What are NFTs, exactly? Non-fungible tokens explained

What are NFTs?

An NFT — short for non-fungible token — essentially allows its buyer to say that they own the original copy of a digital file, in the same way you might own the original copy of a piece of physical art or the master file of a music recording.

So what is an NFT?

Determining whether NFTs are right for your business will take time and research, but the upside of NFTs is access to an existing globally distributed network of customers which may continue to grow over time especially as new applications are discovered and virtual experiences proliferate.

1. Embrace shifting perspectives of value. One potential source of NFT value is the default direct-to-consumer state that NFTs exist in. Given the mechanics of how the technology functions, visibility into the custody and uses of assets is available for all to see. This means that companies can have frictionless interactions with consumers and have near perfect visibility into how their outputs are being valued and used by end consumers every time it is bought or sold.

Another facet of NFTs that offers potential brand value is fractional ownership. Brands can take lessons from artistic experimentation in NFTs. Being able to buy part of a song, for example, or part of any other digital asset opens the door to increasing the volume of participants in each market. Traditional art spaces feature centralized transactions and ownership that have benefited the ultra-rich. NFTs are decentralized assets available to anyone with stable internet and disposable income to transact.

2. Connect NFTs to your brand’s purpose. Nike has started to use NFTs to certify the veracity of each pair of sneakers. When Nike customers buy a shoe, a digital version of the product appears in a ‘virtual locker’ under an initiative called ‘CryptoKicks.’ Given the subculture that exists around collecting, trading and reselling sneakers, incorporating a digital seal of authenticity to the physical counterpart of the token takes these practices to the next level, and is aligned with their brand’s purpose of delivering highly desirable products and services their customers love.

As companies explore digital assets and upskill their marketing and product teams to deliver, they will be inundated with narrow use cases and high prices amplified by the hype machine that can distract from the wider application of the technology. But remember, NFTs are novel, digital and something that many people will not have encountered in their day-to-day lives. As a result, there is only a limited amount of information that can be gleaned from market prices of NFTs. Instead, we encourage a meaningful and sustained focus on understanding NFTs’ economic value to service natural levels of skepticism when assessing this new technology. Bring to the table the economic, behavioral, and even psychological principles as tools for engaging and evaluating the applicability of this innovative technology for your business.

Just like traditional art, NFTs’ cultural significance, financial accessibility and commercial viability will have to intensify over time to achieve staying power. Until then, use strategic experiments to determine whether NFTs are right for your business. At a minimum, the NFT marketplace can function as an additional revenue stream where companies can monetize intangible digital assets. At best, NFTs can serve as a springboard for inventing new commercial norms, methods of ownership, and economic and market value practices.

The future of NFTs is still being defined. Will NFTs become a currency of choice with universal accessibility? Will NFTs become the latest form of digital artwork? Will NFTs be regarded as an integral part of a brand’s product portfolio? What magical experiences and brand expressions will NFTs unlock for iconic brands around the globe? What new businesses will arise through the broadscale adoption of NFTs? Lean in, participate and write this story.

Why do people fight about NFTs so much?

Well, let’s remember what we said above — a currency only works if enough people believe in it. So the folks that got into cryptocurrency early need more people to believe in cryptocurrency. It’s not that different than the stock market — a stock is worth more money the more people want it. And if everyone decided tomorrow to pull their money out and cash in their cryptocurrency then the worth of that currency would plummet. This happens in crypto all the time. And this is exactly what happened in the stock market crash in 1929. People got scared and wanted to sell their stocks, which led to those stocks losing money and more folks wanting to sell. This led to folks rushing to banks to pull their cash out — but banks don’t just keep everyone’s money in a vault, they use it on investments — that’s how banks make money. If everyone showed up at once the bank would run out of money AND THEY DID. So now in the US and many countries, there are government agencies that guarantee funds in the bank up to a certain amount, which keeps folks from panicking and pulling all their money out at once.

Crypto is unregulated, which means it isn’t guaranteed by anyone. So if you have a ton of worth in crypto you don’t want to pull it out and cash it in, you want to leave it in the system and convince people that the system is sound so more people add money to the system and it gets stronger and your original investment is worth more money. This is how all financial systems work — there’s just no safeties on this system. If you get scammed out of your crypto, no internet police are going to go get your money back. Crashes in cryptocurrency happen often, and people lose a lot of money. Does that mean you shouldn’t get into it? That’s your call, but if you do it does mean you should be careful and do your research.

