NFTs are the latest internet phenomena to take the world by storm. With sales in the millions of dollars and celebrities, musicians, and corporations jumping on board, it might be more than just a fad fueled by millennials and a hot new social media app. But if it’s not just another acronym turned buzz word, what exactly is this art/game/tech crossover sensation, and why are people paying so much money for them?
Like Bitcoin, most coins and tokens that utilize blockchain networks are fungible, meaning any one bitcoin is equal to any other bitcoin, any one dogecoin is equal to any other dogecoin, etc. An offshoot of the cryptocurrency movement that has recently experienced viral growth is a new digital asset class known as the NFT, or Non-Fungible Token. NFTs are unique identifiers that live on blockchains and represent ownership of content that can include (but is definitely not limited to) game pieces, collectibles, artwork, documents, and much more.
Simply put, NFTs can be considered digital certificates of authenticity. Transferring an NFT from the creator to a buyer involves adding data to the underlying network that cryptographically proves transfer of ownership. Anyone with the tools needed to view and interpret this data can track the NFT’s movement from wallet to wallet.
How NFTs Work
Most NFTs can be broken into two distinct pieces - the token ID, which lives on a blockchain, and the more human friendly data expressed as an image, a song, or any number of things that most likely don’t exist on a blockchain. The token ID can include references to places where files are stored, or to large databases of properties and traits, instead of attempting to encapsulate 100% of the relevant data itself. Decentralized, peer-to-peer, tamper resistant networks sacrifice efficiency for security, so it is often more reasonable to store data rich files like jpegs, gifs, and mp4s elsewhere and use metadata to link the two parts together.
Platforms like OpenSea, Rarible, and Mintable allow users to upload files, generate NFTs, and sell them to buyers via their marketplaces. Numerous artists, digital and otherwise, are experimenting with this new tech in order to reduce overhead and gain exposure to wider audiences. While most NFTs are purely non-physical, the boundaries of what can be made into an NFT is ever expanding, and many physical works are being sold alongside their digital counterparts on these same marketplaces. Soon, more and more artists and musicians will add functionality to their merchandise with tokenization. Buying a piece of art might grant the holder access to an exclusive gallery exhibit or an invitation to have dinner with the artist. NFTs from musicians might include mp4s of their hit song, tickets to a show, or backstage passes.
NFTs Add Value and Functionality
Prior to the Cambrian-like explosion of cryptoart, NFTs were primarily gaming assets or collectibles. The programmatic nature of NFTs allows developers to add traits and properties to their tokens, encouraging owners to attribute more value to assets based on scarcity and/or utility, as well as allowing others to build mini-games and compatible ecosystems where the same assets may be used. Games like Cryptopunks, Cryptokitties, and Axie Infinity and virtual worlds like Decentraland, Cryptovoxels, and Sandbox have proven that collectors are more than willing to store a lot of value in value digital goods and participate in the economies that spring up around them.
