The Hype Around NFTs: What Are They? And How Pricey Do They Get?
If you’re still struggling to wrap your head around cryptocurrency like Bitcoin, strap in — it’s about to get worse. There’s a brand new kind of digital money-not-money that’s trending and a brand new acronym to remember: NFT.
NFT stands for “non-fungible tokens.” If that did nothing for you except make you think of mushrooms, you are not alone. NFTs are widely misunderstood or, more commonly, not understood at all — and for good reason. They’re new, they’re unfamiliar and they’re barely on the fringes of the mainstream. With celebrities like Mark Cuban making headlines as NFT investors, however, the general public is starting to catch up to the early adopters. Here’s what you need to know.
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When it comes to goods and services, “fungible” is a synonym for “interchangeable.” Commodities like gold and oil are fungible, as are currency, stock market shares and bonds. If two people each have a $20 bill — or a barrel of oil, an ounce of gold or a share of Amazon stock — and they trade, neither party gains or loses anything. If the same two people trade cars, diamonds or Fabergé eggs, on the other hand, it will never be an even transaction. That’s because each individual diamond, car and Fabergé egg is unique and has its own individual value based on variables like quality and condition. In short:
- Fungible items can be directly exchanged without anything being gained or lost
- Non-fungible items cannot
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NFTs Are Snowflakes
Cryptocurrency like Bitcoin is a medium of exchange, just like regular money. Unlike regular money, cryptocurrency is created, distributed and verified via decentralized blockchain without a middleman like a bank or government — but it’s still fungible. Both in the physical and digital spaces, one Bitcoin is the same as the next, just like a dollar.
NFTs are similar to cryptocurrencies in that they’re generated, distributed and verified via blockchain without a bank or other centralized authority. Unlike Bitcoin, however, non-fungible tokens are — as the name implies — non-fungible. Each individual NFT has its own unique value. Each appreciates in value at a different rate, and no two in the world can be swapped for an even trade.
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NFTs are digital assets just like Bitcoin, but unlike Bitcoin, each NFT is unique — and that’s the whole point. NFTs were created to be distinctive because they’re digital representations of other things that are unique, like:
- Music albums
The purpose of NFTs is to denote the value of things while also protecting their unique, individual authenticity — something that’s not possible with a fungible asset like money or Bitcoin. Before NFTs, these kinds of digital files had essentially no value.
For example, if an artist draws a picture and posts it online and 10,000 people download it, then 10,001 people have it, but nobody owns it. If that same artist “mints” the drawing on a blockchain and turns it into an NFT, the drawing is now verified as original to that artist. No matter how many times it’s downloaded or duplicated, the picture’s authenticity — and the artist’s ownership — is easily verifiable on a publicly accessible blockchain record and stored safely in the artist’s digital wallet.
In the End, NFTs Are All About Security, Protection and Credibility
NFTs allow everyone involved to have their cake and eat it, too. With an NFT, the artist from the example still gets to upload and show off the picture. Then, 10,000 people who like the picture can still right-click and download it for free. So, just as before, 10,001 people have the picture, but now, the artist owns it and the 10,000 free downloads are just great publicity.
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The same holds true for avatars, memes, images and just about anything else. NFTs provide a universal system of verification and valuation, which allows people like Mark Cuban to safely and securely buy, sell, auction, trade and invest in NFTs just like they would physical art, memorabilia, collectibles and other things that hold unique, non-fungible value.
In short, NFTs are digital tokens that represent the unique value of all kinds of items, both intangible and tangible, while providing verifiable authenticity of ownership and creation. Bitcoins and dollars, on the other hand, can only buy stuff and sell stuff.
A Few Crazy Expensive NFTs Broke Records
The following are among the most expensive NFTs of all time. You’ll see that some of these have their value measured in ether (ETH), which is a type of cryptocurrency based on the Ethereum, a community blockchain used in NFT transactions. Purchases were made based on a conversion rate of $2,010 per ETH for most of these.
Hashmask #9939: On Feb. 3, 2021, Hashmask #9939 sold for 420 ETH worth $844,216.
CryptoPunk #6487: On Feb. 21, 2021, CryptoPunk #6487 sold for 550 ETH worth $1,105,500.
CryptoPunk #2890: On Jan. 24, 2021, CryptoPunk #2890 sold for 605 ETH worth $1,216,074.
CryptoPunk #4156: On Feb. 18, 2021, CryptoPunk #4156 sold for 650 ETH worth $1,306,526.
CryptoPunk #6965: On Feb. 21, 2021, CryptoPunk #6965 sold for 800 ETH worth $1,608,032.
Twitter CEO Jack Dorsey’s first tweet: On March 22, 2021, his first tweet sold for 1,630.58 ether. That was equivalent to about $2.9 million based on ether’s price at the time of sale.
Beeple, Everydays–The First 5000 Days: Sold in March 2021 through Christie’s for $69 million.
This article is part of GOBankingRates’ ‘Economy Explained’ series to help readers navigate the complexities of our financial system.
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