NFTs or non-fungible tokens have suddenly become a hot item in art, sports, and marketing. You can even buy NFTs for digital tacos from Taco Bell!
Some wonder if they are just a fad. Will they come and go like pet rocks? Or are they here to stay?
Today, we hear about non-fungible tokens (NFTs) in everything including digital art, music, sports, collectibles, and even online tweets. You do not hold non-fungible tokens in your hands, you don’t put them on a mantle or shelf, and you don’t put them on your wall.
An NFT is a unique or one-of-a-kind digital asset that exists online and is recorded in a digital ledger known as a blockchain. They have a distinct value and come with a certificate of authenticity. Even though they are online, they cannot be duplicated.
Another word for fungible is interchangeable. Stocks are fungible. It doesn’t matter if Bill Gates once owned that share of Microsoft stock that you now own. They are the same share of Microsoft stock. Another way to explain it is you can exchange a $10 bill for another $10 bill, but you cannot replace the Mona Lisa. The former is fungible and the latter is non-fungible.
Any one-of-a-kind item is, by definition, non-fungible. As such, NFTs come with unique identification codes and metadata held on the blockchain that distinguishes them from each other. Since each NFT is unique and, in some cases, highly sought after, it can rise in value over time, just like an art piece could.
Buying an NFT is similar to buying an original piece of art, rather than a print. Anyone can own a print, but only one person can own the original. The creator of the original usually has copyright or reproduction rights, but the NFT is the original creation.
You’ve probably heard of Bitcoin or other cryptocurrencies by now. Cryptocurrencies are a digital form of currency that some businesses will accept as payment, depending on the coin. But like an NFT, bitcoins are not held in your hand.
Cryptocurrencies like Bitcoin and Ethereum are stored in a digital wallet on an app, a desktop computer, or completely offline. All relevant information about the cryptocurrency is kept on a blockchain.
Most of the currently available non-fungible tokens are encoded on the Ethereum blockchain. A blockchain is a digital ledger where information is kept and stored. Anything that can be stored on a regular ledger can be stored on a blockchain, like amounts, names, type of asset, type of NFT, and anything else.
Blockchain data is stored in the cloud, not on some individual computer. The blockchain is distributed to anyone connected to that blockchain. Every time a new entry is made on the blockchain, a record of this entry is added to that particular blockchain, and everyone can see this entry.
An advantage of blockchain technology is that it is decentralized. No one on the blockchain can be locked out. And any modifications made to the blockchain are recorded immediately, which makes all changes transparent to everyone.
Decentralization means that no one person, computer or organization can own the blockchain. This digital ledger is distributed to all nodes connected to the blockchain.
Digital art has been the most popular type of NFT thus far, but there are other types of NFTs available today. The original concept behind NFTs was to help artists exercise more control over their creations and have better protections against others taking their work without permission.
Artists, athletes, musicians and brand name companies have started creating their unique non-fungible tokens. Some examples of the various types of NFTs you can find today include:
- NFT art: Digital designs, digital art, gifs, videos, photographs, memes, social media content and pixels.
- Music: One musician, King of Leon, recently released an entire album as an NFT. Other musicians are now looking at NFTs for their music.
- Video games: Video game collectibles, video game skins and avatars. Game pieces can be purchased, like a special sword you need for a game. Once you’ve finished using the sword or playing the game, you can sell the game piece.
- Trading cards: Just like physical trading cards, you can now get virtual trading cards in the form of NFTs. Topps has announced they will be getting into the NFT trading card market.
- Sports: NBA Top Shot sells video highlight NFTs of your favorite team. Athletes are now signing deals with companies to sell autographed sports memorabilia NFTs. Other entities are starting to sell NFT collections, including boxing and Formula 1 racing.
- Domain names: Selling domain names as an NFT allows the owner to control the domain using private keys. Domain names can also be linked to digital wallets, which allows for many possible uses.
- Fashion: Digital clothes, shoes, and hoodies can now be found on NFT marketplaces. Just like one-of-a-kind fashions are rarely bought to be worn, NFT fashions are purchased for exclusivity and as a status symbol.
- Digital land: Recently, a digital house sold for $500,000, which is part of the Metaverse, which links virtual reality, virtual money and non-fungible tokens together.
You can buy NFTs online at an exchange or a third-party marketplace. OpenSea is the world’s largest marketplace to find NFTs. There are NFT marketplaces that sell all kinds of NFTs, or you can go to a marketplace that specializes in specific types of NFTs like sports or games pieces.
Many of the NFT marketplaces function similar to the way eBay works. You can look for the type of NFT you want, and when you find something you like, you make a bid on the item and wait to see if you won the bid. Like eBay, some of the NFT marketplaces have a buy-now option.
Before you buy an NFT on the marketplace website, you will need to set up a digital wallet. A digital wallet is where you keep your cryptocurrencies. Most NFT marketplaces use Ethereum (ETH) as their currency because most NFTs are on the Ethereum blockchain.
You can get a digital wallet at many cryptocurrency websites, withCoinbase being the largest. You can also buy Ethereum on Coinbase.
To buy Ethereum (ETH) or any cryptocurrency, you need to go to a cryptocurrency exchange and buy the cryptocurrency you want. You can pay for the cryptocurrency in US dollars or any accepted fiat currency.
Once you have Ethereum in your digital wallet, you can buy an NFT from an NFT. Some of the more popular NFT marketplaces include:
When buying an NFT, it is important to watch the price. Ethereum, like all cryptocurrencies, is volatile in price and can change rapidly. This volatility means that the cryptocurrency’s dollar value can fluctuate rapidly.
Gaming is a big reason for NFTs. Sorare is a website that sells NFTs representing soccer players that can be used in fantasy games against other soccer enthusiasts.
You can buy NFTs for a virtual reality universe, similar to The Sims or Second Life, called Decentraland. There are also multiplayer games that use NFT game pieces.
NFTs make verifying the authenticity of digital art easier which, in turn, makes it easier to resell at a later date. Recently, the art auction house Christie’s New York sold its first piece of NFT art for $131,250.
In some cases, buying an NFT is a status symbol rather than an investment. When someone buys a digital shoe that can never be worn, that is a fashion status symbol.
Most types of NFTs can be bought, sold or traded on NFT marketplaces.
If you’re interested in sports collectibles like autographs and memorabilia, NFTs could be another way to add to your collection. If your interest is in art, NFTs are a way to learn about new artists and add to your art collection. If virtual reality games are an interest, buying game pieces could make these games more enjoyable.
Another reason to buy NFTs is for an investment, hoping it will increase in value over time. However, increasing value isn’t guaranteed. The average price for an NFT has been dropping recently, causing some to wonder if the NFT market has been in a bubble. In February 2021, the average price of an NFT was about $4,000. By April 2021, the average price dropped to $1,400.
Like any investment, if there is an interest in the item, the price will increase. Also like any investment, an investor must do their research before buying anything.