Also, this stuff is CONFUSING. I am barely skimming the surface here. Money make a lot of folks squeamish, artists especially. (Trust me, I’m the one negotiating with artists all day.) People don’t understand the system so they don’t want to pay attention to it, and when they’re bombarded by the folks pushing it so hard (see above paragraph) they don’t want to figure it out. So you have the true believer die hards on one side and the finance-avoidant folks on the other and that’s a recipe for fights if I’ve ever seen it. Add in some intense feelings about ownership of your artwork on one side and jealousy of artists on the other and it’s exactly the vicious mess we see on social media every time someone mentions NFTs.

What NFTs Mean for Creators

For creators, NFTs offer another avenue to be able to monetize their work.

Russo gave the example of a band that, say 10 years ago, could upload their song or track online. It would then play over and over again without the band necessarily receiving a monetary benefit.

“Now, they can attach their track to an NFT,” Russo said. “People can prove their ownership of that track. And so the artists can sell that token to collectors and fans, and actually, for the first time, profit and connect with their fans directly, thanks to this NFT technology.”

Furthermore, that revenue can be recurring every time the NFT is sold again. The original owners or creators of the EulerBeats Originals, for example, still earn an 8% royalty every time the NFT is sold. This concept is still developing, according to Ethereum, but it’s a key idea to grasp. 

For artists and creators, NFTs also serve as another marketplace for their creations. Given that some NFTs are generating big bucks, it may be tempting for creators to go down the NFT route, but there are several things to be aware of before doing so. 

Not Everyone Hits the Jackpot

Mike Winkelman, a digital artist now famous as Beeple, sold his art as an NFT for $69 million in an auction via Christie’s in March 2021.

But for those looking to make big bucks from the sale of NFTs, Fowler said she doesn’t agree that NFTs are “democratizing the art space.” 

“I don’t want people to think that that that’s going to happen, because we’re kind of seeing the similar thing that we saw with the ICO craze, which was the initial coin offering craze back in 2017, or all these people were just like, pumping tokens saying buy my token, you’ll become a millionaire,” Fowler said.

And its not just the access that determines the money an artist can make off their art. A recent study by European researchers found that art made by women sells for less—a 47.6% gender discount—just because it’s made by women. On top of that, NFTs are bought through a bidding process, and studies indicate that between 2000 and 2017, 96% of all art auction sales were by male artists.

Fowler does have a tip to help with the success for artists, irrespective of gender—create a community or a sustained long-term value, rather than just a product to be sold.

Consent and Intellectual Property

Just like buyers should be wary of what their rights are when they’re purchasing an NFT, creators need to be aware of what content can be turned into an NFT without landing them in hot water.

According to a report from design and science fiction site Gizmodo, DC Comics Inc. warned freelancers against the sale of digital assets featuring DC Comics characters. The other side of that story is unauthorized conversion of works into NFTs without the consent of their owners, artists, or museums. 

Dr. Tina Rivers Ryan, the curator of modern and contemporary art at Albright-Knox museum, tweeted about one such incident in March 2021. For individual artists, it could hinder any gains or popularity they could possibly receive from their own works.

The Balance does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future performance. Investing involves risk, including the possible loss of principal.

How do NFTs work?

To grasp how NFTs function, you need to understand what it means for something to be “fungible.” If an asset is fungible, it can be swapped for another item within a category without changing its value. For instance, if you trade one dollar bill for another dollar bill, you still have a dollar.

The dominant network used for NFTs is , though others including are also commonly used.

Once an NFT is minted, it can be bought, sold or traded. And even if someone makes a copy of the underlying file, the record of ownership can’t be changed without the permission of its current owner. The technology is complex, but broadly speaking the records are secured by the same mechanism that gives cryptocurrencies value by ensuring that a single token can’t be duplicated and used in multiple transactions at the same time.

What is an example of an NFT?

