1. What are non-fungible tokens?
Think of them as digital certificates of authenticity. An NFT is a unique and irreplaceable identifier created by an algorithm: a distinct barcode for a piece of digital art or a collectible. This helps solve a problem that digital artists have struggled with for a long time: how to create rarity for an item that can be reproduced endlessly. Uniqueness is the reason (ok, a reason) the Mona Lisa is priceless, while a Peter Max signed and numbered print of his version of the painting is $4,900 and Mona Lisa posters are 7, $95.
When an artist wishes to sell their digital work, they create, or “monetize”, an NFT which then becomes attached to the ownership of that specific work. NFTs are recorded on open blockchain ledgers, making it possible to track ownership (or, as we say in the physical world, “provenance”), past sale prices, and the number of copies in existence. The security provided by blockchain technology makes it harder to sell fake tokens than selling fake physical artwork, although it is not impossible. The price of NFTs is determined by its rarity and popularity. The Merge, for example, is an NFT made by artist PAK depicting three lunar masses on a black background. It sold for $91.8 million as of December 2021.
3. Are NFTs a kind of cryptocurrency?
No, although there are some similarities. Both NFTs and cryptocurrency are digital assets and are powered by the same types of decentralized blockchains. But in theory, the whole point of a cryptocurrency is that it can be used in transactions just like dollar bills – and what makes dollar bills useful is that they are identical and have little intrinsic value. An NFT, on the other hand, is a one-of-a-kind creation whose purpose is to protect ownership of a specific item.
4. What happened during the boom?
Before the pandemic, people had started finding new uses for NFTs as ways to sell sports memorabilia or special access passes to events. Then NFTs gained momentum among bored collectors in 2020 and took off the following year. Artists, celebrities and financial investors were buying NFTs, a boom that coincided with rising prices for Bitcoin and other cryptocurrencies. In March 2021, Jack Dorsey made an NFT of his first tweet and sold it for $2.9 million, and a digital artist by the name of Beeple sold an artwork for $69.3 million. Bored Apes, who are (literally) bored-looking animated monkeys, have become the favorite avatar of celebrities on Twitter, with Gwyneth Paltrow and Serena Williams sharing their personalized monkeys on social media. Owning NFTs has become a statement and golden ticket to accessing a network or intimate community – whether to a Discord server for fellow Bored Apes (the Bored Apes Yacht Club) or entry to a festival. of French film.
When NFTs became a popular investment choice for those looking to diversify their portfolio ahead of inflationary warnings, some critics saw the trend as mere hype. What buyers were getting, they said, was just the bragging rights of images that anyone could equally well see, copy or enjoy. Questions have been raised as to whether those benefiting from the parallel cryptocurrency boom were using some of their newfound wealth to inflate a market they would benefit from rising. Others have argued that for any work of art, the original hand of the master is what makes it valuable. And then there was that segment of Americans who simply didn’t understand what the fuss was about or why NFT vendors were getting millions of dollars.
6. Why has the market turned?
NFTs have been caught in a broad cryptocurrency price slide that has accelerated after the collapse of blockchain stablecoin Terra rattled investor confidence. The world’s largest NFT marketplace, OpenSea, saw sales volumes in June drop more than 70% month-over-month, according to Dune Analytics. OpenSea began laying off staff in July after the crypto crash to cut costs and prepare for a long-lasting downturn. A dizzying array of frauds wiping out hundreds of millions of dollars and cases of alleged insider trading have further tested the industry.
7. What would be left if the NFT bubble burst?
There is a chance that the current downturn will end the NFT frenzy from 2021. But the urge to mint money, whether through crypto, NFTs or otherwise, is not going away. NFTs have also proven useful in unexpected ways, such as raising $600,000 for the war in Ukraine through an NFT museum. Its uses extend to automobiles, games and of course the metaverse as it attracts more buyers. Yuga Labs, the company that developed the Bored Apes Yacht Club, launched land plots in the metaverse as NFTs called Otherdeeds, which recorded a $320 million transaction in late April.
More stories like this are available at bloomberg.com