NFTs, or “non-fungible tokens,” are the latest way that celebrities are getting rich off of their work. If that multi-hyphenate acronym went over your head, worry not. We’re here to explain what NFTs are and how artists, athletes and others have managed to make millions selling digital of files themselves on the internet.
For example, the singer-songwriter Grimes has made around $6 million off of NFTs of animations set to her music. Also, an NFT of the iconic Nyan Cat sold for $560,000 at auction and Linkin Park's Mike Shinoda is selling his own NFT's for thousands. Not to mention, the entire NBA Top Shot industry itself is also based on NFTs.
And a 12-year-old has even got in on the action, becoming a multi-millionaire through NFTs.
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NFTs are sold at sites such as Zora, and often purchased using various encrypted currencies based on Etherium. And like Magic the Gathering Cards, NFTs can also be parts of games. One of the most popular kinds of NFT products are the CryptoKitties, a series of adorable blockchain based collectible cats that have their own world of entertaining quests.
In short, NFTs are a way of making digital collectibles more valuable to some consumers. That can be a weird concept to wrap your brain around; how can a digital item be rare when it could just be copied? Well, that's the difference between an NFT and the MP3s that 90's kids downloaded off Napster. These digital collectibles can be copied — but their proof of ownership cannot. Yes, the art can be duplicated, but only the select few who pay for it can prove that they "own" it
No matter what an NFT is — some are images with audio, the NBA Top Shot NFTs are videos of replays — each is only sold in limited amounts. Sure, you could sell 8 NFTs of the same footage of LeBron "posterizing," or epically dunking over someone requiring the creation of a poster, but each is uniquely identifiable.
Can't NFT tokens be hacked?
Think of the NFT as the ultimate certificate of authenticity. Thanks to blockchain technology, which is behind Bitcoin, each NFT has an unmodifiable ledger of its history of ownership. That said, the art it's attached to does not. The artist who owns the original still has some control over it.
As Coindesk notes, "all NFT data is stored on the blockchain via smart contracts," which means the NFT history "cannot be destroyed, removed or replicated."
This is somewhat like the digital rights management (DRM) you see in purchased movies and music on services such as Amazon or iTunes. But it flips the control to the customer. The buyer is the one who has the proof of ownership, not the seller.
Why are people buying NFTs?
We're in a moment where people are becoming truly obsessed with rare, collectible items again. People are live-streaming the opening of long discontinued Pokémon card packs on YouTube and Twitch, for example. And so it makes sense that artists and icons would make their own collectibles — and NFTs are the protection (one hopes) to prevent this from just being a bubble that eventually pops.
Some NFTs are true one-of-one limited editions. But many of the more affordable NFTs will be one-of-ten. This was the case with Shinoda's Happy Endings, a 1-minute, 15-second file that debuted a new song from the Linkin Park band member. It included visuals by Shinoda and artist Cain Casper.
People are buying NFTs not just because they're a fan of the creator, but because the technology inside gives buyers the confidence they could sell it again later if they so chose.
The encoded rarity of these files means they can have more value. Consider it a new generation's version of selling and trading art. Shinoda told Input Mag, "It’s not about the physical item. It’s about the concept of ownership. It’s the concept of what is valuable to a collector."
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