Explaining the popularity of digital art with ownership recorded on blockchain and purchased in cryptocurrency.
Some of the froth may have come off this year’s cryptocurrency rally, but crypto FOMO is finding new footing in a phenomenon that has left many scratching their heads in disbelief.
Crypto investors are spending tens of millions of dollars on digital art that only exists in the ether.
From humble beginnings as a fringe hobby, the use of non-fungible tokens (NFTs) has become mainstream — as seen in the acquisition of an image collage by digital artist Beeple for $69.3m.
What exactly is an NFT?
NFTs are digital files underpinned by blockchain technology- the same technology on which popular cryptocurrencies like Bitcoin and Ethereum rest. But unlike cryptocurrencies, an NFT is totally unique and the blockchain ledger it sits on verifies who the rightful owner is of that one-of-a-kind item.
So what’s the connection with art?
Digital artwork is marketable as a unique collectible when turned into an NFT. Cryptocurrencies like Ethereum are generally required to enter an NFT transaction, and its public ledger shows a record of both ownership and authenticity.
Artists, influencers and musicians have begun making a fortune by vending NFT versions of digital art, with investors lining up to get their piece of the pie.
Are NFTs only for artworks?
No. Pretty much any digital collectible can be turned into an NFT – from online trading cards, GIFs and sports memorabilia to video-game wearables and virtual land in fantasy worlds. Twitter co-founder and CEO Jack Dorsey’s first tweet was turned into an NFT and sold at auction this week for $2.9m.
Why are rich people shelling out millions for NFTs?
Many of those buying NFTs are crypto millionaires hoping to diversify their holdings.
Where are NFTs being sold?
You can find your pick of the litter in digital marketplaces like OpenSea, Rarible and Mintable. NBA Top Shot sells pro basketball “moments” and Valuables offers tweets for sale.
How do I buy an NFT?
First, you’ll need to figure out which cryptocurrency is required, obtain said crypto and then set up a digital wallet for the transaction. Watch out for pesky fees along the way for converting currency and paying for “gas” energy on the Ethereum network.
Can anyone make an NFT?
Well, there are plenty of steps involved. But if you’re motivated and want to try out your crypto skills, as long as you’re connected to the internet and understand the basics of going from a cryptocurrency exchange through the digital wallet and online marketplace, then you should be fine. CoinDesk put out this handy guide if you want more details.
Is this just a fad?
If you’re asking why anyone would pay over $1,000 for a virtual Christmas sweater with the Bitcoin logo all over it, perhaps you’re not in the right place. But it is entirely possible that the whole NFT obsession may prove a fad – or not. Many of the first NFTs were in the style of CryptoPunks, pipe-smoking digital beings that date back to 2017, and CryptoKitties, cute virtual felines that started the same year.
Will the value of NFTs continue going up?
Total NFT sales in 2020 were worth about $250m, while the past month alone saw sales exceed $220m, according to NonFungible.com. All-time sales are about $534m, with the average price of one NFT at $97. But the market is volatile and only advisable for those prepared to lose their principal.
How about the companies in the NFT space?
Venture capitalists and tech titans are also continuing to pump money into NFT startups, with $90m being spent on such companies thus far in 2021. Last year, $35m was invested in these firms. The largest haul yet this year is $48m of venture capital pooled by Sorare, a blockchain-based fantasy football game. Blockchain company Dapper Labs, which is the NBA’s partner for Top Shot, is reportedly looking for a $250m cash injection.