Understanding NFTs and Why They Matter
If you’re in the investment game, especially if you’re investing in crypto, you’ve probably heard of NFTs by now, but it’s possible you still don’t have a clear understanding of what they actually are.
NFTs, or non-fungible tokens, are essentially digital certificates of authentication and ownership. They aren’t considered crypto currency. You can’t “spend” them, but you can own them, collect them, and sell them. They represent assets and can be used for any digital file. They’re actually quite valuable, and becoming more so every day.
Although many, if not the majority, are still unfamiliar with NFTs, they are gaining ground, and fast. In the first six months of 2021, NFT sales were up to 2.5 billion dollars, which is a huge increase from the 13.7 million dollars we saw in 2020. Two of the biggest boosts to the sales incline was the sale of digital artwork “Everydays: The First 5000 Days” for 69 million dollars, and the re-sale of the 10-second video clip, “crossroads”, for 6.6 million.
So, how exactly do NFTs work? It’s very similar to crypto currencies. The public NFT key shows ownership; the private key authorizes a change of ownership, and the blockchain maintains the “tamper proof” transaction ledger. Blockchain secures ownership of digital files, which can be easily copied exactly. This protects both the owner and the creator and helps to secure the right of sale, and often, a profit to the original artist.
With their increasing value and growing popularity, NFTs are being used everywhere from online games, to sports, fashion, music, and even charity. Gamers can create, buy, and earn NFTs for unique game elements. In sports, NFTs can be used like virtual trading cards for video “moments.” In fashion, Nike gives NFT owners the right to have their design manufactured. In the music arena, NFTs can be used in place of tickets, to purchase albums, or purchase unreleased songs, and in charity, NFTs for digital artwork can be sold for humanitarian causes.
Through NFTs, digital files can become more valuable as NFTs generate digital scarcity. This means that, although unlimited perfect copies of digital files can still be made, there are other limitations that designate the original file as unique, therefore adding much more value. This scarcity benefits both artists and collectors by keeping original files as “limited-edition” pieces.
In our increasingly digital society, NFTs are the next big investment opportunity.