What are NFTs? We hear this term a lot these days, but do we really know what it means? Living in an increasingly digital world means that digital images are easy to make, store and reproduce. But that blessing may also be a curse if you want to monetize the value of digital work. If you are an artist or a celebrity, how do you stop someone from reproducing your artwork, your e-book, your tweets, or anything else created by digital means?
That is where NFTs become important. NFT stands for Non-Fungible Token. An NFT is a collectible digital asset that’s a store of value. As opposed to digital coins, NFTs are unique. That uniqueness counts.
NFT = Units of Data
So, what actually is an NFT? It is a unique and non-interchangeable unit of data stored on a blockchain, which is a type of digital ledger book. Think of a unit of data as a digital file such as a photo, video or audio file. Because each one is different from the next, they are uniquely identifiable. These NFT ledger books provide a public certificate of authenticity or proof of ownership to that unit of data.
A Bitcoin is worth exactly the same number of U.S. dollars as every other Bitcoin at the same point in time. Even though they are digital, they are like generic, fungible commodities in that respect. But non-fungible means that the value of each item is unique.
For example, the 1933 Saint-Gaudens Double Eagle gold coin graded Gem Mint State recently sold for $18.9 million. This gold coin with the year 1933 on it is unique because it is the only one of its kind that’s legal to own. A “common” 1924 Saint-Gaudens Double Eagle gold coin grading Gem Mint State, is worth about $2,800. Both coins are vintage collectible coins that contain about an ounce of gold. The coins may be similar, but the extreme rarity of the 1933 Saint makes it significantly more valuable than the 1924 Saint for which probably thousands of coins exist.
No Physical Presence
Digital media, whether images or words are physically intangible. They exist online and until you print them; they have no physical presence. Now think of an NFT as a sort of certificate of authenticity or genuineness, issued by the creator or distributor of the digital artwork, to authenticate and verify that the digital version was, indeed, created by that artist.
Instead of getting a small piece of paper with a printed signature, these NFTs are stored on an open blockchain where they can be created, tracked, bought, sold and repeatedly resold. Blockchain is a way of creating a record of information in a secure manner that makes it nearly impossible to change, hack, or otherwise take advantage of the system. Anyone can track any of these digital works, including the author or artist who may earn a royalty on each subsequent sale.
Who is selling and buying these digital artworks with NFTs? Sotheby’s auction house, established 277 years ago, is known worldwide for auctioning Old Masters paintings, some of the world’s most expensive jewelry, Tiffany lamps and similar antiques.
In 2021, Sotheby’s auctioned more than $100 million of digital artworks. It developed “Sotheby’s Metaverse,” which it describes as “an immersive destination for collectors of digital art” where digital art buyers may shop.
Sotheby’s is not alone in embracing this new medium. The venerable Christie’s, founded in 1766, holds the current price record for digital artwork by selling a collage of 5,000 digital artworks by the artist known as “Beeple” for $69.3 million.
It’s not just the wealthy art connoisseurs that are buying NFTs of digital artworks, such diverse items as the original World Wide Web source code by Tim Berners-Lee recently sold at Sotheby’s for more than $5 million, while more than 300,000 NFTs of sports cards and sports-related artworks were sold during the first six months of 2021.
NFTs are gaining popularity as the world embraces technology more deeply each day. And, of course, you can buy these NFTs and pay for them with your favorite brand of cryptocurrency.
This article about NFTs previously appeared in COINage magazine. To subscribe click here. Article by Mike Garofalo.