There’s nothing like an explosion of blockchain news to leave you thinking, “Um… what’s going on here?” That’s the feeling I’ve experienced while reading about Grimes getting millions of dollars for NFTs or about Nyan Cat being sold as one. And by the time we all thought we sort of knew what the deal was, the founder of Twitter put an autographed tweetup for sale as an NFT. Now, months after we first published this explainer, we’re still seeing headlines about people paying house money for clip art of rocks — and my mom still doesn’t understand what an NFT is.
You might be wondering: what is an NFT, anyhow?
After literal hours of reading, I think I know. I also think I’m going to cry.
Okay, let’s start with the basics:
WHAT IS AN NFT? WHAT DOES NFT STAND FOR?
Non-fungible token.
That doesn’t make it any clearer.
Right, sorry. “Non-fungible” more or less means that it’s unique and can’t be replaced with something else. For example, a bitcoin is fungible — trade one for another bitcoin, and you’ll have the same thing. A one-of-a-kind trading card, however, is non-fungible. If you traded it for a different card, you’d have something completely different. You gave up a Squirtle, and got a 1909 T206 Honus Wagner, which StadiumTalk calls “the Mona Lisa of baseball cards.” (I’ll take their word for it.)
How do NFTs work?
At a very high level, most NFTs are part of the Ethereum blockchain. Ethereum is a cryptocurrency, like bitcoin or dogecoin, but its blockchain also supports these NFTs, which store extra information that makes them work differently from, say, an ETH coin. It is worth noting that other blockchains can implement their versions of NFTs. (Some already have.)
What’s worth picking up at the NFT supermarket?
NFTs can be anything digital (such as drawings, music, your brain downloaded and turned into an AI), but a lot of the current excitement is around using the tech to sell digital art.
Dogecoin isn’t an NFT. But this GIF of a dogecoin is. GIF: NyanCat on OpenSea
You mean, like, people buying my good tweets?
I don’t think anyone can stop you, but that’s not really what I meant. A lot of the conversation is about NFTs as an evolution of fine art collecting, only with digital art.
(Side note, when coming up with the line “buying my good tweets,” we were trying to think of something so silly that it wouldn’t be a real thing. So of course, the founder of Twitter sold one for just under $3 million shortly after we posted the article.)
Do people think this will become like art collecting?
I’m sure some people hope so — like whoever paid almost $390,000 for a 50-second video by Grimes or the person who paid $6.6 million for a video by Beeple. One of Beeple’s pieces was auctioned at Christie’s, the famous—
Yoink! Image: Beeple
Sorry, I was busy right-clicking on that Beeple video and downloading the same file the person paid millions of dollars for.
Wow, rude. But yeah, that’s where it gets a bit awkward. You can copy a digital file as many times as you want, including the art that’s included with an NFT.
But NFTs are designed to give you something that can’t be copied: ownership of the work (though the artist can still retain the copyright and reproduction rights, just like with physical artwork). To put it in terms of physical art collecting: anyone can buy a Monet print. But only one person can own the original.
No shade to Beeple, but the video isn’t a Monet.
What do you think of the $3,600 Gucci Ghost? Also, you didn’t let me finish earlier. That image that Beeple was auctioning off at Christie’s ended up selling for $69 million, which, by the way, is $15 million more than Monet’s painting Nymphéas sold for in 2014.
This last sold for $3,600, but the current owner is asking for $16,300. GIF by Trevor Andrew
Whoever got that Monet can appreciate it as a physical object. With digital art, a copy is as good as the original.
But the flex of owning an original Beeple…
I think I remember hearing that NFTs are already over. Didn’t the boom go bust?
But surely you’ve heard of penguin communities?
P…Penguin communities?
Right, so… people have long built communities based on things they own, and now it’s happening with NFTs. One community that’s been exceedingly popular revolves around a collection of NFTs called Pudgy Penguins, but it’s not the only community built up around the tokens. It could be argued that one of the earliest NFT projects, CryptoPunks, has a community around it, and there are other animal-themed projects like the Bored Ape Yacht Club that have their clique.
Of course, the communal activities depend on the community. For Pudgy Penguin or Bored Ape owners, it seems to involve vibing and sharing memes on Discord, or complimenting each other on their Pudgy Penguin Twitter avatars.
What’s the point of NFTs?
That depends on whether you’re an artist or a buyer.
