An NFT or non-fungible token is a token that’s unique and can’t be replaced by anything. This is not the case with fiat money – you can replace a dollar with another dollar or a euro with another euro and it will have the exact same value, for example. It’s the same with cryptocurrencies: one ether, the token of Ethereum, is worth exactly as much as another ether.
However, an NFT doesn’t work like that. You’d have something completely different if you traded a unique card for another unique card.
How do NFTs work?
The majority of NFTs are based on the Ethereum blockchain, which stores additional information that makes them work in a different way from ether, for example. Different blockchains can and do implement their own versions of NFTs.
Should I buy an NFT?
Not unless you know what you’re buying. NFTs can be music, drawings, videos, images, or any other creation. Currently, most of the demand is for digital art. The purpose of an NFT depends on whether you’re a creator or a buyer (collector). It’s a novel avenue for artists because it gives them a way to sell work that there wouldn’t be a market for otherwise. You couldn’t sell a digital sticker on the App Store, for example.
NFTs make it possible to receive a percentage (royalty) every time someone sells or exchanges them, which ensures that the artist sees the benefit of their work getting more popular and valuable.
For buyers, an obvious benefit of NFTs is that they can support the artists they like. They get some basic use rights when they buy an NFT, such as being able to set it as a profile pic or post it online. They have a blockchain entry to back up ownership.
Every NFT is a unique blockchain token, but that’s very broadly speaking. It could be a one of a kind artwork, but it could be like a trading card with tens or hundreds of copies. So why would anyone spend so much money on something like that? It’s in the eye of the beholder. To some, NFTs are like Pokémon cards. To others, they’re the future of fine art collecting. It depends on who you ask.
Are NFTs protected from copying?
The short answer is no. Beeple’s art, which sold for almost $70 million, was copied and shared countless times. Usually, the creator retains the copyright, so they can keep making and selling copies. However, the buyer of the NFT owns a “token” that proves they own the “original” work. It’s not unlike buying an autographed print.
Are NFTs a bubble?
The artist Beeple, whose real name is Mike Winkelmann, told the BBC a day before his auction, which broke NFT records: “I actually do think there will be a bubble, to be quite honest. And I think we could be in that bubble right now.”