NFT, which stands for ‘non-fungible token’ was Collins Dictionary Word of the Year 2021. Although use of the abbreviation rose by more than 11,000% in 2021, when Collins made the announcement, it left many wondering what NFTs actually are. Here’s everything you need to know about the phenomenon.
What is an NFT?
Collins defines it as “a unique digital certificate, registered in a blockchain, that is used to record ownership of an asset such as an artwork or a collectible”. In other words, it’s a chunk of digital data that records who a piece of digital work belongs to.
How is an NFT different to cryptocurrency?
NFT are generally built using the same kind of programming as cryptocurrency, like Bitcoin or Ethereum, but that’s where the similarity ends.
Physical money and cryptocurrencies are “fungible,” meaning they can be traded or exchanged for one another. They’re also equal in value — one pound is always worth another pound; one Bitcoin is always equal to another Bitcoin. Crypto’s fungibility makes it a trusted means of conducting transactions on the blockchain.
NFTs are different. Each one has a digital signature that makes it impossible for them to be exchanged for or equal to one another (hence, non-fungible). They act as one-of-a-kind tokens that can show ownership and convey rights over digital goods.
What are NFTs used for?
NFTs give artists and content creators a unique opportunity to monetise their work. Their main use has been found in the digital art world. However, an NFT can represent both tangible and intangible items, including:
- Videos and sports highlights
- Virtual avatars and video game skins
- Designer sneakers
Even tweets count. Twitter co-founder Jack Dorsey sold his first ever tweet as an NFT for more than £2 million.
What is the point of NFTs?
NFTs can be considered modern-day collectibles. They’re bought and sold online and represent a digital proof of ownership of any given item.
In the traditional ‘physical’ art world, artists create a piece of artwork that is the only one in existence. For example, there is only one physical copy of da Vinci’s Mona Lisa – a scarcity which helps add to its astronomical value. And thanks to the cumulative expertise of art historians and experts around the world and technology that can spot fakes, they are very difficult to forge.
Whereas, because of the nature of the internet, digital art is very easy to copy, usually with just the simple duplication of a file. NFTs put an end to that.
NFTs are securely recorded on a blockchain — the same technology behind cryptocurrencies — which ensures the asset is one-of-a-kind. The technology can also make it difficult to alter or counterfeit NFTs. For example, a digital artwork could be embedded into this article, but it would not be THE artwork.
Where can you buy NFTs?
There’s no shortage of NFT sites to shop. Here are a few popular NFT marketplaces:
- Foundation: A community-curated marketplace that requires creators to be invited by other creators who are already part of the platform.
- Nifty Gateway: An art-focused marketplace that works with big-name brands, athletes, and creators.
- OpenSea: One of the first and largest marketplaces where you can find NFTs for a wide-range of collectibles.
- Rarible: Offers a range of NFTs with an emphasis on art. Uses its own RARI token to reward members.
- SuperRare: A marketplace that focuses on curating and offering digital art.
What does the future hold for NFTs?
Despite the buzz surrounding NFTs currently, it’s difficult to predict their future. However, as the underlying technology and concept advances, NFTs could have many potential applications that go beyond the art world.
For example, a school could issue an NFT to students who have earned a degree which would let employers easily verify an applicant’s education. Or perhaps a venue could use NFTs to sell and track event tickets, potentially cutting down on resale fraud.
Beware of scams
The high-priced and headline-making NFT craze is attracting scammers and fraudsters, so investors should beware. Some may try to sell you something and tell you it’s an NFT when it’s not. Others may claim they have the right to sell an NFT of a piece of work they don’t own and didn’t create.
Should you buy NFTs?
NFTs are still very new, and we don’t have much history to judge their performance, which could make them a risky investment. If you are considering investing, keep in mind, an NFT’s value is based entirely on what someone else is willing to pay for it and demand will drive the price.
For instance, an NFT may resale for less than you paid for it, or if no one else wants it, you may not be able to resell it at all. Do your research, understand the risks and if you decide to go ahead, proceed with a healthy dose of caution!