What Are NFTs? Tech Pros Explain Non-Fungible Tokens
"Hearst Magazines and Yahoo may earn commission or revenue on some items through these links."
If you've been hearing the term non-fungible token (NFT) but still aren't sure what exactly one is — or why someone would buy one — you're not alone. Here, we break down how these digital assets work and whether or not they're worth investing in.
Meet the expert: Andrew Klein is the SVP of Web3 Brand Strategy and Innovation at Publicis Media. He's an NFT expert and innovator, launching digital collectible experiences for dozens of brands, artists and creators.
What is an NFT?
In the most simple terms, NFTs are unique digital collectibles, like drawings or music, that exist on blockchain technology and can be bought and sold as assets.
"These aren’t just pictures of digital art you can right click and save, but contracts that state you, as the owner, can use to unlock something special," explains Klein. That something special might be membership access, a cool perk or entry to digital or real-world experiences.
But let's back up a bit: What is a blockchain? The underlying technology that NFTs are built upon and stored, a blockchain is a peer-to-peer decentralized distributed database that can handle transaction records of a digital asset. While there are different blockchains, the Ethereum blockchain is where many NFTs live.
Fungible cryptocurrencies like Bitcoin are also secured on blockchain technology, but a non-fungible token, unlike its fungible counterpart, represents a unique asset owned by a specific person, like a physical work of art. While a fungible asset, like Bitcoin, can be interchanged with an identical item at a known rate and then easily divided into smaller units (e.g., a dollar can be broken into quarters, dimes, nickels or pennies), a non-fungible token has a unique identifier. It cannot be traded for something else one to one, as it is
irreplaceable and cannot be divided into smaller units. NFTs are, however, easily transferable and allow for trustworthy ownership of digital content.
How do you make an NFT?
To make an NFT, you first need a specific digital asset. Then, you create a unique, one-of-a-kind digital signature so that you can buy and sell the NFT for money, crypto or another asset. The first purchase of an NFT is referred to as minting. It places the NFT in a specific location on a blockchain. Most users choose an NFT marketplace for minting.
What are some examples of NFTs?
Anything digital can be minted, from digital artwork to videos to GIFs to tweets (fun fact: Twitter co-founder Jack Dorsey sold his first ever tweet as an NFT for nearly $3 million). A few examples: Nike acquired NFT company RTFKT to sell digital sneakers, Mattel partnered with Toekenz for family-focused collectibles and ATP (the governing body for men's professional tennis) partnered with Art Blocks Engine and Martin Grassier to create data-packed digital art representations of notable tennis shots.
Probably one of the most historic NFT auctions was when digital artist Beeple sold artwork at Christie's acution house for $69 million. Two better-known NFT collections that helped inspire momentum in the digital art space are Cryptopunks, which is comprised of 10,000 uniquely generated characters, and Bored Ape Yacht Club (colloquially referred to as BAYC or just Bored Apes), a limited digital art collection featuring cartoon apes that are algorithmically generated.
What are NFTs used for?
Apart from being able to buy and sell NFTs, many come with unique perks. "If you’re into sports, you can purchase a digital collectible from your favorite team or athlete to get access to VIP seating and signed merchandise," says Klein. Sports aren't your thing? Purchase a music collectible from your favorite performer to get guest-listed into their live and virtual shows. Have a favorite fashion brand? You can collect their token to get access to exclusive "holder only" sales of limited-edition items and discounts that exceed the usual loyalty program benefits.
Are NFTs worth investing in?
Like many other risky investments, the expert consensus is that it depends.
By nature of their newness and the fact that an NFT's value is determined by how much someone is willing to pay, it's really a matter of if you have money to experiment with, if digital art (or another asset) holds personal value to you and the duration of time you're comfortable keeping your investment in an NFT, among other market factors.
While it is important to realize and accept that you may lose money on your NFT or you may not be able to resell it at all, Klein believes that buying NFTs is no riskier than buying any other type of collectible item. "If you come across a digital collectible that you like or find interesting, why not?" he says. "It’s human nature to collect things! People collect art, vinyl records, comics, sneakers, Pokemon cards and thousands of other items. As our time and attention becomes increasingly spent on digital things, it’s no surprise that digital collectibles have emerged as the next big thing to have."
Klein also points out that in some cases, you may not even have to buy an NFT; you can earn digital collectibles from your favorite brands or by participating in special events. "These have become known as POAPs, Proof of Attendance Protocol tokens, that act like digital ticket stubs, Playbills or other digital mementos of the occasion," he says. "In some cases, these can unlock special digital experiences and future rewards."
How do you buy NFTs?
Once an NFT is minted, users can put them up for sale. For the most part, in order to buy an NFT, you'll need a crypto wallet and cryptocurrency (but in some cases, you may just need a credit or debit card).
A digital wallet is where your NFT and cryptocurrency will be stored once purchased or transferred. Klein explains that digital wallets are "software-like apps that store your digital collectibles and allow you to buy, sell, trade and store your digital items and NFTs." As not all wallets support all blockchains, you'll want to check for compatibility before buying an NFT. And just like we have multiple accounts for various apps or services, you may require or want more than one digital wallet.
To get started, check out popular Ethereum-compatible crypto wallets like Coinbase Wallet or Metamask, as well as NFT exchange markets like Rarible or OpenSea. Klein also recommends a few approaches that won't require advanced wallet setups or hardware:
OneOf has a wide range of entertainment driven collectibles that can provide access to events and artists.
Sweet has collectibles from some of the top NBA and F1 racing teams that provide unique access to IRL perks and rewards.
NiftyGateway is a great place to purchase digital art collectibles from the world's leading creators and artists and they can be paid for via credit card.
Cryptoys has partnered with Mattel to provide Masters of the Universe (He-man/She-Ra) digital toys you can collect, play and interact with virtually.
The bottom line
While terms like NFT, blockchain and cryptocurrency can sound like gibberish, they are undoubtedly becoming a part of the lexicon. "Don’t let these new words scare you off from participating in the next era of the internet experience," says Klein. "Remember, there was a time not too long ago when world-wide web, email, texting, file-sharing and tweeting were unfamiliar words and concepts that have now become an ordinary part of our language."
If you have the capital and interest, NFTs are certainly worth exploration. Find something you value and invest in it! Our advice is to start your exploration by following NFT-related topics or hashtags on social media (Twitter is notably a good place to discover NFT collections!) and checking out the marketplaces themselves, searching around by price, category or what's trending.
You Might Also Like
