Let’s get fungible: Breaking down NFTs, where they’re sold, and why they’re exploding in popularity

You’ve probably seen NFTs in news headlines, as pieces of digital art being sold for what seem like outlandish sums. Trading on the blockchain, it’s the latest craze for those in the tech space, creating what looks like a speculative asset bubble.

As records are broken on a daily basis in the NFT marketplace, it’s feeling a bit like the early Bitcoin hype, as fear-of-missing-out drives big booms.

But after seeing the rise, bust, and subsequent rise of Bitcoin, investors are taking blockchain-based collectibles a little more seriously.

This cheat sheet breaks down NFTs for you so that you can see if there’s an opportunity for your business.

It explains what they are, how they work, where to sell and buy them, and why they’re suddenly popular.

What is an NFT?

The acronym NFT stands for ‘non-fungible token’. ‘Fungible’ items are exchangeable for equal items of the same value, like money. Non-fungible tokens, by definition, cannot be exchanged for the same item, or replicated.

But what is it, actually?

It’s a digital file that is typically hosted on the Ether blockchain platform, or an encrypted one-of-a-kind ticket that takes you to where your item is hosted on the internet, while recording you in a digital ledger as the owner of the file.

NFTs are generally bought using Ether, a cryptocurrency, through marketplaces that both mint and sell NFTs using the Ethereum blockchain.

Why sell a token of an item?

NFTs are essentially proof-of-ownership for a digital item that guarantees (using encryption technology) you are the legitimate owner of that item.

It turns something endlessly copyable (digital files), into something with a proven provenance.

While the digital goods themselves can still be saved or copied and pasted forever, only one person is recognised as the owner through the token.

How does it work?

NFTs work by relying on blockchain technology — a distributed series of digital ledgers that is constantly updated so everyone’s version of the ledger is identical.

You ‘mint’ the NFT by creating a unique identifying token for it on the chain, which you can then sell on marketplaces like OpenSea and Rarible.

Is there money to be made?

Yes, loads. Aside from music artist Grimes making US$6 million or digital artist Beeple (Mike Winkelmann) making the headline grabbing US$69 million sale at Christies, SMEs and startups are also jumping on the bandwagon. 

Australian meme group ‘Brown Cardigan’ recently sold a collection of brown pixels for $1400.

Want to pick up an NFT from Western Sydney artist Serwah Attafuah? Bidding currently exceeds $17,000.

The New York Times sold a picture of a writer’s column for US$560,000.

Gucci ghost gif? Initially bought for US$3600, the current owner is now seeking US$16,300.

A Pringles flavour you’ll never taste? $2500.

Is it a bubble?

Beeple, the digital artist who sold his work for US$69 million, told the BBC he believes there will be a bubble, and we’re in one now.

In the long-term, the companies that are providing the back-end infrastructure for NFTs — where the files themselves are hosted — could go bust. This means that in 10-years, your ‘proof-of-ownership’ token could send you to an empty place where your item used to be.

There is one other significant issue with the technology: many platforms do not have thorough processes for vetting that the uploader of the item is its creator. This means many digital artists are finding their artwork uploaded and sold online without their permission.

Is it revolutionary?

Maybe. Two online communities have a clear and obvious use for NFTs — the fashion industry, which now has a method of producing and selling limited run, verifiable digital items; and the video game industry, which can now sell higher-value unique in-game items using the technology (like this $170,000 ‘CryptoKitty’).

 

 

 

 

 

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A post shared by RTFKT Studios (@rtfktstudios)

However, NFTs do not solve the fundamental issue of selling art online, which is that digital items are easily copied and viewed for free.

Would-be Facebook founder Cameron Winklevoss, one of the Winklevoss twins, shared this exchange with Twitter user @classiclib3ral, who argued that digital copies, unlike prints, are fundamentally the same as the original.

NFTs are originals that are built for the online world. Originals that have mathematically provable scarcity and authenticity. These originals can be seen by anyone, anywhere…unlike traditional art originals which are confined to meatspace.

— Cameron Winklevoss (@cameron) March 24, 2021

Amanda Yeo, in Mashable Australia, argues that NFTs do not actually create value, and that they’re just a drain on resources, considering the high amounts of electricity needed to maintain the ledger.

“An NFT is merely the very costly, environmentally disastrous, tech bro equivalent of peeing on a hydrant,” she writes.

Can my business sell an NFT?

Absolutely. You can sell your business’ first Facebook post, first Tweet, an image of your shopfront, a unique ‘customer for life’ login, digital merchandise, or unique commissioned work from a digital artist or in-house designer.

It’s relatively straightforward to use Rarible or OpenSea to sell your digital works as an NFT, provided you own a digital wallet for cryptocurrencies.

You simply upload your file, set your price (including a resale fee), and then pay the charge to create the NFT for your item.

Then, users can browse and purchase your item using cryptocurrencies, often Ether, which you can exchange for fiat currency through your digital wallet.

This guide walks you through the process step-by-step — all you need is a digital file, a digital wallet, and a bit of creativity.