Ownership can offer different rights depending on the specifics of an NFT. In some cases, an owner might be able to control how a file is used, and under what circumstances it can be reproduced. But the exclusivity conveyed by NFT ownership can often seem theoretical.

For instance, an NFT of a short music video by the artist Grimes sold on the online marketplace Nifty Gateway in February 2021, fetching about $389,000. You can still watch the video if you want. It’s right there, on the website where it sold.

But only one owner can possess the actual NFT of the video, known as “Death of the Old.” It’s analogous, in a way, to physical art. You might be able to look at a digital image of the «Mona Lisa,» or even a faithful real-world reproduction. But there’s one version that’s commonly accepted to be the true copy, and that’s at the Louvre in Paris.

The difference with NFTs is that even the original copy is digital. When people buy NFTs, the scarcity of original versions is a big part of what they’re paying for.

Why are NFTs controversial?

NFTs have aroused strong responses both from supporters and skeptics. Critics of NFTs often point to the squishy nature of what it means to «own» a digital file, and many people have pointed out that it’s pretty easy to simply download a copy of an image linked to an NFT, even without paying for it. For those who are unconvinced by NFTs, these assets’ prices are mostly a product of hype rather than true underlying value.

What about this stuff I hear about it being bad for the environment?

The original cryptocurrencies take a lot of computing power to create. There are giant server farms dedicated to nothing but mining cryptocurrency 24/7. This uses a lot of electricity, and that’s not great for the environment. However, there are many different cryptocurrency platforms right now, and many NFTs are paid for by cryptocurrencies that either are use less energy or offset their energy usage by using green sources or doing environmental work as part of their creation. I am not going to drill down into a comparison of cryptocurrencies right now. There are alternatives available that do mitigate the environmental impact, and as an artist and/or collector you can choose to use these platforms instead.

How are brands using NFTs?

Taco Bell debuted its NFTacoBell collection this week, which consisted of five taco-inspired gif illustrations that were sold on Rarible. Each gif had five copies for a total of 25 NFTs. Allick’s team at Deutsch LA helped create the NFT collection, which ended up selling out within 30 minutes.

The original prices were set at $1, the price of a taco, but the reselling of the NFTs have increased some of the prices to more than $3,600. With each resell, Taco Bell earns 0.1% in royalties, which will be donated to the Taco Bell Foundation.

The original first round of buyers for the NFTs were also rewarded with a year’s worth of free Taco Bell, something that was not advertised ahead of the drop, but was included for the people that “were ambitious enough and willing to play in this space with us,” Allick said.

But a tangible component like a gift card, is not a requirement for brands to enter the space, he added. There is a market for people who are super fans and want to spend their money to feel closer to a company or a product.

“Don’t undervalue your brand. Don’t undervalue offering people access to your brand,” Allick said.

What gives NFTs value?

There are other ways that an NFT can carry value, however. Beyond the innovation of digital scarcity, some believe NFTs have the potential to change the relationship between creators and consumers of content.

Creators have experimented with building other value propositions into NFTs. For instance, entrepreneur Gary Vaynerchuk’s VeeFriends NFTs come with free passage into his VeeCon business conference.

Are NFTs a smart investment?

Because every NFT is unique, it’s impossible to make any kind of blanket judgment on their value. Some may rise in value. Others will surely fall, and some may never sell at all.

Generally, digital assets such as cryptocurrency are considered risky investments, which should comprise only a small portion of your portfolio. One common rule of thumb is no more than 10%.

Treyton DeVore, an investment advisor based in Kansas City, Missouri, who advises clients on digital assets, said you can consider NFTs an especially unpredictable part of your crypto portfolio.

In a 2021 interview, DeVore said that even if you hope an NFT will rise in value, the most important thing is to buy things you like from creators you want to support. That way, you still have something you can enjoy if you don’t make money.

“People like collecting things and putting them on shelves in their house so they can show people,” he says. “But with NFTs, if that becomes like your digital collectible, that becomes so much more visible.”

From Nyan cats to sex tapes and Beeple, nonfungible tokens are the latest craze taking over the art world – but are they worth the hype?