I’m an artist.
First off: I’m proud of you. Way to go. You might be interested in NFTs because it gives you a way to sell work that there otherwise might not be much of a market for. If you come up with a cool digital sticker idea, what are you going to do? Sell it on the iMessage App Store? No way.
Also, NFTs have a feature that you can enable that will pay you a percentage every time the NFT is sold or changes hands, making sure that if your work gets super popular and balloons in value, you’ll see some of that benefit.
I’m a buyer.
One of the obvious benefits of buying art is it lets you financially support artists you like, and that’s true with NFTs (which are way trendier than, like, Telegram stickers). Buying an NFT also usually gets you some basic usage rights, like being able to post the image online or set it as your profile picture. Plus, of course, there are bragging rights that you own the art, with a blockchain entry to back it up.
No, I meant I’m a collector.
Ah, okay, yes. NFTs can work like any other speculative asset, where you buy it and hope that the value of it goes up one day, so you can sell it for a profit. I feel kind of dirty for talking about that, though.
So every NFT is unique?
In the boring, technical sense every NFT is a unique token on the blockchain. But while it could be like a van Gogh, where there’s only one definitive actual version, it could also be like a trading card, where there are 50 or hundreds of numbered copies of the same artwork.
Who would pay hundreds of thousands of dollars for what amounts to a trading card?
Well, that’s part of what makes NFTs so messy. Some people treat them like they’re the future of fine art collecting (read: as a playground for the mega-rich), and some people treat them like Pokémon cards (where they’re accessible to normal people but also a playground for the mega-rich). Speaking of Pokémon cards, Logan Paul just sold some NFTs relating to a million-dollar box of the—
Please stop. I hate where this is going.
You’ve activated my trap card (which sold for $17,000). Image by Logan Paul
Yeah, he sold NFT video clips, which are just clips from a video you can watch on YouTube anytime you want, for up to $20,000. He also sold NFTs of a Logan Paul Pokémon card.
Who paid $20,000 for a video clip of Logan Paul?!
A fool and their money are soon parted, I guess?
It would be hilarious if Logan Paul decided to sell 50 more NFTs of the same video.
Linkin Park’s Mike Shinoda (who also sold some NFTs that included a song) talked about that. It’s a thing someone could do if they were, in his words, “an opportunist crooked jerk.” I’m not saying that Logan Paul is that, just that you should be careful who you buy from.
Is NFTs mainstream now?
It depends on what you mean. If you’re asking if, say, my mom owns one, the answer is no.
The response from my mom when I asked her about owning NFTs.
But we have seen big brands and celebrities like Marvel and Wayne Gretzky launch their own NFTs, which seem to be aimed at more traditional collectors, rather than crypto-enthusiasts. While I don’t think I’d call NFTs “mainstream” in the way that smartphones are mainstream, or Star Wars is mainstream, they do seem to have, at least to some extent, shown some staying power even outside of the cryptosphere.
But what does The Youth think of them?
Ah yes, excellent question. We here at The Verge have an interest in what the next generation is doing, and it certainly does seem like some of them have been experimenting with NFTs. An 18-year-old who goes by the name FEWOCiOUS says that his NFT drops have netted over $17 million — through obviously most haven’t had the same success. The New York Times talked to a few teens in the NFC space, and some said they used NFTs as a way to get used to working on a project with a team or to just earn some spending money.
Can I buy this article as an NFT?
No, but technically anything digital could be sold as an NFT (including articles from Quartz and The New York Times, provided you have anywhere from $1,800 to $560,000). deadmau5 has sold digitally animated stickers. William Shatner has sold Shatner-themed trading cards (one of which was an X-ray of his teeth).
This one I like. Maybe not for $700, but… Image by deadmau5 and Mad Dog Jones
Gross. Actually, could I buy someone’s teeth as an NFT?
There have been some attempts at connecting NFTs to real-world objects, often as a sort of verification method. Nike has patented a method to verify sneakers’ authenticity using an NFT system, which it calls CryptoKicks. But so far, I haven’t found any teeth, no. I’m scared to look.
Look? Where?
Several marketplaces have popped up around NFTs, which allow people to buy and sell. These include OpenSea, Raible, and Grimes’ choice, Nifty Gateway, but there are plenty of others.
I’ve heard there were kittens involved. Tell me about the kittens.
