The term NFT has received a lot of attention in recent weeks. We take a look at what NFTs actually is and why everyone is suddenly talking about them.
Sports, gaming, cryptocurrencies, and even art: the term “NFT” suddenly pops up everywhere. Some call the hype around it “hysterical,” while others see it as the future of finance. But what is an NFT, and why does everyone seem to be talking about it at the moment?
An NFT is unique
NFT stands for Non-fungible Token. Translated, this means something like: non-replaceable certificate.
If something is “fungible,” it can be exchanged or replaced with something that has the same value. Goods that are “fungible” can be cash, gold, bitcoins, or even airline miles. In all cases, these things can be exchanged with an equivalent.
For example, if you have a ten-euro bill and someone gives you two five-euro bills in exchange, you accept the exchange. Because even if the five-euro bills look different, they have the same value.
Non-fungible means that a certain good is not simply exchangeable. It has certain properties that make it unique.
These can be physical objects, such as a painting, concert tickets, or a car. But they can also be virtual things, such as a trademark, digital tokens, or even digital works of art.
Take concert tickets, for example. These allow you entry to the performance of a particular band on a specific day. You can’t just go to the concert a day later with the tickets, nor can you see any other band.
NFTs work the same way. No two NFTs are the same. The information contained in the NFT is both verifiable and unique. Therefore, the original issuer can always be traced, which makes counterfeiting extremely difficult, unlike with physical items of value.
NFTs cannot, therefore, be exchanged directly. They are also neither destructible nor divisible into smaller units.
NFT and blockchain
NFTs are therefore called non-fungible tokens because the “token” in that case refers to the tokens known from the field of cryptocurrencies. In the context of non-fungible tokens, “token” refers to a digital certificate stored on a secure digital platform — the blockchain.
Thus, in summary, NFTs are digital assets, publicly verifiable intellectual property secured via blockchain. Platforms like Ethereum have established their own NFT ecosystem based on their blockchain. Other blockchains are slowly following suit.
You can find and purchase numerous NFTs on the Open Sea platform. Examples of NFTs are virtual properties, purchasable virtual items for online computer games, digital collectibles, and digital sneakers or cars.
Interested parties acquire NFTs via cryptocurrencies. Mostly, this is Ether, the cryptocurrency of the blockchain platform Ethereum.
Why are NFTs important?
NFTs have enabled an entirely new form of online commerce and revolutionized the digital art, collectibles, and gaming worlds.
The website Nonfungible.com is the largest data collector in the NFTs space. According to its latest annual report, NFT market capitalization was over $380 million in 2020. The year before, it was just under $141 million.
The value of NFTs
The value of an NFT is determined by supply and demand. Collector value and rarity value play a role. NFTs are rare, and users are apparently willing to pay a lot of money for them.
This means that NFT owners can actually earn money with them.
In the virtual game “Decentraland,” for example, a gamer bought 64 different land plots and then combined them to create a large estate. It is now called “The Secrets of Satoshi’s Tea Garden” and ended up selling for $80,000 because of its attractive location.
The most expensive NFTs
Currently, the most expensive NFTs include:
- A virtual property from the game Axie Infinity (US$1.5 million).
- CryptoPunk #6965 is currently worth the Ether equivalent of US$1.2 million.
- The Cryptokitty “Dragon” is currently worth around US$917,000.
The Hashmask #9939 named “Sex” sold for $844,216 on February 3, 2021.
- The 1–1–1 race car is currently worth around US$635,000.
- Someone for $590,000 bought the Nyan Cat meme.
- Digital NBA trading cards of top basketball player LeBron James sold for the equivalent of 100,000 US dollars.
Disclaimer: The market is moving so rapidly right now that by the time you read this, the list will probably be outdated.
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