The buzz came slowly, and then all at once. First it was the Nyan Cat meme, which sold for $590,000. Then it was Grimes selling her artworks. Another $6 million. Next thing you know, an artist called Beeple sells an animated gif of Trump’s naked corpse for $6.6 million, setting a new record for the most expensive piece of digital art ever. Christie’s launches a two-week sale of one of his works. It’s already broken the record again at an unprecedented $69 million. The third-highest auction price achieved for a living artist, after Jeff Koons and David Hockney.

Websites like the now-defunct cryptoart.wtf have also drawn attention to the catastrophic impact of NFTs on the environment. According to artist Memo Atken, just one NFT is accountable for an astounding 211kg of CO2 emissions, equal to driving a car for over 600 miles.

Below, we speak to four digital artists – Aaron Jablonski, Eva Papamargariti, Sucuk & Bratwurst, and Nicole Ruggiero – on the benefits and drawbacks of NFTs, and whether they live up to the hype.

It is time to think critically about value

In this context, value refers to the price that someone is willing to pay for a thing. What makes ascribing value to a thing interesting is that it is always possible for two parties—person to person, person to machine, or machine to machine—to have diverging opinions on a given value. Asking ten people or machines what something is worth could yield you one to hundreds of thousands of different outputs, all informed by how the given party assesses disparate information.

What NFTs Mean for Investors

For investors, NFTs offer ownership of a digital asset. If someone buys an NFT that is a digital picture, the owner can prove that, unlike any other picture on the internet, Russo said.

“This picture is linked to this specific token address,” she said. “And I can prove that it’s in my wallet. So, I own it.”

According to Ariana Fowler, associate at the cause-based venture capital firm The Fund, NFTs are an iteration of people’s “desire to get close to creators, to influencers, to the people that they look up to.” It’s also a way for people to contribute small amounts of money, but still buy things they think are cool, from the people they think are cool, she said.

When it comes to investing in cryptocurrencies, women don’t just have the potential to create wealth for themselves, they may also have the ability to have a greater impact. And NFTs may not be too different. For example, American entrepreneur Alexis Ohanian tweeted in March that women that invest in NFTs—especially the NFT trading card boom—could “change the game” and have a “huge” impact on women’s sports.

NFTs Are Unique—But Are They?

NFTs are gaining popularity as collectibles in sports and arts but there is some criticism to that, even by software creators themselves. In a March 2021 tweet, Litecoin founder Charlie Lee explained the concept of NFTs with an analogy involving the “Mona Lisa.” Lee said an NFT is akin to a certificate of ownership of the Leonardo da Vinci masterpiece, signed by the painter himself. One may not be able to duplicate this certificate, but the painting itself can be copied and owned in the form of prints, which makes Lee question the true value of the certificate of ownership 

Impact of Gas Fees

Fowler explained that she was hoping to buy her first NFT by purchasing the Kings of Leon album released as an NFT in March 2021. But due to the high gas fee, she decided not to purchase, settling instead for a T-shirt bought with dollars. 

“If you’re looking to buy an NFT, your price may double depending on the gas fee,” Fowler said. “The network has so many different things going on, that it can’t confirm everything at once.” Fowler said that it’s not equitable because “if you can pay more money in gas fees, your transaction gets pushed through faster.”

While gas fees are an issue right now, both Russo and Fowler said that there is work being done to eliminate or at least bring down gas fees.

Know What You Own

Given that the NFT marketplace is still so new, there are many questions about how licensing and intellectual property laws apply to them. So you bought an NFT, but how are you to know what rights you get along with the digital asset?

NFT ownership does not give the buyer rights to the ownership of the underlying artwork or, by extension, the intellectual property.

SUCUK & BRATWURST

“NFTs are the first real opportunity to self market your art without losing any money to the art industry like galleries or similar. The usual way to make money as a digital artist is to get booked for artwork commissions by brands or musicians. Now you can also start to live off your own vision and the art you want to make personally without any restrictions or boundaries. Also the intellectual value of digital artworks gets more established and recognised.

“Pure digital fashion will of course get a lot bigger and more advanced. May it be NFTs related to certain game Skins or for example a potential “supreme digital only collection” distributed through NFTs. The kind of hybrid mechanic of a Fundable Token that can be traded similar to a NFT and rewarded and exchanged only once with a real product is also a really great concept.”

