So, a video of a cat shooting a rainbow out of its butt is now worth almost $600,000? A pixelated drawing of a guy’s face is worth $1.5 million? And an animated video of Trump lying face down after a frat party is worth $6.6 million?
If you have no idea what I’m talking about up to this point, get ready to dive into the wild world of NFTs. Whether you’re up to date on crypto news or not, you’ve probably heard someone talking about NFTs, because they’ve been generating some of the most ridiculous headlines imaginable.
And if you don’t know what they are, or have done a little research and still don’t understand, don’t worry. They aren’t the easiest thing to wrap your head around. In this article, I’m going to break down exactly what NFTs are, how they work, and if they’re worth paying attention to.
Here’s why NFTs are suddenly worth millions!
What Are NFTs?
Let’s start out with the very first thing you should about NFTs: what the hell those three letters stand for. NFT stands for “Non-Fungible Token”. No, that does not mean that these tokens are resistant to fungi. No, no, “non-fungible” basically means that these tokens are one-of-a-kind.
If you trade a non-fungible token, you’ll never get the same thing back in exchange. A dollar is fungible. If you trade a dollar, you can get another dollar just like it with the same value. Same thing with Bitcoin or Dogecoin. Same thing with the Snickers bars you used to trade at lunch.
NFTs, on the other hand, are entirely unique digital assets. There are no two alike, and they’re tied to the value of a unique piece of media.
If you’ve been following any of the news about NFTs, you’ve probably heard about them in the context of digital art. Whether or not you consider these CryptoPunks, several of which have sold over a million dollars, to be art is up to you.
However, NFTs can represent any form of digital media. The NBA is selling highlight clips called Moments in the form of NFTs. Jack Dorsey, CEO of Twitter, is selling the first-ever Tweet as an NFT. Kings of Leon sold their latest album as an NFT. Hell, Logan Paul sold NFTs of video clips that you can view for free on YouTube! An artist named Beeple even sold an NFT for $69 million at Christie’s.
So, I bet at this point you’re wondering, Why on Earth would someone pay a bunch of money for something that they can consume for free? Well, let’s get into it…
What Makes NFTs Valuable?
So, someone bought the Nyan Cat video as an NFT? Does that mean I can’t view the Nyan Cat meme anymore or repost it to my Instagram? No, no, don’t delete your IG just yet. Owning the Nyan Cat NFT is basically the equivalent of owning the original Nyan Cat, kind of like owning an original Picasso instead of a Picasso print.
Alright, maybe that’s a poor comparison, but it sort of applies. Every NFT is completely one-of-a-kind, just like an original Picasso, and each NFT’s unique characteristics are registered in a blockchain ledger.
If you buy or sell an NFT, the transaction gets recorded in the ledger, so if someone wants to verify that you actually own the authentic Nyan Cat NFT, they can simply check the ledger. It’s just like if you want to sell your original Picasso, you’re going to have to provide some sort of proof of purchase. Even better, blockchain makes it incredibly difficult to fake illegitimate transactions or to steal NFTs.
While cryptocurrencies have been stolen before, it’s far more likely that someone could steal an original Picasso in some sort of museum heist than it is that someone could steal your Nyan Cat NFT.
So, what are NFTs really? They’re speculative assets. People buy speculative assets with the hope that they’ll appreciate in value and they’ll be able to sell them for a profit. NFTs are no different. For instance, one of the most expensive NFTs ever sold, CryptoPunks #6965, was purchased in June 2018 for a little over $3,000. The owner then sold it in February 2021 for a whole whopping $1.6 million. That’s a return of about 53,000%!
That being said, not all speculative assets will appreciate in value. You could buy an NFT and it could end up being completely worthless. And since NFT technology is pretty new and unfounded, that $1.6-million-dollar CryptoPunk might end up being worthless as well. It’s hard to tell right now.
And while the concept of buying digital art or Tweets or video clips with the hope that they’ll appreciate in value may seem strange to you, NFTs may take on more practical applications in the future. People are pretty excited about the prospect of using NFTs to sell usable video game features. Imagine that Fortnite comes out with a one-of-a-kind gun that you can actually use in the game, and then sell an NFT that corresponds to that gun. See? Any Gen-Zers out reading this are already pulling their wallets out.
This application has already been done actually. In fact, one of the first uses of NFTs was for an online blockchain game called CryptoKitties. Players can collect, trade, and breed kitties, and each little virtual feline has a corresponding NFT. And when you sell your cat to another player, they get that NFT. Would you pay real money to buy an online kitty? Well, someone would. Yeah, someone paid $170,000 for a CryptoKitty, but to be fair, it is pretty cute.
But before you write off NFTs as being utterly ridiculous, according to the people at Ethereum, NFTs might one day be used to replace the title to your car or even the deed to your house! Why have a title or a deed that shows you’re ownership, when you can have an NFT that’s protected by blockchain and can be easily transferred virtually?
The world has yet to dive very deep into typing NFTs to physical assets, but watch out, because it might just be the way of the future. Heard of Nike? Do a quick Google search for “CryptoKicks” and you’ll see that they’ve already started researching this concept. The idea is that every pair of shoes will come with a unique NFT that can be bought and sold on the secondary market. No more accidentally buying knockoff Jordan Concord 11s when you can easily verify that they’re real using blockchain transaction ledgers!
As you can see, the world is really just starting to dip its toes into the world of NFTs, and it seems likely there could be some pretty incredible possibilities with this technology.
How to Buy and Sell NFTs
If you’re looking to buy an NFT, you’re probably going to do so through Ethereum. Ethereum was the first blockchain network to support NFTs and is still the most common for trading them. Other blockchains like Eos, Neo, and Tron have also started supporting NFTs to try to attract content creators to their platforms, but Ethereum remains the largest network.
So if you’re set on getting some NFTs, you’re going to have to open a digital wallet through a service like MetaMask or Rainbow or Coinbase, and then you’re going to have to go to an NFT marketplace and link up that wallet. Boom, you’re ready to buy NFTs.
Some of the most popular marketplaces right now are OpenSea and Rarible, but there are new marketplaces popping up all the time. Nifty Gateway, where Canadian musician and Elon Musk baby mama Grimes just sold $6 million worth of NFTs, is another marketplace, but is a little different due to the fact that it operates on USD rather than cryptocurrency. Many investors may prefer this, as the value of a dollar is typically far less volatile than cryptos.
Want to sell your digital art or photographs or tweets or pretty much anything else as an NFT? It’s pretty damn easy. Create an account on one of the marketplaces, and just upload your digital media. They accept most types of files, including TXT, JPG, PNG, MP3, MP4, GIF, and more!
Oh, and you will have to link an Ethereum wallet just like you would if you were buying NFTs, because creating an NFT costs money, unfortunately. Due to the fact that NFT transactions use up a pretty ridiculous amount of energy, most marketplaces charge what’s called a “gas fee” for you to mint your NFT, and they can sometimes be north of $100.
So, your get-rich-quick scheme could quickly turn into a poor financial decision. If you’re serious about marketing and selling your digital media as NFTs, I’d say give it a try. If you were just going to do it on a whim, it’s probably better to stay away.