There’s no getting around it: NFTs are everywhere. But what exactly are they and how does selling them work? Five questions and answers.
1. What is an NFT?
NFT stands for non-fungible token, or a non-replaceable token. These NFTs are digital files that are linked to a digital ‘something’, such as an image, video, or tweet. The NFT states who owns this image, video, or tweet.
In terms of technology, the tokens are comparable to bitcoin. Simply put, the NFTs are stored all over the world and anyone can see how they are traded and who owns the token.
2. How does the sale of NFTs work?
NFTs are often sold by auction houses. After the sale, the ownership of an NFT is recorded in the blockchain, the same technology used for cryptocurrencies as bitcoin. Blockchain is a large online registry with complicated encryption techniques.
When purchasing an NFT, a note is made on a blockchain of who the new owner is. Because such a blockchain is stored on thousands of servers around the world, the information is preserved.
3. How is the value of an NFT determined?
People have always attached value to physical goods. For example, some people are willing to spend hundreds of thousands of dollars on a watch. Digital objects did not have the same value because they were never unique. After all, they could easily be copied.
Of course, objectively, a digital image of a cat is still not worth hundreds of thousands of dollars. Yet the image of a flying cat with a recognizable melody, also known as Nyan Cat, sold for almost 500,000 euros.
The value of an NFT is determined by, among other things, the following criteria:
- Authenticity: the authenticity of the NFT.
- Scarcity: There is only one of some NFTs.
- Popularity: Well-known NFTs sell for more money.
- Usefulness: Some NFTs have functional purposes.
4. But can I just take a screenshot of the artwork?
This isn’t a silly question, but that’s not how it works. By taking a screenshot, you are not the rightful owner of the artwork. You can save an image of the Mona Lisa to your phone, but you cannot sell it to an art dealer. It is not a real painting.
When you purchase an NFT, you become the rightful owner of it. Similar to selling cryptocurrencies, the owner can sell an NFT. Legally speaking, you are not automatically the owner of the image, video, or tweet, unless this is explicitly agreed.
5. When did the NFT hype start?
What is striking about NFTs is that they have been around since mid-2017, but have only become more popular since early 2021. This is probably due in large part to the huge sums involved in some NFTs at the time. But now more artists and performers have embraced the tokens.
6. What about the criticism?
There are also many opponents of NFTs. For example, transactions would require a considerable amount of computing power from computers and would therefore be quite polluting. Digiconomist calculated, for example, that 110 kilograms of CO2 are emitted in one transaction.
In addition, it is questionable whether all people with an NFT are actually entitled to it. People can also create tokens from the work of others and benefit from them by charging money for them.