Interest in traceable digital collectibles called non-fungible tokens (NFTs) has skyrocketed in recent weeks, with various artists and celebrities generating vast sums of money in sales.
Stored primarily on the Ethereum blockchain, NFTs are representations of digital properties – such as art, music, videos and collectibles – which have a unique signature that allows for ownership to be traced and verified.
NFTs are being discussed as an innovative new way for artists to monetize their digital works and secure long-term royalties. By generating a limited supply of tokens, creators can simulate a scarcity that is driving prices through the roof.
As per data from DappRadar, the trading volume across the top three NFT marketplaces came to $342 million in February alone. In December, only $12 million worth of NFTs were sold, while figures from NonFungible suggest the NFT market generated just $200 million across the entirety of 2020.
NBA TopShot, a marketplace for basketball-related collectibles, was the largest contributor to NFT trading volume last month at $225 million, followed by OpenSea and CryptoPunks.
What is an NFT?
NFTs differ from other cryptocurrency assets, such as Bitcoin, in that they are neither interchangeable nor divisible.
If an asset is fungible, it can be freely exchanged with another identical version without any loss of value and can also typically be divided into smaller constituent parts. For example, if two people were to swap one unit of Bitcoin with each other, no meaningful change has occurred, and each Bitcoin can also be broken down into smaller units called Satoshis.
Non-fungible tokens, on the other hand, demonstrate ownership of a unique property and therefore have a unique value. And nor can NFTs be divided up into smaller units.
While NFTs have been around since 2017, only in recent weeks have they begun to gain real traction with artists and celebrities, as well as capture the attention of the public.
Within the last month, synth-pop artist Grimes has generated $6 million through NFT sales, while musician 3LAU sold an album of NFTs for $11 million. An artwork by graphic designer Beeple also sold for $6.6 in a secondary market (the largest NFT sale to date), days before a collage from the same artist was set to be sold off at auction house Christie’s.
While it’s difficult to understand why someone might spend so much on a digital asset that can be easily replicated and found online for free, NFTs appear to have tapped into a primal desire for ownership that could see them become a permanent fixture in the world of digital art. Or maybe this is all just a craze.