You may have a rough idea of what an NFT is: a virtual document that conveys some ownership of a virtual good. As with their cousins, cryptocurrencies, NFTs have the potential to be quite valuable: If you bought the right NFT — say, a CryptoPunks or BoredApeYachtClub cartoon — at the right time, you could have made a fortune.
With the recent crash of the crypto market, it appears that NFTs were just a bubble gone bust. While true on some level, that doesn’t mean the tech has no utility. In fact, the role of NFTs will balloon as they expand beyond a high-stakes investment product into a tool for establishing identity, ownership, and even community.
What is an NFT, anyway?
A non-fungible token (NFT for short) is essentially a digital certificate of authenticity and ownership. It’s the same concept as a paper certificate that says, for instance, that an antique you bought is genuine or that a painting is a real Picasso and not a knockoff. NFTs can be issued for physical objects: They’ve even been used to facilitate house sales. But they are mostly used for virtual goods, including images, videos, and songs.
Most NFTs are recorded on a blockchain, or digital ledger, called Ethereum. (Ethereum runs on a very energy-intensive technology called proof-of-work, but it’s switching to a more efficient method called proof-of-stake.) There are many other blockchains that NFTs call home, such as Solana, Polygon, and Flow.
At high-end online collections like OpenSea, a single NFT can sell for hundreds of thousands of dollars. On a site like Nifty Gateway, they start at a few dozen bucks. The average price of an NFT in 2021 was $ 807.52, according to NonFungible.com.
What does buying an NFT get you? You gain some connection to, even coownership of, digital art. You don’t typically get the copyright. But you may earn special perks. (NFTs have a “smart contract” capability that allows the creators to specify the terms of the deal, such as usage rights.) For instance, Twitter has started allowing NFT owners to officially use their NFT images as profile pictures.
Of course, anyone can still copy and use a JPEG by right-clicking or taking a screen shot. But with an NFT, you’re not buying the digital bits. You’re buying recognition among fellow believers of blockchain technology. “If you can wrap your head around the fact that ownership now means ‘as reflected by the blockchain,’ now you can impart uniqueness to these digital goods that never had it before,” says Chaz Hales, an intellectual property attorney who teaches about crypto at the University of Southern California.
An NFT has value because the buyer and their community believe it has value — which is true for all art and collectibles. And as time goes by, an NFT gains more of its own character, based on factors like who’s owned it and how they’ve used it.
Are there good reasons to buy an NFT?
One high-minded reason to buy an NFT is to support artists — especially those who aren’t already rich. You become one of their patrons. Digital art is infinitely reproducible and hard to monetize. Selling an NFT of an image, video, song, or other work allows the artist to make money on a single piece or a limited-edition series. NFTs can even be configured to send a portion of every resale back to the artist, providing royalties.
mynameistru3, an artist in North Carolina who asked that Fast Company not reveal his name, saw a complete turnaround in fortune in about a year. By selling NFTs to his digital images on a low-cost blockchain called Tezos (T3), mynameistru3 says he saw art sales go from a negligible part of his annual income to almost 40% in 2021, with the possibility of reaching 80% this year . He’s sold 1,300 editions, some for several thousand dollars each.
“I’m familiar with maybe 10 other artists who’ve, in the last year, become self-sustaining on Tezos,” he says.
[[NOTE FOR ART: Artist gives permission to use any of his images. https://objkt.com/profile/mynameistru3/created]]
NFTs are also a new form of collectible — digital upgrades to items like comic books, posters, or sports trading cards. For instance, the NBA TopShots NFTs feature short digital clips of pros making baskets. You can pick one up for as little as $ 2 and trade purchases with other fans.
Jeremy Pepper, a communications consultant in LA, bought a limited-edition NFT of a digital poster by artist Shepard Fairey called Make Art Not War, which channels proceeds to humanitarian aid for Ukraine. He paid $ 3,400 and saw the value drop by about 20% in a few months. But Pepper is not concerned. He’s a big fan of Fairey — owning some of his real-world posters — and he was happy to support the Ukrainians.
“I have a bunch of different [physical] art posters I bought, not because I think they’ll go up in value, but because I like them, ”he says. “I didn’t buy it with a long-term investment strategy. That’s what I have my 401k for. ” (Full disclosure: Pepper is a friend.)
Some NFTs do provide genuine exclusivity. Director Kevin Smith’s upcoming budget horror flick Killroy Was Here will only be seen by the 5,555 people who buy the film’s limited-edition NFT. The Coachella music festival uses NFTs to sell lifetime concert tickets.
NFTs could find some of their biggest success by piggybacking on what is already the largest cultural and entertainment economy on earth: video gaming. Players already spend plenty on in-game merchandise, such as weapons, outfits, even entire characters. “There’s this robust economy that’s been going on for more than a decade,” says Hales. “There’s a nice intersection with crypto, in general, to power those transactions.” NFTs could also provide an interoperable standard for moving items between games, he says.
Can I get rich?
Like stocks, bonds, gold coins, or physical artwork, NFTs have become a place for investors to park their money — in the hope that the price will go up. There are some get-rich fantasy tales, such as CryptoPunks — a collection of 10,000 pixelated cartoon images. Originally given out for free, they soared in resale value, with the top one fetching $ 23.7 million in March.
But in the past month, the average price of all CryptoPunks dropped by 32%, as did Cool Cats, another super-expensive NFT collection. Yet, a collection called PROOF Collective doubled in value at the same time, according to crypt- tracking site IntoTheBlock. The NFT investing market is very volatile, with no indications of it settling down.
Even crashing CryptoPunks or Cool Cats is far out of reach for most people. Average investors will have to look to less-known or even unknown artists and collections where the price of entry is low, but so are the odds of getting rich.
Is it ever worth the money?
Back to the original question: Are NFTs worth the investment? If it’s to make a fortune, probably not. As with stocks, very few people get rich by picking the winners. And the meteoric boom times for NFTs may have ended — or this may be the beginning of a long roller coaster. But there are good reasons to invest in NFTs — to support artists, to access coveted virtual or real-world goods and experiences, and to get the satisfaction of buying into a cultural world you love.