What are NFTs used for?

NFTs can theoretically be attached to pretty much any intellectual property, but activity so far has focused on a few sectors.

Art and music: The most highly publicized examples of NFTs have been in visual art, especially videos and still images that have sold for millions of dollars. Some owners, for instance, use their NFTs as social media profile pictures, place them in online galleries or even use them as video conferencing backgrounds.

NFT technology has also proved a fit for digital versions of other collectibles, such as trading cards. Sports leagues including the NFL, MLB and NBA have all created digital collections memorializing things such as notable statistics and outstanding plays.

Gaming and virtual reality: NFTs can be attached to some unique video game items such as weapons, outfits or special characters — many of which have long been sold and traded in in-game marketplaces. NFTs could potentially make the sales of such items easier to execute, and less dependent on central authorities such as the makers of games.

Longer-term, NFTs could play a role in the creation of a realm of virtual spaces known colloquially as the metaverse. Some forecasters project that people in coming years will spend more time immersed in virtual reality spaces they’ve created. And in these spaces, exclusive NFTs could take on a new level of status.

NICOLE RUGGIERO

“Digital artists are finally being compensated for the work that we’ve been putting out for free for years. Until now, most digital artists haven’t been able to make money off of their work. I have personally created mostly all my work for free, including huge exhibitions that have traveled internationally for little to no compensation. Instead just benefitting  media companies, who make money off it through tangential advertising, we are now able to be directly compensated. 

“But there are a lot of ecological concerns right now. NFTs and crypto transactions create carbon emissions through the mining process. The main issue is if crypto transactions are using clean energy sources. To me, this is a larger issue of energy sources in general. I am a proponent of clean energy ranging from wind and solar to some safer methods of nuclear (thorium reactors). I have also been donating to offset my emissions. This is not a catch-all solution. I think everyone should also consider contacting their local energy company and inquire about switching to clean energy. It usually costs a bit more, but the environmental impact is a lot less. I am going to do the same as soon as I can afford to do so and I will continue to donate and be aware of my own emissions in the space.”

Articles, Resources, Further Reading…

NFTs were supposed to protect artists (The Atlantic)

What is the point of crypto

The NFT Culture War

Most Artists are Not Making Money off NFTs

This 24yr old artist made over $300k in 10 months selling NFTs

The internet turned money into a hobby

NFTs and Physical Art

Why does NFT art look so bad?

What is a DAO?

Crypto Social Clubs (NYTimes)

How NFTs are fueling the modern art world

The current crypto crash

After the Beanie Baby Bubble Burst

BFF NFT/Crypto community

Crypto, For Cool Girls

What about the community aspect?

There’s a reason all they NFT stuff has come to prominence over the pandemic — we’re all stuck in the house with too much time, too much anxiety, and too little social interaction. Perfect grounds for these communities to grow.

What is the BLOCKCHAIN, What is Crypto and What is an NFT?

An NFT stands for a Non-Fungible Token. Fungible means interchangeable. Non-fungible is just a fancy word for unique. An NFT is a unique digital token. This can point to a physical object, but there must be a digital component. Most often, this is a piece of unique digital art.

What are the flaws?

The current system for cryptocurrency and NFT transactions is massively unsustainable from an environmental perspective. Gouran said that one cryptocurrency transaction consumes as much energy as 700,000 Visa transactions.

“Even if you take away carbon emissions, if we move Visa to the same system as Bitcoin, you would still heat the planet up by more than one-and-a-half degrees,” Gouran said. “Just the heat that the system would create would be unsustainable.”

A single minted NFT is even worse, as the creation, buying, selling, reselling and storing all adds up to multiple transactions that all require energy:

From Akten’s Medium post, published December 14, 2020.

Are NFTs here to stay?

Short answer: Yes.

We are in an intense gold rush right now that is turning a jpeg of a scribble into a million-dollar product, said Gouran, but once those “outrageous valuations and hype around the space settle down, the idea of having tradable digital collectibles will be here to stay.”

How are publishers using NFTs?

