Overview
Non-fungible tokens, or NFTs, are topping the latest cryptocurrency news. Understand what NFTs are, how they’re transforming digital art and content into valuable assets, and other use cases for NFTs.
NFTs have been making headlines recently, with digital assets such as Twitter co-founder and CEO Jack Dorsey’s first tweet selling as an NFT on blockchain — the tweet sold for almost $3 million dollars.
The growing popularity of non-fungible tokens offers a new opportunity for creators, artists, musicians and influencers to sell work that otherwise might not find a market and also increase the value of digital assets.
But what are NFTs and how exactly does an item on the internet belong to an individual?
The Basics of NFTs
“Non-fungible” means that the token is unique and cannot be replaced — like a one-of-a-kind baseball trading card. In comparison, a bitcoin, another popular cryptocurrency, is fungible; a bitcoin can be traded for another bitcoin for the same value and the owner would essentially have the same thing — much like a dollar bill.
Stored on a blockchain, a decentralized and distributed digital ledger of transactions, NFTs have immutable data records to prove their authentication and any change in ownership and are therefore certified assets. By design, the data on a blockchain is unable to be modified.
Any digital asset can be created as an NFT on an NFT marketplace with a digital wallet and cryptocurrency, such as Ethereum. Common and popular marketplaces include OpenSea, Mintable, Rarible and specific niche marketplaces such as NBA Top Shot or Valuables — where Dorsey sold his tweet.
What Are You Actually Owning?
What does buying a digital asset mean when it can be viewed on the internet? The purchase of an NFT means the owner has what is effectively a certificate of authenticity on the item purchased, not the item itself. It is comparable to owning a deed to a house, a record of ownership.
Owning an NFT is essentially owning the property rights to the digital asset. Even if thousands of copies are made of the asset, none of them would be the original creation digitally signed and authenticated by the creator. This is because the act of purchasing and gaining ownership of an NFT represents a unique cryptographic fingerprint, called a hash, on the digital ledger or blockchain.
Use Cases in Art and More
Video moments such as LeBron James dunks have been made into NFTs, as have artwork from digital artist Beeple. A piece from Beeple was minted as an NFT and sold for $69 million on auction house Christie’s. NFTs have transformed these cryptoart pieces into collectibles worth the bragging rights for those in the cryptocurrency and cryptoart space.
NFT enthusiasts also believe that the new cryptocurrency phenomenon will expand beyond trading digital art and gaming. One startup allows its users to use NFTs as collateral for loans. Once the loan is repaid, the asset will be transferred back to the user.
For apparel and accessories connected to an NFT, users can verify the information of their items through blockchain, reducing counterfeiting.
As NFTs gain popularity, their applications can extend across industries and may hold potential for storing personal data on blockchain.
“NFTs may make blockchain technology more popular in the eyes of the general public,” said Brian Comiskey, sr. manager of industry intelligence, Consumer Technology Association (CTA)®. “It may underscore a desire to increase more financial transactions (beyond crypto) for consumers and eventually be deployed on the enterprise side for applications like secure cloud storage.”