Most likely, you have come across news that another NFT crypto art is being sold at an auction for a large sum of money. For example, a 10-second video CROSSROADS by Beeple was resold for $6.6 million. The fact that everyone can download this video without any problems raises questions.
We have figured out what NFT is, why people pay big money for digital objects, and why downloading does not replace a purchase. Let’s get started!
What Is NFT?
There is a whole philosophy behind crypto art. To understand it, you need to start with what NFT is. This abbreviation stands for non-fungible tokens. It is a cryptographic asset, which most often runs on the Ethereum blockchain. Other blockchains can also issue their own NFTs. Each token of that kind has its own unique identifier and metadata that distinguishes it from other tokens.
When talking about NFTs, it is worth paying special attention to the term non-fungible. Typically, all fiat or cryptocurrency units have the same value. The US dollar is equal to any other US dollar, and BTC is equal to any other BTC.
This analogy can be continued — one bank gold bar can be easily replaced with another one. However, you won’t be able to replace your diary with your friend’s diary. These are non-fungible goods. The same situation is with NFT — one token is not equal to another, an equivalent exchange is impossible.
In fact, an NFT is an individual digital asset passport that records the owner’s property rights.
For example, you bought yourself a place on the train. It is defined by a unique combination of carriage and number. The place is only yours, although you can print out a thousand tickets and give them to everyone around you. Likewise, anyone can download a digital asset for themselves. However, it is assigned to the owner in the same way as the place on the train. It turns out that NFTs are tokens that give ownership of unique items.
Tokens can only have one official owner as they are protected by a decentralized blockchain. Since every operation is recorded in the registry, it is nearly impossible to change or falsify it. Moreover, the information about the owner is easy to verify. Also, NFTs can be easily bought, sold, or created, which is also a convenient way to transfer ownership.
You don’t need cryptocurrency to buy NFT. For example, platforms like Nifty Gateway allow you to pay with a credit card. For other services, for example, Foundation, OpenSea, Rarible you will have to create an Ethereum wallet and buy some ETH.
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What Is a Crypto Asset?
Crypto assets can include both digital and physical goods. If everything seems to be clear with digital ones, then how can you correlate tokens, for example, with real estate? To do this, you need to release appropriate NFTs on this object, that is, tokenize or mint them.
Tokenization of physical goods is not as developed as that of digital analogs, but such projects do exist. Ethereum claims that one day a person will be able to buy a car and get NFT instead of documents.
Most often people tokenize:
- works of digital art (paintings, music, videos, etc.);
- digital collectibles;
- game items;
- domain names;
However, there is one more nuance. Just as one art can have multiple copies, the creator of a digital object can issue multiple NFTs on it. Even so, they will still have a unique identifier and be considered original or part of it.
How Much Do NFTs Cost?
According to research conducted by the analyst firm NonFungible.com, the market of non-fungible tokens tripled in 2020. The total value of transactions increased by 299% year on year and exceeded $250 million. One can only imagine the growth by the end of this year, given the hype surrounding the NFT market.
For example, the legendary GIF meme ‘Nyan Cat’ turned 10 this year. However, this did not stop its author Chris Torres from tokenizing and selling it at the Foundation auction for 300 ETH, or about $590,000.
At the end of February, Canadian singer Grimes also made a splash. From the sale of her WarNymph collection, she earned $5.8 million in less than 20 minutes from the start of the 48-hour auction.
Why Do People Buy NFTs?
Indeed, why did an old meme suddenly cost millions? Why pay large sums of money to own memes, tweets, and pictures when you can just download them? How can you spend such a sum on something that doesn’t even have a physical embodiment?
Foundation platform names at least five reasons to buy NFT:
- Participation in the establishment of a new cultural paradigm. NFT democratizes the digital art market as much as possible, gives way to experimenters and innovators.
- An opportunity to invest in an increasingly popular asset. The scarcity aspect makes NFT an attractive asset, as collector Priyanka Desai points out.
- With the help of these tokens, a person is able to get something ‘beautiful, unique and special’ — a piece of the Internet that belongs only to them.
- NFTs allow you to directly support a particular creative community. For example, there are collectors supporting the crypto art of black artists.
- With the help of NFT, anyone can become a collector. You can even build your personal digital gallery with platforms like SomniumSpace and Cryptovoxels.
Ethereum fends off the ridicule of critics who claim that a simple screenshot will be enough to replace the NFT:
In theory, this would unlock the possibility to do things like own a piece of a Picasso. You would become a shareholder in a Picasso NFT, meaning you would have a say in things like revenue sharing.
It should also be noted that the more widespread and recognizable a digital asset becomes, the potentially higher its value is. Pablo Rodriguez-Fraile, who bought the Beeple art, said:
You can go to the Louvre and take a picture of the Mona Lisa and you can have it there, but it doesn’t have any value because it doesn’t have the provenance or the history of the work.
Judging by the resonant sales of NFT, the desire for personal ownership of a piece of the Internet is becoming as common as bringing a seashell from vacation or saving a child’s drawing.
What do you guys think about NFTs? Feel free to share your thoughts in the comments!