Euler Beats, for example only has 27 minted NFTs, with a varying number of prints of each (similar to an art print) and the originals sold out within minutes of the drop, according to Alanna Roazzi-Laforet, the site’s CRO and publisher. The top selling Euler Beats NFT sold for 20.9 ETC (nearly $40,000).

While the ad campaign drove traffic to the NFT site, Decrypt does not earn any commissions from the sales or a royalty every time an NFT is resold. This was purely an ad revenue play, but she said she sees this as a vast area of opportunity as the industry embraces NFTs.

Roazzi-Laforet added that crypto publishers are not the only ones that can get involved in the world of NFTs.

Bleacher Report collaborated with musical artists Quavo, Lil Baby, 2 Chainz and Jack Harlow to design four different digital basketball gifs, similarly to how the sports publisher collaborated with hip-hop artists to design its NBA Remix clothing collection. The digital basketball NFTs were available in two editions, Gold and Silver, the former only having 10 available of each and the latter being available at a flat price of .4 ETH ($736). 

Called the B/R Open Run NFT collection, the NFTs dropped on the OpenSea marketplace last weekend and in less than a week, all 40 of the Gold edition basketballs sold at auction for a total of $591,775, according to a company spokesperson. The top selling NFT was a Gold edition basketball created with 2Chainz for 38 ETH ($63,232).

Can anyone make an NFT?

Keep in mind, though, that just because you made an NFT doesn’t mean anyone’s going to want to buy it. With successful NFTs, especially those that are new products, a lot of work goes into promoting the project and building a community around it. Minting an NFT of a quick sketch and throwing it on an exchange probably won’t get you rich.

Who verifies that the NFT is legit?

An NFT code has a signature from its creator that authenticates the token on any server, browser or platform, making it verifiable in a decentralized way. Therefore, no one entity is responsible for hosting an NFT.

And there are three main marketplaces for buying and selling NFTs, all of which are run on Ethereum: OpenSea, Rarible and Nifty Gateway.

The marketplaces act essentially as an eBay for crypto where people can either place bids for NFTs or outright buy an NFT, depending on how the creator set up the selling process. NFTs with limited quantities are typically auctioned off and then resold where as NFTs with set prices and no cap on how many can be minted are available for direct purchase.

What is Positive about these technologies for Artists?

NFTs are ideally a great thing for digital artists — they would finally be able to edition digital art in a way that only artists in the physical mediums could do before, because a digital piece of art could finally be considered and tracked as an original unique piece of art.

Just to be clear, neither of these things are happening in a truly functional way yet. There is a great potential there, like any new technology. It is going to take time for the hype to fade and see what shakes out.

How do you buy NFTs?

The technology that’s used to power NFTs is similar to what’s used in cryptocurrency. So if you already understand that, you’re a step ahead. Otherwise, you may have to get up to speed on a few basics.

In general, if you want to purchase an NFT, you’re going to have to decide four things:

1. Where to buy NFTs

NFTs are sold in many ways, including through private sales, traditional auction houses and online marketplaces.

For most beginners, DeVore said it’s a good idea to start with a reputable online marketplace. Some well-known examples for art include OpenSea and Nifty Gateway. But there may be others depending on what you’re looking to buy. NBA Top Shot, which makes licensed NFTs based on basketball games and players, has its own marketplace, for instance.

2. How to select an NFT

But beware that in a fast-growing and loosely regulated space, imitators and scammers can crop up quickly. Platforms often have verified accounts for notable creators, which can help you choose.

For lesser-known creators (whose NFTs are likely to be far more affordable), DeVore suggested looking at information such as what they’ve sold previously and how many of a given type of NFT they intend to make. If they haven’t set up an external website to provide information about their art, for instance, that could be a red flag.

3. How to pay for NFTs

4. How to store NFTs

Before you buy, you may have to set up a cryptocurrency wallet, which can store crypto assets, and place enough cryptocurrency in it to pay the full price. MetaMask is one wallet commonly used to buy and store NFTs.

Before you buy anything, though, make sure you have access to a wallet (or multiple wallets) able to store both the currency that you’re using and the NFT you want to hold.

If you don’t already own cryptocurrency, you’ll have to select an exchange and buy some. Coinbase, a major crypto exchange, also has a wallet service that can be used for NFTs.

