What is an NFT?

NFT hype has peaked. Monthly sales on the top platform for buying and selling NFTs, OpenSeas, reached US$3.4 billion in August, an all-time high according to data from Dune Analytics. But what exactly is an NFT? We’re going into it below. 

The easiest way to think about non-fungible tokens (NFTs) is owning an original copy of something - a unique digital token (a token is another name for a digital receipt) verified by the owner. It could be an album, an artwork or a meme - even when you see thousands of copies of it out there, you'll know you have an original. NFTs are particularly popular within digital art. 

How does it work and function? 

This is where the cryptocurrency Ethereum (a cryptocurrency like Bitcoin) comes in. Most NFTs are part of the Ethereum blockchain (a blockchain is a distributed record of all transactions of a particular cryptocurrency), which supports these NFTs. Hypothetically speaking, if you were wanting to purchase a specific NFT, and that NFT is on the Ethereum network (which most are), you would need to use Ethereum to purchase it. 

Can’t I just right-click on the video or image and download it?

Yep, you sure can. But you can’t say you own the original. The selling point of an NFTs is that the artwork (or whatever product you purchase) appreciates in value and that you can sell it later for much more than you bought it – kind of like physical art. You have to remember the type of people to buy NFTs are generally not in a rush to sell – they want to keep the collector’s items. 

Why are artists selling NFTs? 

NFTs are made in a process called ‘minting’, which essentially means a record is created and stored on the blockchain. This ‘record’ is the NFT and because it’s on a blockchain it cannot be edited, changed or altered. So there are no third parties, and the artist and the buyer exchange funds directly. Artists like this because they can capitalise on healthier margins.