On February 16, 2021, a man named Mike Winkelmann created a digital art file on his computer. On March 11, that file sold at a Christie's online auction for $69.3 million.
Mike Winkelmann is also known as the digital artist Beeple, and his piece, titled Everydays – The First 5000 Days, is a computerized collage of all his works since 2007. You can get the same image for free by doing a simple Google search and downloading it to your device.
Except it won't be exactly the same image.
The image you download is identical to the image sold at Christie's. Both images are also digital, so it's not as if you're photocopying an original Picasso. But the image that was sold at Christie's is an NFT, so it's worth $69.3 million.
What is an NFT?
NFTs, or non-fungible tokens, are unique encryptions that use the same blockchain standard as the Ethereum cryptocurrency, and can be applied to any digital file. If you still don't understand the idea of an NFT, you're not alone. The one thing I want you to remember from the sentence above is the word unique.
Let's break down the NFT concept in simpler terms.
Say you actually want to buy that original Picasso. The reason you'll pay the price of a small Hollywood mansion for it when you can get a copy for free is because the original is unique, which means it's scarce. It's one of a kind, and you would have sole ownership.
An NFT is the same idea. You can get free digital art created by Grimes online. But the same art images sold by Grimes at an auction in February pulled in around $6 million, because each of those images was encrypted as an NFT meaning that each one has a unique identifier, or token. So if you were the proud owner of one of those digital NFT files from Grimes, you would have sole ownership of that image. You wouldn't own the rights to the art piece; you would just own that specific digital file, because it's an NFT.
Perhaps an even better example of an NFT might be Twitter CEO Jack Dorsey's first-ever tweet, which recently sold for $2.9 million. The tweet is still up on Dorsey's feed and is accessible to any Twitter user. But since it was encrypted with an NFT, it could be bought, and the person who bought that NFT now owns Jack Dorsey's tweet.
Put another way, if you buy a Bitcoin and trade it for another Bitcoin, you have the same Bitcoin. It's fungible. But if something is encrypted with the non-fungible tokens Ethereum blockchain then there is none other like it, so it's non-fungible.
There are plenty of non-fungible tokens use cases, like Kings of Leon releasing their new album as an NFT at auction, or the beloved, pixelated Nyan Cat meme selling for nearly $600,000. As you can probably tell, many of these non-fungible tokens examples are from the NFT crypto art world, which is now valued at over $100 million. But any digital asset can be made into an NFT, including crypto collectibles such as digital baseball cards or crypto stamps. NFTs can also get very, very weird – such as film director Alex Ramirez-Mallis' master recording of farts, which he sold for $430.
But why would anybody pay for an NFT when they can get the same exact product for free? Because human beings are suckers for exclusivity and scarcity. It's why everyone wants to be part of the club they can't get into, and why Steve Jobs, when releasing the first iPhone, made sure that all Apple stores were understocked.
The NFT phenomenon is introducing the concept of scarcity to the digital world. Part of the allure of owning an NFT asset (at least for some people) is that it is exclusive and unique, and also because the owner gets NFT bragging rights. Indeed, blockchain technology is accessible and encrypted, so anyone can see who owns a particular NFT.
How Can I Buy or Sell NFTs?
At the moment, there are no Forex brokers or CFD brokers who are offering NFT trading. Buying or selling NFTs is limited to a few online marketplaces.
The first thing you need to do before buying or selling an NFT on any marketplace is set up a digital wallet, offered by many NFT platforms. The wallet serves as your digital fingerprint and is what connects you to the blockchain, so that once you own an NFT you are recorded as the sole owner on the blockchain. You also use the wallet to hold your Ethereum, the cryptocurrency you use to buy an NFT. Ethereum is also used to “pay gas”, a kind of NFT transaction fee.
NFT enthusiasts can easily buy Ethereum on various ETH exchanges, such as Coinbase or Binance. The next step is to decide which NFT you want to buy, which you can do by browsing through NFT catalogues on NFT marketplaces such as OpenSea.
OpenSea is considered to be the largest NFT platform, and it showcases NFTs in a variety of categories, including art, trading cards, collectibles, sports, domain names, or virtual world (where you can buy an NFT t-shirt for use in a virtual game). The prices of these NFTs are set by the creators, and can range anywhere from less than 1 ETH to around 80,000 ETH for an NFT. If that sounds cheap, keep in mind that 1 ETH = $1,607.20 as of this writing.
OpenSea no longer charges upfront fees to creators for minting NFTs, but until recently creators had to pay a gas fee of around $100 to deploy an Ethereum smart contract to encrypt the asset, and then another fee to actually mint the NFT, ranging anywhere from $2 to $32.
Other established NFT marketplaces, such as Rarible, may charge steeper fees for minting an NFT, closer to $700. Buyers enjoy a wide range of NFT categories to choose from at Rarible, including memes and music.
The process of minting an NFT can be fairly non-technical, in the sense that marketplaces such as OpenSea offer no-code minters. The bulk of the creator's job is to create the asset, which they can do using the marketplace's online tools.
Final Thoughts
The burgeoning NFT market is perhaps one of the biggest things to happen to the digital world in this era. NFTs are giving the internet, whose characteristic was that of availability, an element of scarcity and exclusivity. Whereas until recently, we used the internet to trade goods and services, we can now trade the internet itself.
Art collectors and buyers may feel as though a door just opened to a new world of weird and wonderful things. Even those who are not art enthusiasts may buy NFTs just for the thrill of the ownership and exclusivity. It seems as though demand for non-fungible tokens is taking its first breath.
We can also look forward to the creation of more art, more music, and a surge in the online absurdities that we've grown to love. But creators should keep in mind that the Nyan Cats of the world are the anomalies, not the norm, and that it is easier to lose money creating and selling an NFT than to profit.
FAQs
What does NFT mean?
NFT is a non-fungible token, which is an Ethereum blockchain standard with which any digital asset can be encrypted.
What is NFT crypto?
An NFT uses the blockchain technology that powers cryptocurrencies such as Bitcoin, Ethereum and others.
What are NFT coins?
NFTs are bought and sold primarily using the Ethereum cryptocurrency, though they can be traded in fiat currencies as well.