The Basics of NFTs [Infographic]

From the technology that brought the world cryptocurrency comes a new type of asset: non-fungible tokens (better known as NFTs). NFTs are certificates of ownership on digital collectibles, including but not limited to digital artwork. In the first half of 2021, NFTs generated $2.5 billion in sales, up from $13.7 million the year prior. 

Some notable sales include “EVERYDAYS: The First 5000 Days,” which was the first purely digital work of art ever auctioned by a major house. This piece sold for $69 million.  When Twitter founder Jack Dorsey sold his first tweet as an NFT, he made $3 million on the sale.

Why are investors paying so much for NFTs? What is the value of owning a collectible that can be infinitely copied? The distinction lies in the blockchain side of the asset. Digital keys secure NFTs the same way they would secure Bitcoin or Ethereum. 

A public key serves as the ownership agreement while a private key authorizes changes in ownership. All the while, blockchain maintains a tamper-proof ledger of transactions. 

In this way, anyone can copy a digital asset, but only one individual can truly claim to own it. Only owners have the right to sell their digital piece.  The value of these ownership rights are numbers only the market can assign.

Beyond speculation, there are other factors affecting the value of NFTs.  Digital artists can raise the value of their NFTs by imposing digital scarcity on their products. There are multiple ways to approach this. 

An artist can make only a partial form of their work publicly available while allowing only the owner to see the full work. 

They could place a mark on the art to indicate ownership, similar to how artists sign their creations. Lastly, they can impose algorithmic immutability by tying ownership records to the blockchain. 

One or a combination of these factors helps ensure a collectible remains limited-edition or one-of-a-kind.

At this time, NFTs are the hot new asset on the market. Just like any piece of art, an NFT’s monetary value is in the eye of the beholder.