achieved. Introducing new users to the world of cryptography through entertainment and recreation channels is easier when it comes to understanding blockchain technology and decentralisation. Therefore, it could be said that NFTs are democratising access to basic investments in innovation.
But not everything in the garden is rosy... There is a great deal of controversy regarding the climate with NFTs. As they use the same blockchain technology as some cryptocurrencies, they also end up consuming a great deal of electricity in their creation and maintenance.
There are people working to mitigate this problem and the Ethereum community is also committed to this matter, but to date, most NFTs remain linked to cryptocurrencies that generate greenhouse gas emissions and contribute to one of the biggest challenges facing humanity: climate change.