Are they valuable digital works of art or is it hot air? In the world of non-fungible tokens (NFT), billions are involved. Many have already invested to create and promote NFTs. But how does it work exactly? Who acts in it? And isn’t it hype?
What is an NFT, in plain language?
NFT stands for a non-fungible token or a non-exchangeable coin. It is the proof of ownership of a digital file. And that can be anything: a sword in a computer game, a digital painting, but also a piece of text, for example. In fact, any digital file can become an NFT. As soon as there is a title certificate, it can get (financial) value.
Why would someone pay money for a ‘digital picture’?
The simple answer is: supply and demand. By making something unique and exclusive, you create scarcity. “If you have enough people who want something, the price rises,” says Belgian NFT user @skaanbarry, who claims to earn tons a year from trading NFTs. “By treating it as a collector’s item, it is automatically wanted. And if demand exceeds supply, it becomes more valuable.”
Something like that can never get big, right?
You would think so, but the opposite is true. For example, the NFT of the very first tweet, from Twitter founder Jack Dorsey, has been sold for 2.9 million dollars. Especially last year, astronomical amounts were counted down. Artist Beeple auctioned off a series of images for $68 million and last month The Merge, a digital artwork by anonymous artist Pak, sold for $92 million. A twelve-second video of a Dunk by LeBron James previously grossed $208,000. And believe it or not, pictures of monkeys (Bored Ape Yacht Club), kittens (CryptoKitties, which started it in 2017), and robots (Mekaverse) sometimes go for tons.
Does the owner of an NFT also have the copyright?
No. Although the file has been assigned to the person who acquired the NFT, it may still be used by others online. For example, the NFT of the famous internet meme ‘Charlie bit me’ (a boy bites the finger of his slightly older brother) was sold for 760,000 dollars, but it can still be seen on all kinds of channels. So you can’t actually sell something with such a token other than reselling, because it has a certain (financial) value.
How can I buy or sell an NFT myself?
Anyone who wants to act digitally must have a digital identity. So you need an account with a wallet, for example on the Open Sea platform, where NFTs are auctioned. In fact, this is a kind of Marketplace where you can search for files that you would like to have or trade. Most transfers take place via the cryptocurrency Ethereum, so it is advisable to invest in this first.
What does cryptocurrency have to do with this?
The transactions around NFT float on the same technology as with Ethereum. Payments are made via the blockchain, a digital cash book known for its anonymity and security. In a way, the NFT is similar to cryptocurrency: you attach value to something purely digital. Yet they differ from each other on crucial points, because an NFT is always unique. A bitcoin is exchangeable — no matter what bitcoin you have, they’re all the same — while an NFT represents a unique digital object.
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Doesn’t this all sound like yet another hype that can collapse at any moment?
Yes and no. It is what the fool gives for it and that is no different in ordinary life. Have homes really doubled in value in the last five years or is that just because people are willing to pay for it? The market for NFT is growing at a ridiculous rate. In 2021, $25 billion worth of NFTs were traded, compared to just $94.9 million the year before. However, financial experts note that the price increase of objects seems to have been stopped. The risks are just as great as with cryptocurrencies and investing: money can evaporate before your eyes. @skaanbarry says he will have achieved a net profit of 750,000 euros in 2021, but warns: “This can certainly collapse in a short time. That’s why NFTs make up at most 5 percent of my entire crypto portfolio. I certainly don’t want to take any risks in that.”
What kind of people trade in NFTs?
The world of NFT traders is difficult to fathom, as many users are anonymous, including @skaanbarry: “That is mainly because of my own safety. It involves large amounts of money and I would not like to be hacked, or worse, robbed.” From that anonymity, it is a prestige to show off possessions. “Showboating how rich you are, a bit like rappers do with their watches.” So that expensive avatar on social media is a sign of wealth. A large part of the users is also very active in trading with crypto coins. The stereotyping wants these to be mainly ‘men’s things’, but bitcoin platform BTC-Direct reports that more and more women are getting in, also in NFTs. It is true that they, more than men, mainly invest for the long term. A popular platform is World of Women, on which Hollywood stars Eva Longoria and Reese Witherspoon are very active.
Is it now about the art and the property or is it just making ordinary money?
There are undoubtedly artists who argue for ideological reasons that it is beautiful and logical that digital objects can also have value. But the practice is mostly simpler: most users are there for the money. So is @skaanbarry. “I do this purely to make money. I wanted to be a millionaire before I was 35. That has already been achieved. And if it continues like this, I can start running in two years, when I’m 35.”
Isn’t it bizarre that a digital file about which you have no other rights is worth so much?
Yes. Even @skaanbarry is amazed by the staggering amounts that go around in it. “You have to think of it a bit as the idiotic prices people pay for physical Pokemon tickets. I think it’s absurd myself, though. I once sold something from Mekaverse for 50 Ethereum, converted to 200,000 dollars. I would never spend anything like that on it. You have to be realistic: at the end of the day, it’s just a 2D picture.”