NFTs became technically possible when the Ethereum blockchain added support for them as part of a new standard. Of course, one of the first uses was a game called CryptoKitties that allowed users to trade and sell virtual kittens. Thank you, internet.
I love kittens.
Not as much as the person who paid over $170,000 for one.
My face when I’m worth $170K. Image: Cryptokitties.co
Arrrrrggggg!
Same. But in my opinion, the kittens show that one of the most interesting aspects of NFTs (for those of us not looking to create a digital dragon’s lair of art) is how they can be used in games. There are already games that let you have NFTs as items. One even sells virtual plots of land as NFTs. There could be opportunities for players to buy a unique in-game gun or helmet or whatever as an NFT, which would be a flex that most people could appreciate.
At least it’s not digital pet rocks… right?
Some people are spending tens or hundreds of thousands of dollars on NFT pet rocks (the website for which says that the rocks serve no purpose other than being tradable and limited).
Can I cry on your shoulder?
Only if I can cry on yours.
Could I pull off a museum heist to steal NFTs?
This image is not an NFT. Yet. Image: Wallace and Gromit: The Wrong Trousers
That depends. Part of the allure of blockchain is that it stores a record of each time a transaction takes place, making it harder to steal and flip than, say, a painting hanging in a museum. That said, cryptocurrencies have been stolen before, so it really would depend on how the NFT is being stored and how much work a potential victim would be willing to put in to get their stuff back.
Note: Please don’t steal.
Should I be worried about digital art being around in 500 years?
Probably. Bit rot is a real thing: image quality deteriorates, file formats can’t be opened anymore, websites go down, and people forget the password to their wallets. But physical art in museums is also shockingly fragile.
I want to maximize my blockchain use. Can I buy NFTs with cryptocurrencies?
Yes. Probably. A lot of the marketplaces accept Ethereum. But technically, anyone can sell an NFT, and they could ask for whatever currency they want.
Will trading my Logan Paul NFTs contribute to global warming and melt Greenland?
It’s something to look out for. Since NFTs use the same blockchain technology as some energy-hungry cryptocurrencies, they also end up using a lot of electricity. People are working on mitigating this issue, but so far, most NFTs are still tied to cryptocurrencies that generate a lot of greenhouse gas emissions. There have been a few cases where artists have decided to not sell NFTs or to cancel future drops after hearing about the effects they could have on climate change. Thankfully, one of my colleagues has dug into it, so you can read this piece to get a fuller picture.
Can I build an underground art cave/bunker to store my NFTs?
Well, like cryptocurrencies, NFTs are stored in digital wallets (though it is worth noting that the wallet does specifically have to be NFT-compatible). You could always put the wallet on a computer in an underground bunker, though.
What if I wanted to watch a TV show that’s somehow related to NFTs?
Believe it or not, you have options! Steve Aoki is working on a show based on a character from a previous NFT drop, called Dominion X. The show’s site says that it’ll be an episodic series launched on the blockchain (the first short video is on OpenSea), and there are hundreds of NFTs already associated with the show.
There’s also a show called Stoner Cats (yes, it’s about cats that get high, and yes it stars Mila Kunis, Chris Rock, and Jane Fonda), which uses NFTs as a sort of ticket system. Currently, there’s only one episode available, but a Stoner Cat NFT (which, of course, is called a TOKEn) is required to watch it.
Are you tired of typing “NFT”?
Yes.
Update March 5th, 8:07PM ET: Added the news that Jack Dorsey was selling one of his tweets as an NFT because I originally made a joke and cannot believe it actually happened.
Update March 11th, 1:42PM ET: Added the news that Beeple’s piece sold for $69 million and added more information to the climate change section.
Update March 15th, 1:30PM ET: Added a link to our piece on the environmental impact of NFTs and updated some of the language to reflect some recent research. Also added a poem.
Update March 25th, 3:20PM ET: Added note about Quartz and the NYT selling articles as NFTs because once again it’s something that I made a joke about and then actually happened. Also updated the part about Jack Dorsey selling his tweet with the final price.
Update August 18th, 9:20PM ET: Added new questions and answers that have cropped up over the course of 2021, like “are NFTs dead,” “are there NFT-based TV shows,” and “are there clipart images of rocks being sold as NFTs?”
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Did you find this article comprehensive? If it wasn’t here is another article that has explained NFTs in detail.
