What is an NFT?

Oliver Sachgau
March 26, 2021
 · 
4 minutes
 · 
Vivid Invest

You may have read about NFT’s a lot in the news lately. But what are these obscure digital tokens that are suddenly making people rich?

NFT’s, or Non-Fungible Tokens, seemingly popped up overnight, and the hype around them reached a peak when an NFT of a digital art work sold for $69 million on March 11. The artwork was a collage, part of a project that the artist known as Beeple, worked on. Over 5,000 days, he made a digital piece of art every day. The images ranged widely in style and subject matter, and he collected them into this collage. He’s still going by the way, the collage just contained the images for the first 5,000 days since he started in 2007. 


What are NFTs?


To understand NFTs, you unfortunately have to understand the blockchain. If you’re an absolute beginner to that, check out our blog post on the subject here. 

NFTs are very similar to cryptocurrencies. They both live on the blockchain, and are meant to be individual, digital instances of something, unable to be duplicated or copied. But instead of a currency, an NFT is a certificate of authenticity. That’s where the name comes in. Unlike a piece of currency, which is fungible — one bitcoin is identical and interchangeable to any other bitcoin — NFTs are unique. They’re non-fungible. 

If you’ve ever bought an expensive original piece of art — don’t worry, I haven’t either — you know that in order to prove your piece isn’t fake, it comes with some sort of certificate. These are issued by the artist, usually as a piece of paper, and have some sort of rubber stamp or something similar to verify it. 

An NFT is the same thing, but on the blockchain. It’s a purely digital certificate. The thing it certifies can be real or digital — and the latter is where things get interesting. 

Until now, it’s been hard to create a piece of digital art that can be collected like a physical one. Anything digital can be copied, and though digital rights management software has tried to prevent people from doing that, it can always be circumvented. 

An NFT doesn’t try to prevent people from copying a piece of art. Instead, it verifies that only one instance of the art is the true original. It says “this picture is the original, everything else is a copy.” Collectors who buy and sell NFTs don’t own the art in the same way they might own an original Rothko, but they can say they have the rights to the original.


Why are people getting rich off NFTs? 


This is a question that goes back to why the art world works as it does. And that’s a bigger question than we can answer in a single blog post. But simply put, in art, some things suddenly are worth millions of dollars because people decide they’re worth that much. If you scribble a few lines and squares on a piece of paper, you’ll be lucky if your mom hangs it on her fridge. When Cy Twombly does it, it sells for $38 million.

The point of NFTs isn’t that they’re suddenly more valuable than before. It’s that they’re gaining popularity. There were some attempts in 2017 to make NFTs more popular, but when Bitcoin and other cryptocurrencies crashed in December 2017, the attention moved elsewhere. Since Bitcoin and other crypto coins’ rises recently, that attention has come back, and companies like Dapper Labs have started creating NFTs for small videos of popular basketball game moments. Like trading cards, they can be as rare or common as their creators decide, and their popularity can make them more or less valuable.


Should I invest in NFTs?



Come on, you know better than to ask us for investment advice. As always, that decision is up to you. 

However, here’s what you should know before investing into an NFT.
For one, they’re not cheap to get into. You can of course create a piece of art, create an NFT for it and auction it off, hoping for millions, but you’ll run into the same problem as most of the art world — it’s very hard to make a living off art. If you want to buy a piece of art and resell it, you’ll usually already be starting at auction prices over $10,000, especially for popular pieces. 

And keep in mind that when something is hyped up, like NFTs are at the moment, there’s a chance that hype will die down and people won’t be willing to fork over the same huge prices as before. It’s very hard to see if a new trend is a bubble, but if you can’t know for sure, you should be prepared for the risk. 

In the meantime, you can check out Beeple’s Everydays series completely free here.

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