NFTs are taking the art and gaming worlds by storm – but what are they exactly?
You may have seen the term NFT in the headlines lately, mostly in relation to some whopping sums of money ($69.3 million ring any bells?). But you've probably been wondering what the fuss is all about. If you're not sure what an NFT – or non-fungible token – is, or how exactly they work, we're here to help.
This guide explains all you need to know about NFTs, including what they are, how they work, why they've caused some controversy and how you can get involved. And if you decide you'd like to create your own, be sure to deploy this brilliant digital art software.
What is an NFT?
An NFT is, in essence, a collectible digital asset, which holds value as a form of cryptocurrency. Much like art is seen as a value-holding investment, now so are NFTs. But how?
First, let's break down the term. NFT stands for non-fungible token – a digital token that's a type of cryptocurrency, much like Bitcoin or Ethereum. But unlike a standard coin in the Bitcoin blockchain, an NFT is unique and can't be exchanged like-for-like (hence, non-fungible).
So what makes an NFT more special than a run-of-the-mill crypto coin? Well, the file stores extra information, which elevates it above pure currency and brings it into the realm of, well, anything, really. The types of NFTs are super-varied, but they could take the form of a piece of digital art or a music file – anything unique that could be stored digitally and be thought of to hold value. Essentially, they are like any other physical collector's item, but instead of receiving an oil painting on canvas to hang on your wall, for example, you get a JPG file.
How do NFTs work?
NFTs are part of the Ethereum blockchain so they are individual tokens with extra information stored in them. That extra information is the important part, which allows them to take the form of art, music, video (and so on), in the form of JPGS, MP3s, videos, GIFs and more. Because they hold value, they can be bought and sold just like other types of art – and, like with physical art, the value is largely set by the market and by demand.
That's not to say there's only one digital version of an NFT art available on the marketplace, though. In much the same way as art prints of an original are made, used, bought and sold, copies of an NFT are still valid parts of the blockchain – but they will not hold the same value as the original.
And don't go thinking you've hacked the system by right-clicking and saving the image of an NFT, either. That won't make you a millionaire because your downloaded file won't hold the information that makes it part of the Ethereum blockchain. Make sense?
Where can I buy NFT tokens?
Beeple's Everydays – The first 5000 days at Christies sold for $69.3 million.
NFTs can be bought on a variety of platforms, and which you choose will depend on what it is you want to buy (for example, if you want to buy baseball cards you're best heading to a site like digitaltradingcards, but other marketplaces sell more generalised pieces). You'll need a wallet specific to the platform you're buying on and you'll need to fill that wallet with cryptocurrency. As the sale of Beeple's Everydays – The first 5000 days at Christies (above) proved, some pieces are beginning to hit more mainstream auction houses, too, so these also are worth watching out for. In case you missed it, that Beeple piece was the one that went for $69.3 million.
Because of the high demand of many types of NFT, they are often released as 'drops' (much like in events, when batches of tickets are often released at different times). This means a frenzied rush of eager buyers when the drop starts, so you'll need to be registered and have your wallet topped up ahead of time.
Here is a list of sites that sell NFTs:
OpenSea
SuperRare
Nifty Gateway
Foundation
VIV3
BakerySwap
Axie Marketplace
Rarible
NFT ShowRoom
NFTs are also making waves as in-game purchases across different video games (much to the, erm, delight of parents everywhere). These assets can be bought and sold by players, and include playable assets like unique swords, skins or avatars.
Who's been using NFTs?
Rainbow Cat sold for $690,000. NFTs are definitely having a moment, with creators of NFT art including artists, gamers and brands across the spectrum of culture. In fact, it seems every day brings a new player to the NFT marketplace.
For artists, stepping into the NFT space adds another space and format to create and share art – and offers their admirers another way to support their work. With pieces ranging from small, quick-to-make GIFs (Rainbow Cat, above, was sold by NyanCat for $690,000) to more ambitious works, artists can offer the public a range of ways to buy art and make money in the process.
We've talked a bit about those making NFTs to include in video games, something that's shaking up the concept of buying assets in-game. Up until now, any digital assets bought inside a game, still belonged to the game company – with gamers just buying them temporarily to use when playing the game. But NFTs mean that the ownership of assets has shifted to the actual buyer, meaning that they can be bought and sold across the gaming platform with extra value applied based on who has owned them along the way. In fact, games are beginning to be made that are based entirely around NFTs, proving how they are shaking up the industry.