Non-fungible tokens (NFTs) seem to be everywhere these days. From art and music to tacos and toilet paper, these digital assets are selling like 17th-century exotic Dutch tulips—some for millions of dollars.
But are NFTs worth the money—or the hype? Some experts say they’re a bubble poised to pop, like the dot-com craze or Beanie Babies. Others believe NFTs are here to stay, and that they will change investing forever.
What Is an NFT?
An NFT is a digital asset that represents real-world objects like art, music, in-game items, and videos. They are bought and sold online, frequently with cryptocurrency, and they are generally encoded with the same underlying software as many cryptos.
Although they’ve been around since 2014, NFTs are gaining notoriety now because they are becoming an increasingly popular way to buy and sell digital artwork. The market for NFTs was worth a staggering $41 billion in 2021 alone, an amount that is approaching the total value of the entire global fine art market.
NFTs are also generally one of a kind, or at least one of a very limited run, and have unique identifying codes. “Essentially, NFTs create digital scarcity,” says Arry Yu, chair of the Washington Technology Industry Association Cascadia Blockchain Council and managing director of Yellow Umbrella Ventures.
This stands in stark contrast to most digital creations, which are almost always infinite in supply. Hypothetically, cutting off the supply should raise the value of a given asset, assuming it’s in demand.
But many NFTs, at least in these early days, have been digital creations that already exist in some form elsewhere, like iconic video clips from NBA games or securitized versions of digital art that are already floating around on Instagram.
Famous digital artist Mike Winklemann, better known as “Beeple,” crafted a composite of 5,000 daily drawings to create perhaps the most famous NFT of 2021, “EVERYDAY: The First 5000 Days,” which sold at Christie’s for a record-breaking $69.3 million.
Anyone can view the individual images—or even the entire collage of images online for free. So why are people willing to spend millions on something they could easily screenshot or download?
Because an NFT allows the buyer to own the original item. Not only that, it contains built-in authentication, which serves as proof of ownership. Collectors value those “digital bragging rights” almost more than the item itself.
How Is an NFT Different from Cryptocurrency?
NFT stands for non-fungible token. It’s generally built using the same kind of programming as cryptocurrency, like Bitcoin or Ethereum, but that’s where the similarity ends.
Physical money and cryptocurrencies are “fungible,” meaning they can be traded or exchanged for one another. They’re also equal in value—one dollar is always worth another dollar; one Bitcoin is always equal to another Bitcoin. Crypto’s fungibility makes it a trusted means of conducting transactions on the blockchain.
NFTs are different. Each has a digital signature that makes it impossible for NFTs to be exchanged for or equal to one another (hence, non-fungible). One NBA Top Shot clip, for example, is not equal to EVERYDAYS simply because they’re both NFTs. (One NBA Top Shot clip isn’t even necessarily equal to another NBA Top Shot clip, for that matter.)
How Does an NFT Work?
NFTs exist on a blockchain, which is a distributed public ledger that records transactions. You’re probably most familiar with blockchain as the underlying process that makes cryptocurrencies possible.
Specifically, NFTs are typically held on the Ethereum blockchain, although other blockchains support them as well.
An NFT is created, or “minted” from digital objects that represent both tangible and intangible items, including:
- Grafic art
- GIFs
- Videos and sports highlights
- Collectibles
- Virtual avatars and video game skins
- Designer sneakers
- Music
Even tweets count. Twitter co-founder Jack Dorsey sold his first-ever tweet as an NFT for more than $2.9 million.
Essentially, NFTs are like physical collector’s items, only digital. So instead of getting an actual oil painting to hang on the wall, the buyer gets a digital file instead.
They also get exclusive ownership rights. NFTs can have only one owner at a time, and their use of blockchain technology makes it easy to verify ownership and transfer tokens between owners. The creator can also store specific information in an NFT’s metadata. For instance, artists can sign their artwork by including their signature in the file.
What Are NFTs Used For?
Blockchain technology and NFTs afford artists and content creators a unique opportunity to monetize their wares. For example, artists no longer have to rely on galleries or auction houses to sell their art. Instead, the artist can sell it directly to the consumer as an NFT, which also lets them keep more of the profits. In addition, artists can program in royalties so they’ll receive a percentage of sales whenever their art is sold to a new owner. This is an attractive feature as artists generally do not receive future proceeds after their art is first sold.
