Digital currency like Bitcoin has been around since 2009 and has widened our understanding of what currency looks like. Now there’s a new currency making waves: NFTs.
What is an NFT?
We’re all at least somewhat familiar with Bitcoin by now: it’s a digital currency, with balances kept on a public ledger and created through a mathematical encryption algorithm. The “encryption” part is what makes a digital currency also meet the definition of a cryptocurrency. Bitcoin uses huge amounts of computing power to verify transactions using complex mathematical equations. (In fact, the amount of computing power so massive, the annual carbon emissions from the electricity required to mine Bitcoin and process its transactions are equal to the amount emitted by all of New Zealand.)
But now, more than a decade after the launch of Bitcoin and the launch of many similar cryptocurrencies, the financial sector is seeing something new and exciting: the nonfungible token (NFT).
So, how does an NFT compare to Bitcoin?
- Both are verified using blockchain technology, a unique network of computer recorded transactions that provides buyers proof of authentication and ownership.
- Cryptocurrencies like Bitcoin are considered fungible tokens because they are identical to each other and therefore can be used as a form of currency—they are essentially “electronic cash.”
- An NTF can take many forms including videos, .jpg, songs, or any digital asset. NTFs shift the crypto paradigm by making each token unique and irreplaceable.
Why are NFTs so popular?
Most importantly, NFTs provide artists who use digital mediums, who had been previously left out of the art sales market, a way to receive payment for their creations. For example, the artist Mike Winkelmann, also known as Beeple, just sold his NFT creation “Everydays – The First 5000 Days” at Christie’s for $69.3 million, the third highest price achieved by a living artist.
Other popular NTFs include Dapper Labs, who partnered with the NBA and in 2020 released their beta version of their TopShot collectable and tradable NFT app. In October of 2020, Dapper Labs released its full version to its fans and by February 28. 2021 reported over $230 million in gross sales.
One of the exciting elements of NTFs is that they appear to be forming new markets and forms of investment. In the future you may be able to break up parcels of land easily by taking pictures of the various areas within that parcel and sell each area as an NFT, rather than selling the entire parcel.
Are NFTs a good investment?
It is still a budding market having just started in 2017. With the activity around the world and digital art auctions at Christie’s, it is clear that NTFs have taken the art market by storm. It has started strong, but remains to be seen over the long haul, if value is retained. As in all markets, there are always risks of booms and busts, but because of the newness of this market, no one can say for sure where we are now.