In early March, a technology company bought a $ 95,000 piece of art. Then the executives set him on fire. At the end of the show, which was shared live over the internet, the group released a copy of the art, this time in digital format. The creation, by the elusive British artist Banksy, was called “Idiots (White)”.
As for the digital format, it is getting more popular than painting and burning together. It is a growing type of technology called a non-fungible token, or NFT. Think of an NFT as a unique proof of ownership over something you can’t normally hold in your hand – a piece of digital art, a digital coupon, maybe a video clip. Like digital art itself, you can’t really hold an NFT in your hands – it’s a unique piece of code, stored and protected in a shared public exchange.
Screenshot / Burnt Banksy
However, some NFTs are earning millions of dollars. Investors, futurists and financial reporters are agitated, and large and small companies are launching for-profit NFTs, advertising or some of the two.
Along with the feat that the company Injective Protocol has done with its Banksy, there is the NBA, which recently launched Top Shot, an online marketplace that sells video clips with game highlights. These clips – think of a classic LeBron James buried – command varying prices depending on the rarity, and they all come in NFT format. Buyers collect them and sometimes resell them for tens of thousands of dollars, as if they were digital business cards.
NBA Top Shot / NBA
A Los Angeles pizzeria has launched an NFT that, for a lucky owner, translates to free pies for life. And an artist named Krista Kim recently sold a virtual home, dubbed the Mars House and created in NFT format, for about $ 500,000.
The fuss surrounding NFTs may seem similar to another very popular phenomenon known as bitcoin. People who are enthusiastic about one tend to be interested in the other, and this is because technology is related. If you’re thinking about buying NFTs or just want to look smarter when talking about them, here’s what you need to know.
Wait, what is bitcoin really?
So, what is an NFT? To understand them, it is useful to know the basics about digital currencies.
In its simplest form, digital currency is a type of money. With varieties like bitcoin, ethereum and dogecoin, it’s a cryptocurrency; it can be stored in an online account, on a USB drive or in a digital wallet application on your computer or phone.
The value of digital currency goes up and down in online exchanges like Coinbase. Those ones wild price swings it is bad news for anyone looking for a low risk investment option.
But there is also good news about digital currencies: they are almost impossible to fake. Bitcoin, for example, relies on a shared public ledger called blockchain, which uses sophisticated cryptography to ensure that the currency is authentic. A blockchain makes hacking very difficult because each transaction is recorded in a huge, decentralized network of ledgers; attackers would have to control a large part of it to cause any damage.
The hype of digital currency has steadily increased in recent years, regardless of its value at any time. Tesla recently announced who will accept bitcoin as payment for a car.
Digital art with a special touch
In March 2021, bitcoin’s year-on-year value was skyrocketing. A single bitcoin can fetch north of $ 50,000. It was clear that cryptocurrency technology could be useful in the right hands.
Meanwhile, almost all of us have had some experience with virtual assets. Think of video games, digital art, logos, photos, animation, music and video clips. Data, including spreadsheets, also counts as an asset – anything in digital format that comes with the legal right to use that asset. Even coupons get digital treatment nowadays.
Of course, it can be very easy to pirate this type of digital thing. Taking a screenshot of a copyrighted photo is as simple as pressing two or three buttons on the keyboard at the same time. Copyrighted music is routinely used in unapproved music videos. Artists can, and do, seek compensation if someone uses a copyrighted work without permission, but the process can be time-consuming and expensive.
Enter the NFT or the NFT token. The basic concept of the non-fungible token: Marry the world of digital assets with the security of cryptocurrency. It is a digital asset plus certificate of authenticity and legal rights, all in one. Buying an NFT means buying a hacker-resistant public proof of ownership over a specific digital asset.
Could anyone still painstakingly copy that digital asset? Of course. But they cannot pirate their provenance so easily, and that, theoretically, is what gives an NFT its value.
This is not money, but it can cost you
Like bitcoin, non-fungible tokens rely on the decentralized power of blockchain technology to verify their authenticity. But unlike bitcoin, they are not interchangeable. You cannot exchange old NFTs for a car or pizza, because each NFT is attached to a specific digital asset – a coupon, a work of art, a collection of collectible cards.
Each bitcoin has the same value at the same time. It is not so with NFTs. In short, think of an NFT as an exclusive digital version of a certificate of authenticity, publicly stamped by the blockchain.
Some investors are betting heavily on the NFT market and NFT art, hoping that its value will rise. Others are buying NFTs strictly for advertising, bragging rights or just to join a new community. Some supporters of NBA Top Shot admit that many of the video highlights it sells can be viewed anytime, by anyone, on YouTube. But they like to belong to the Top Shot online community or the opportunity for an investment whose price can skyrocket.
And an NFT from Twitter founder Jack Dorsey’s first tweet was recently sold at auction for – yes, really – $ 2.9 million … even though you can see the same tweet whenever you want, right on Twitter. (Dorsey donated the profits to charities.)
As for the future of NFTs, caveat emptor – beware of the buyer – especially if, unlike the Injective Protocol executives, you have no money to burn. If the hype dies – and it can happen, at any time – the value of an NFT can drop as easily as a stock or, yes, a bitcoin unit.