Art isn’t the only way to make money with NFTs. Brands like Charmin and Taco Bell have auctioned off themed NFT art to raise funds for charity. Charmin dubbed its offering “NFTP” (non-fungible toilet paper), and Taco Bell’s NFT art sold out in minutes, with the highest bids coming in at 1.5 wrapped ether (WETH)—equal to $3,723.83 at the time of writing.
Nyan Cat, a 2011-era GIF of a cat with a pop-tart body, sold for nearly $600,000 in February. And NBA Top Shot generated more than $500 million in sales as of late March. A single LeBron James highlight NFT fetched more than $200,000.
Even celebrities like Snoop Dogg and Lindsay Lohan are jumping on the NFT bandwagon, releasing unique memories, artwork, and moments as securitized NFTs.
How to Buy NFTs
If you’re keen to start your NFT collection, you’ll need to acquire some key items:
First, you’ll need to get a digital wallet that allows you to store NFTs and cryptocurrencies. You’ll likely need to purchase some cryptocurrency, like Ether, depending on what currencies your NFT provider accepts. You can buy crypto using a credit card on platforms like Coinbase, Kraken, eToro, and even PayPal and Robinhood now. You’ll then be able to move it from the exchange to your wallet of choice.
You’ll want to keep fees in mind as you research options. Most exchanges charge at least a percentage of your transaction when you buy crypto.
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Popular NFT Marketplaces
Once you’ve got your wallet set up and funded, there’s no shortage of NFT sites to shop. Currently, the largest NFT marketplaces are:
• OpenSea.io: This peer-to-peer platform bills itself a purveyor of “rare digital items and collectibles.” To get started, all you need to do is create an account to browse NFT collections. You can also sort pieces by sales volume to discover new artists.
• Rarible: Similar to OpenSea, Rarible is a democratic, open marketplace that allows artists and creators to issue and sell NFTs. RARI tokens issued on the platform enable holders to weigh in on features like fees and community rules.
• Foundation: Here, artists must receive “upvotes” or an invitation from fellow creators to post their art. The community’s exclusivity and cost of entry—artists must also purchase “gas” to mint NFTs—means it may boast higher-caliber artwork. For instance, Nyan Cat creator Chris Torres sold the NFT on the Foundation platform. It may also mean higher prices — not necessarily a bad thing for artists and collectors seeking to capitalize, assuming the demand for NFTs remains at current levels, or even increases over time.
Although these platforms and others are hosts to thousands of NFT creators and collectors, be sure you do your research carefully before buying. Some artists have fallen victim to impersonators who have listed and sold their work without their permission.
In addition, the verification processes for creators and NFT listings aren’t consistent across platforms — some are more stringent than others. OpenSea and Rarible, for example, do not require owner verification for NFT listings. Buyer protections appear to be sparse at best, so when shopping for NFTs, it may be best to keep the old adage “caveat emptor” (let the buyer beware) in mind.
Should You Buy NFTs?
Just because you can buy NFTs, does that mean you should? It depends, Yu says.
“NFTs are risky because their future is uncertain, and we don’t yet have a lot of history to judge their performance,” she notes. “Since NFTs are so new, it may be worth investing small amounts to try it out for now.”
In other words, investing in NFTs is a largely personal decision. If you have money to spare, it may be worth considering, especially if a piece holds meaning for you.
But keep in mind, an NFT’s value is based entirely on what someone else is willing to pay for it. Therefore, demand will drive the price rather than fundamental, technical, or economic indicators, which typically influence stock prices and at least generally form the basis for investor demand.
All this means, an NFT may resale for less than you paid for it. Or you may not be able to resell it at all if no one wants it.
NFTs are also subject to capital gains taxes—just like when you sell stocks at a profit. Since they’re considered collectibles, however, they may not receive the preferential long-term capital gains rates stocks do and may even be taxed at a higher collectibles tax rate, though the IRS has not yet ruled what NFTs are considered for tax purposes. Bear in mind, that the cryptocurrencies used to purchase the NFT may also be taxed if they’ve increased in value since you bought them, meaning you may want to check in with a tax professional when considering adding NFTs to your portfolio.
That said, approach NFTs just like you would any investment: Do your research, understand the risks—including that you might lose all of your investing dollars—and if you decide to take the plunge, proceed with a healthy dose of caution.
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