It would be expected that well-known artists would receive the big bucks in return for their work, something that was relied upon when an anonymous group of 'art enthusiasts' recently burned an original Banksy to turn it into an NFT (find out more in the above video). But other sales are more surprising. For example, it was Beeple's first foray into the NFT market and, however well-known he might be as a digital artist, the fact that this auction brought the third-highest price ever paid for a living artist was not expected.
And NFTs are an attractive revenue stream for brands, as shown by all the brands jumping on the bandwagon of late. Taco Bell sold taco-themed GIFs and images (see one above) on one marketplace, and the haul of 25 sold out in just 30 minutes. Seriously. Each NFT held a $500 gift card, which the original owner could spend, which may explain their popularity initially. But these TacoCards are now selling on the secondary market, with the most expensive card selling for $3,500. And just to be clear, that doesn't include the gift card.
NBA is branching out into digital clothing, jewellery and more.The NBA has NBA Top Shot – a way of selling digital collectibles in the form of trading cards embedded with iconic moments from the game. With a plan to add virtual jewellery, accessories and clothing that can be used across social media, the NBA is seeking to find ways to expand this revenue stream as far as it can go.
The first-ever tweet sold for almost $3millionEven tweets hold value, with Twitter co-founder Jack Dorsey selling off the first-ever tweet for a massive $2,915,835.47.
Musicians are also selling the rights and originals of their work, as well as short videos to clips of their music, and you can even buy digital real estate and 3D assets like furniture.
In fact, a 'digital home' has recently been sold for an out-of-this-world $500,000. 'Mars House' (see it above), designed by Toronto artist Krista Kim, was described by digital art marketplace SuperRare as the 'first digital house in the world'. Created with the help of an architect and video game software, the owner will be able to explore the mansion on Mars using virtual reality, including sunbathing outside the house (in the Mars atmosphere).
Why are NFTs controversial?
There's a lot of money to be made in the NFT market. But you also may have heard there's some controversy surrounding NFTs, in particular in relation to their impact on the climate.
NFTs use a monster amount of energy in their creation. So much so that many protesters are worried about the very real impact the craze could have on the environment. According to CryptoArt.wtf, a site set up to calculate the carbon footprint of NFTs (which is now offline), one piece called 'Coronavirus' consumed an incredible 192 kWh in its creation. That's equivalent to one European Union resident's entire energy consumption for two weeks. But that must be a particularly huge piece, you ask? Nope, a 'simple' GIF can equate to the same consumption.
Artists can help, by making efforts to create carbon neutral artwork (Beeple has already promised to do this going forward as the above tweet explains). But the problem goes deeper than that, because of the way cryptocurrency systems are built.
Ethereum, Bitcoin and the like are built on a 'proof-of-work' system (like a complex series of puzzles) to keep the financial records of its users secure, and this system uses an incredible amount of energy. In fact, Ethereum alone uses about the same amount of energy as the entire country of Libya. Ouch.
ArtStation was so worried about the impact on the climate that it recently backtracked on its decision to sell NFTs after a massive backlash. But it may not be so controversial forever, as there are organisations trying to make a difference. Check out what Blockchain for Climate is doing to improve the situation here.
Can anyone make an NFT?
You've got this far, so you might now be wondering: can just anyone get involved? Well, one would assume so given when Trevor Andrew drew this Gucci Ghost (above), they managed to sell it for an eye-watering $3,600.
Technically, yes, everyone can sell an NFT. Anyone can create work, turn it into an NFT on the Blockchain (in a process called 'minting') and put it up for sale on a marketplace of choice. You can even attach a commission to the file, which will pay you every time someone buys the piece – including resales. Much like when buying NFTs, you need to have a wallet set up, and it needs to be stuffed full of cryptocurrency. And this requirement for money upfront is where the complications lie.
The hidden fees can be prohibitively astronomical, with sites charging a 'gas' fee for every sale (the price for the energy it takes to complete the transaction), alongside a fee for selling and buying. You also need to take in account conversion fees and fluctuations in price depending on the time of day. All this means that the fees can often add up to a lot more than the price you get for selling the NFT. But different sites have different fees attached, and some are better than others so it's worth doing your research.
Whether or not NFTs are here to stay, they have certainly become a new plaything for the uber-rich and there is real money to be made, if you can make it happen. NFTs give new meaning to digital art, and the prices seen at sale indicate it is a real part of the future of art, and collectibles in general.