If you’ve been following market news for a while, chances are good that you’ve come across the term NFTs. This sounds a lot like a new-fangled trend, but these initials actually represent non-fungible tokens. NFTs are the latest cryptocurrency craze putting unique ownership of digital artwork into collectors’ hands.
So why are NFTs suddenly attracting six-figure investors like Jesse Schwarz, who paid $208,000 for a digital clip of LeBron James dunking a basketball? What exactly does non-fungible mean, and why does it make NFTs a sought-after asset to these people? Let’s get into what NFTs are and how they’re different from traditional investments, cryptocurrency or otherwise.
Here’s the basic information to know when talking about NFTs, whether you’re thinking of investing in them yourself or just want to know for the fun of it.
- NFT means “non-fungible token.”
- A non-fungible token cannot be exchanged or replaced (unlike bitcoin). It’s a unique piece of digital property.
- Most NFTs are stored on the Ethereum blockchain. Blockchain is “the collective record (called a ledger) that stores cryptocurrency transactions.”
- Digital art is massively popular for NFTs, including video, music, sketches, images, and even a virtual home on Mars.
- Sports memorabilia like a LeBron James dunk shot and Cristiano Ronaldo NFT collectible are heating up the NFT market.
- Some artists criticize NFTs for their impact on the environment through greenhouse gas emissions.
- Currently NFTs are not available on Public.com but may be in the future.
What does non-fungible mean, and how does it relate to crypto-traded art?
Okay, so you know that NFT represents “non-fungible token.” Now what does that mean for those of us who don’t use the word “fungible” in everyday life?
Fungible simply means interchangeable. If something is fungible, anyone can take possession of it and use it for their own purposes. Since NFTs are non-fungible, they can’t be exchanged. Each one is unique and tied to a one-of-a-kind piece of digital art.
In contrast, bitcoin is a fungible digital asset, since you can swap one bitcoin for another and there’s nothing inherently unique about any one bitcoin. All bitcoins have the same value at the same time. A dollar bill is a physical asset that’s fungible (you can exchange one bill for another and the value of each remains equal).
NFTs aren’t the only non-fungible items. An original sculpture, a unique sports trading card, or a rare coin like a 1913 Liberty Head Nickel are all non-fungible by nature.
One of the first NFTs was Cryptokitties, a digital trading game that allowed users to buy and sell unique virtual cats. These virtual cats were subsequently stored on the blockchain. When you buy an NFT, you have proof on the blockchain of your ownership of that digital asset. Because blockchains like Ethereum are decentralized, they’re open (AKA non-anonymous) through the use of pseudonyms.
Noteworthy NFT sales
NFTs have brought in some impressive dollar amounts in sales and auctions lately. Here are a few of the big ones:
- In February, a digital clip of LeBron James dunking against Nemanja Bjelica sold for $208,000 as a “Moment” on NBA TopShot.
- In March, crypto fantasy game Sorare sold a trading card of Cristiano Ronaldo, Portuguese soccer star. That NFT collectible fetched nearly $290,000.
- The image of Nyan Cat sold on NFT platform Foundation in February for 300 ETH or about $590,000, prompting creator Chris Torres to say he’s “opened the door to a whole new meme economy.”
- Grimes, also known as Elon Musk’s partner, sold a series of 10 digital artworks via auction on Nifty Gateway for a combined total of $6 million. This NFT art collection was mainly short videos set to original music by Grimes, made in collaboration with her brother Mac Boucher.
- Digital artist “Beeple” Winkelmann sold a collection of NFTs through the famed auction house Christie’s for $69.3 million. The work entitled “Everydays: The First 5,000 Days” contains digital files of 5,000 images.
- Krista Kim designed a digital Mars House and sold the NFT for $500,000.
Pros and cons of NFTs as an investment
On the pro side, NFTs appeal to investors because they are totally unique and easily verifiable. Unlike bitcoin (which can be easily bought or sold despite the fact that the number of bitcoins is limited), buying NFTs gives the owner a rare or limited-edition version of something like a piece of valuable art.
Another positive aspect of NFTs is their accessibility to artists and creators. Crypto allows creators to directly monetize any idea or content, strengthening artists at the independent level.
NFTs offer opportunities for artists to offer exclusive content to their fans, such as Kings of Leon’s selling its newest album via NFT along with an auction of concert tickets for life. Popular Mechanics speculated that “lesser-known artists may become the virtual bread and butter of non-fungible tokens.”
On the con side, NFTs are still relatively new, so a lot of people don’t understand them. That makes them tricky to sell. Plus, the NFT hype could be dangerous to investors who are buying with high hopes for resale value and not for the pure joy of ownership.
Superfans who buy a piece of digital property for the bragging rights should remember there’s no traditional physical item to show off with NFTs. Their friends won’t understand paying six or seven figures for an image that they could have downloaded for free.
NFT art and the environment
Environmentalists criticize the NFT art trend due to high carbon dioxide emissions from crypto art. ArtStation canceled its plans to launch a platform for NFTs after pressure from art fans who complained that NFT artwork is environmentally harmful. Some creators called NFTs “an ecological nightmare pyramid scheme.”
For example, artist Mike Winkelmann of the $69 million Christie’s NFT auction said it costs about $5,000 to offset greenhouse gas emissions from one of his collections.
Digital artists like Winkelmann try to deflect environmental concerns by promising to invest in renewable energy initiatives and carbon-dioxide removal technology. (A portion of Grimes’ recent sales on Nifty Gateway are earmarked for Carbon180 to do just that.)
How to buy NFTs
In order to buy NFTs, you need access to an NFT marketplace and a cryptocurrency exchange account. For cryptocurrency exchanges, Coinbase is a popular starter option for those new to the market. There’s also eToro as an alternative.
As for NFT marketplaces, here are some to consider:
NBA Top Shot: This platform is for those interested in owning digital NBA collectible tokens, such as the $208,000 card featuring the impressive LeBron James dunk. NBA Top Shot has sold over $400 million worth of professional basketball “Moments.”
OpenSea: This NFT marketplace just recently announced a $23 million round of funding led by Andreessen Horowitz and including investments from Mark Cuban, Naval Ravikant, and Alexis Ohanian.
SuperRare: SuperRare is a platform on the Ethereum blockchain for buying and selling unique digital artwork. Artists sign a tokenized certificate of authenticity, and buyers know they’re getting a totally unique digital work of art.
Nifty Gateway: The Gemini cryptocurrency exchange owns the NFT marketplace Nifty Gateway. Its digital artworks are called Nifties. You may purchase using Ethereum or even pay conveniently with a credit card on the website.
Alternatives include Rarible and MakersPlace.
When it comes to whether NFTs are a worthwhile investment, it really depends. Much like paintings, sculptures, and even cryptocurrency, the value depends on how much the buyer is willing to bet. As Benzinga noted, “saying that NFTs are just JPEG files is the equivalent of calling traditional art just paint on canvas.