Introducing Non-Fungible Tokens (NFTs): What are they, Why are they Important, and How to Trade them for Maximum Profit
The art market is always on the lookout for groundbreaking, new trends, and non-fungible tokens (NFTs) seem to be the biggest art trend of the year. In the past few months, NFTs have been met with unprecedented demand. Although NFTs have existed since the early 2010s, 2021 has definitely been a breakthrough year.
After all, the numbers don’t lie. Last January, the average sale price of NFTs was just $30. Only a year later, the price skyrocketed to $4,000 per NFT. One of the biggest sales platforms for NFTs, OpenSea, reported a $3.4 billion transaction volume in August 2021, after earning over $800,000 from only one series of tokens, the popular CryptoPunks.
The NFT art market hype peaked when an American artist Beeple, sold a collage of NFT artworks for $69 million. Though the most successful, Beeply is not the only artist to sell his digitally created works for staggering prices. Just weeks before Beeply’s record-breaking sale, artist Chris Torres, sold a crypto rendition of one of the most famous Internet memes, the 2011 Nyan Cat. Colorful flying cat meme has sold for $590,000 in February.
Additionally, a company called NBA TopShot, (known for turning YouTube videos with NBA plays into digital non-fungible tokens that can be bought and sold), made headlines when they managed to sell a video of James LeBron’s dunk for more than $200,000. The same company followed up their success by selling a video of a Zion Williams block for $100,000. The fact that someone paid that much money for a video that anyone can view on YouTube was mind-blowing for many.
It wasn’t long before Twitter founder Jack Dorsey joined the NFT art market by selling the very first tweet ever published on the platform for $2,9 million. Even the New York Times contributed to the hype by selling one of their columns for more than $500,000.
It seems that everyone is eager to get on the NFT bandwagon, looking to earn money from the art world’s latest craze. Auction houses like Christie’s and Sotheby’s are organizing major NFT sales, galleries are adding NFTs to their portfolios, and collectors are willing to pay millions of dollars for NFT pieces, thus raising the hype even higher.
Even major companies such as Visa Inc. are finding their place on the NFT art market. But despite the obvious craze, many people still don’t know exactly what NFTs are, what they are for, and what do you do with them.
The Meaning of NFT Explained
Since the prices have practically blown up overnight, it is not surprising that there are still a lot of people who are unsure about NFT’s meaning and purpose. As previously mentioned, NFT is short for a non-fungible token. A token is a digital asset that can be stored and traded on the blockchain, just like cryptocurrency. These tokens carry an in-built image, artwork, meme, or some other asset underlined with the same software used for cryptocurrency trade.
In fact, the first NFTs were made from small parts of Bitcoins called the satoshi, and used to represent different assets. Created in 2012, the first NFTs called Colored Coins were meant to represent anything from company shares, stocks, collectibles, coupons, property, etc.
However, unlike cryptocurrency, (Bitcoin or Ethereum) which are fungible tokens, non-fungible tokens are, as their name suggests, one-of-a-kind and they can not be exchanged for the same thing. For example, a Bitcoin is a coin like any other, a nickel or a cent. When you sell a Bitcoin, you can purchase an identical Bitcoin as a replacement.
Non-fungible tokens are unique (like an original painting, a sculpture, or a photograph), and they cannot be traded for the same thing. Instead, you can trade them for something else of equal value, for instance, a Bitcoin, money, or some other valuables.
Ok, but what does that mean for the world of art?
Non-fungible tokens in the art world, serve as proofs of ownership, similar to provenance or a written certificate of authenticity. When people buy an art piece, they usually get a written certificate of authenticity, a piece of paper with an artist’s signature, description, and picture of the piece proving that the artwork is original.
In the past, when certificates of authenticity weren’t common, people relied on written provenance for proving the authenticity of their pieces. Provenance is a record of transactions (containing bills, exhibition catalogs, shipping records, auction lots, etc.) used to trace all the owners of the artwork, all the way back to the original owner, the artist.
NFTs are doing the same thing, except now, proofs of authenticity are located inside a digital file stored on an Ethereum network. That means that NFTs can now effectively replace both certificates of authenticity and provenance in the digital era, therefore proving the originality of the piece. Remember you can have the most valuable artwork in the world but it will be worthless if you can’t prove its authenticity. That’s where the NFTs come in!
So, when you buy an NFT what do you get?
You get a digital file with a stored artwork and a digital proof of ownership for the piece that you can later sell. NFTs can be used to authenticate all kinds of artworks, prints, sculptures, drawings, etc. But it is the field of digital art, where the NFTs show their true meaning.
An NFT usually carries some sort of a digital art piece, (a digital picture, meme, video, music…) although, as previously mentioned, it can also contain tweets or newspaper columns. All of these digital items will continue to exist on the Internet, where anyone will be able to download and look at the pieces. However, a person with a non-fungible token will be the only one that can sell the piece later on, since that’s the only person that can prove the ownership and the authenticity of the artwork.
Strength of NFTs that’s Revolutionizing Digital Art
Since digital art is easy to download and forge, many collectors were reluctant to acquire digital art pieces for their collections. After all, why would someone spend millions of dollars on something anyone with a computer can view and download off the internet?
A brief answer is: because only a digital art piece with an NFT is an original and all others are considered worthless Internet copies. Adding a piece to the blockchain is a way artists can protect the art piece from theft, misuse, and authenticate it. Sure, anyone can download a digital artwork off the internet and store it on their own computer, but without digital proof of ownership, these artworks are valueless.
The only digital art piece that can be purchased and sold on the market is the piece that comes with digital proofs of ownership, aka the NFT. That’s why art collectors are now racing to purchase NFTs that serve as proof that their pieces and their pieces alone are authentic, regardless of how many copies exist on the Internet.