Some services, such as Nifty Gateway, will hold your NFT for you, which can simplify the process if you’re willing to entrust your purchase to a third party.

Whatever you decide, you’re not alone if you’re feeling unsure about how to value digital ownership. People have argued for centuries about how to place a monetary price on art. NFTs may be just another round in that debate.

“With art, it is subjective value,” DeVore said. Whatever someone would pay, he says, «that’s what the value is at that time.»

What is an NFT?

Some popular forms of NFTs include jpegs, gifs, videos and, of course, tweets. But really any digital asset that the creator wants to make unique can become an NFT, like articles or event tickets.

There are also two main security risks with NFTs at the moment

• Copyright. Someone tries to create an NFT for a digital asset that they did not create.
• No permanent storage solution. After an NFT is purchased, the content is not stored on the blockchain but stored on a server, leaving it open to the chance that it could inadvertently be deleted, said Matthew Iles, co-founder of Serotonin, a marketing and communications firm for blockchain companies

Why would someone buy an NFT?

NFTs can be a financial investment, a sentimental purchase, a collectible item or a way for the buyer to feel more connected to the NFT’s creator, like an artist or a brand. It is similar to how people collect baseball cards, sneakers or even Beanie Babies.

Sometimes that desire is tied to brand affinity. Loyal fans of Nike might try to buy one of only a few thousand pairs Jordans when they drop. So similarly, if Nike decided to drop a collection of 25 NFTs of a Nike swoosh gif, those same diehard fans will try and buy one of those as well when they drop.

“People have a desire to have a collection of things in an online portfolio, which demonstrates themselves as an individual similar to the way that the way they would wear clothes,” said Chris Allick, svp and creative technology director at Deutsch LA. “The desire to own scarce objects is real.”

There is also a community aspect to NFTs. For example, some artists that create NFTs of their digital artwork will give buyers exclusive access to a private channel on the chat platform Discourse that only purchasers of that artist’s NFTs have access to, thus forming an exclusive club.

EVA PAPAMARGARITI

“NFTs definitely give artists a certain sense of autonomy in terms of creating and distributing their work. There is a new kind of visibility arising for digital art, especially for some works that were very difficult to become part of a selling market such as those that use generative coding. Artists gain more control of their work which now seems that can finally be seen, it can also be tracked and of course it can be traded without the necessity or interference of an institution, museum, or gallery.

“There is no actual gatekeeping from any kind of older mechanism and establishment, the artist is flexible to choose how and when they can distribute their work. At this exact moment, NFT platforms feel like an open sea where possibilities seem endless. But, like in an open sea, many tricky situations can occur too.

“The NFT world is fragmented. We become viewers and collectors of small extracts, images, animations, older works become visible again and get another chance of circulating themselves in the metaverse, things can equally become fascinating and flat at once. I think it is quite useful to take a step back and watch the situation from afar sometimes, examine it and approach it with a kind of thoughtfulness instead of an ongoing relentless ecstasy.”

“Art is re-examining its own mechanisms of existing, but I wonder if this is an actual shift that can shake power structures that dominate the art field, or if it is just another version of the same game. I am really happy to see artists getting together, forming a kind of community in the world of NFTs and crytomedia, and excited to see different kinds of networks, rising in this context, that support  BIPOC and LGBTQIA artists.

“I think that these decentralised platforms can bring a new sense of communing and understanding to the world of art and this can only be positive and utterly desirable. But we shouldn’t ignore the fact that the promise of an actual change needs to take into consideration many aspects like, economic pyramid structures, money circulation, environmental impact, inclusivity to name a few. Art is not in need of a model that looks novel but repeats the mistakes of the older system and structures. I believe we should aim towards a diverse model of thinking and action instead.”

How is it different from a fungible token?

Fungible tokens consist of cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH), and traditional currencies like USD or EUR. NFTs are unique assets that do not have a one-to-one value with other NFTs. Meaning that while $1 equals $1, one NFT does not equal another NFT.

The value that an NFT has is based on how well received the item is by the people who are willing to buy it, usually using cryptocurrencies like ETH. If an item, like the first tweet, is very desirable, its value goes up. And the fewer there are of the item, the more exclusive it becomes, also likely driving up the value.