Most of us remember the Bitcoin Boom of 2017, wherein the value of the cryptocurrency Bitcoin surged astronomically, bringing in a huge influx of new investors.
If you’ve been keeping up to date with financial news recently, then you’ll be aware that we’ve been seeing a similar phenomenon occurring recently. This time, however, it’s all about non-fungible tokens (NFTs).
It’s safe to say that non-fungible tokens are the latest crypto-craze, with more and more creatives releasing both art and music in the form of an NFT. However, much of the conversation surrounding this new digital token is somewhat difficult to understand, especially as it only seems to have come about recently. What is an NFT? How are NFTs used? Should we all be investing in NFTs?
To help you break it down, DDW will attempt to answer some of the most burning questions surrounding the world of non-fungible tokens here.
What Is A Non-Fungible Token?
While Bitcoin is a digital currency, a non-fungible token is just that – a digital token.
‘Fungible’ is a word used to describe an asset that can be interchanged for another item that holds the same value. For example, money is a fungible asset – if a person exchanges a £50 note for two £20 notes and a £10 note, the cumulative value remains the same.
However, a non-fungible asset is a product or asset which has unique qualities that cannot be interchanged, as it is one of a kind. For example, a bespoke couture piece or a one-of-a-kind house.
NFTs are very similar in the sense that they are one-of-a-kind items, but the difference is that they only exist digitally – essentially, an NFT is a digital collectable. It can be bought and sold like any other collectable, but unlike other collectables, has no physical form.
This is why the tokens have been so commonly used within the world of art and music, as these items can be copied, but there will only ever be one original. For instance, you can buy prints of thousands of famous paintings, but it isn’t the same as owning the original – there will only ever be one original.
How Do NFTs Work?
Traditionally, paintings are as valuable as they are because they are one-of-a-kind. This hasn’t previously translated particularly well into the digital art of the modern age, which can be saved, shared, re-uploaded, edited, duplicated and generally manipulated by just about anyone.
However, with the arrival of NFTs, artists can create a digital token to act as a non-physical certificate of ownership that can then be bought and sold amongst collectors. So, like paintings, the images can still be duplicated and re-distributed, but only one person owns the original.
The record of who owns a specific piece is documented in a system known as the blockchain, the same system which records the ownership of Bitcoin. As the blockchain is maintained by thousands of intelligent computer systems globally, records cannot be hacked, altered or forged.
Generally, the buyer will not receive any tangible item (a physical version of the product would, of course, be considered a duplicate) in exchange for an NFT, but will simply be recorded within the blockchain as the legal owner of the original piece.
Is Owning An NFT The Same As Owning Copyright?
Not quite. An NFT doesn’t automatically grant the token holder the ownership of copyrights to the work – in fact, this is rare.
In the majority of cases, the original artist retains the copyright ownership, as this allows them to continue to copy and sell their work in the form of prints or official digital downloads. There’s even nothing in place to prevent internet users from downloading the work and resharing it online. The most valuable NFT (at the time of writing) is the ownership of the digital collage by American artist Beeple, which was sold for $69,000,000 – the image itself, however, has been recirculated online hundreds of times since the story made the news.
The NFT sold is simply a token of ownership that proves that the buyer owns the original work.
However, in cases where the artist does hand over the copyright ownership to the buyer, they have most likely set up a sort of ‘smart contract’, which allows the artist to receive a cut of any future sales of the NFT.
How Much Are NFTs Worth?
NFTs vary in value, just like any item sold for traditional currency.
While the record, as previously mentioned, is held by American artist Beeple with his NFT selling for $69,000,000, he isn’t the only one to have sold an NFT for multi-millions.
Twitter founder Jack Dorsey recently promoted the sale of the first ever tweet, sent on March 21st 2006 and reading ‘just setting up my twttr’. Bids quickly skyrocketed as high as $2.5million.
Musician Grimes also recently sold some of her digital artwork as an NFT, fetching $6million.
In the music world, indie-rock group Kings Of Leon made over $2,000,000 from the sale of an NFT representing ownership of their latest album, When You See Yourself.
Meanwhile, even lesser-known digital artists have still managed to earn as much as $500 a piece from the sale of NFTs.
Should I Be Investing In NFTs?
NFTs – just like Bitcoin and, more traditionally, stocks – are bound to fluctuate in value. However, right now, many financial experts are sceptical as to how long the NFT boom can be expected to last.
For this reason, the window to invest in NFTs and make a profit in return may be a little narrower than many would like – as the market grows, many expect that the highest reasonable value of NFTs will decrease.
So, is it possible to build a fortune from the purchase and re-sale of NFTs? We can’t say for sure, but at the moment, it seems unlikely.
In many ways, the artists and original creators are the real beneficiaries of the NFT boom, as the duplication of digital art and the low royalties paid to musicians by streaming services have left creatives feeling as though it’s impossible to make a good amount of money from art in the digital age.
As far as we’re concerned, anything that rewards people for creating high-quality, meaningful art is a positive thing in our eyes.