NFTs: A Beginner's GuideBy now you've probably heard about Mike "Beeple" Winkelmann's record-breaking, first-of-its-kind NFT sale for $69 million. It smashed all previous records and created a huge amount of publicity for both the artist and Christie's, the auction house where it was sold.
Together with similar high-profile sales by Paris Hilton, Mark Cuban, Steve Aoki, Grimes and even Taco Bell, NFTs have now officially hit the mainstream and it seems like everybody with a social media account is trying to sell you one.
So, what's an NFT?
NFT stands for Non-Fungible Token. Essentially, it's a way to store data. We'll fully explain the technical side in a moment, but let's start with the weird name. Fungible (without the 'non') means that it can be replaced by an identical item to itself.
Think of the products in your local store. Any product of a certain brand, type and size is interchangeable with the identical product sat next to it on the store shelf. It doesn't matter which one you pick as they're all the same. By definition then, a non-fungible item is totally unique and can't be replaced with an identical item, as nothing else like it exists.
The Mona Lisa is the most reproduced image of all time. Even with thousands of photos taken by visitors to The Louvre in Paris and millions of additional versions online, there's still only one Mona Lisa. It's that important distinction that makes it so special (worth more than $867 million), totally irreplaceable and therefore non-fungible.
How do NFTs work?
When you buy something you're often given a paper receipt. It will contain information like store's name, the store's location, the items you bought and how much you paid. A record of this transaction is also kept by the store, most likely in a digital format like a database.
NFTs are units of data which are stored like digital receipts. NFTs can store exactly the same kind of data as a regular receipt and they can be read, copied and shared in a similar way to a regular database. So why all the fuss?
The key difference is that NFTs are stored on something called a blockchain. A blockchain is a huge continuous 'chain' of data built from millions of tiny data 'blocks'. You can only add more data to a blockchain and anything added to the chain is stored there forever.
By storing an NFT on a blockchain it certifies that the digital asset is unique. The data is online, so it can be accessed by anyone in the world at any time. Plus the blockchain is decentralised, so it operates independently from any owner, website, service provider or physical location.
As the data can't be changed, replaced or deleted, it makes blockchains perfect for storing financial transactions. That's how Bitcoin works. When you buy something with Bitcoin or get paid with Bitcoin, a record of the transaction is added to the Bitcoin blockchain, so everybody can keep track of who paid who and how much you have.
How does this help creators?
Let's say you want to support an artist in a foreign country. You'd like to buy something rather than just donating, as you know it means more to the artist. Regular payment processors like PayPal aren't supported there, but you eventually figure out a way of sending them money so you can own something that they've created.
The item finally arrives several weeks later in a very poor condition. As a prolific international art fan, you then spend the rest of the week struggling to find space for it amongst everything else you've bought.
NFTs change all that, enabling you to own digital artworks that can be created at practically zero cost to the artist. You can now support thousands of artists without having to worry about payment processors, shipping costs or finding somewhere to put it.
Is it eco-friendly?
Due to the shear size of blockchains and the way that units of data are managed (a complex peer-to-peer verification process) it currently uses a lot of electricity, which isn't good for the planet. However, it's worth remembering the amount of energy required for a physical project.
First the factory has to source the raw materials (in many cases causing additional pollution and deforestation), manufacture the items (often a laborious and wasteful process), package the items and then repackage them for shipping. That's before it's even reached the store.
How can I buy and sell NFTs?
As NFTs have become so popular, there are now plenty of places where you can buy and sell them. These include KnownOrigin, OpenSea, Foundation and Rarible.
If you're buying, first you'll need some digital currency. We recommend signing up with Coinbase and purchasing some Ethereum (ETH). Coinbase is an online payment processor like PayPal that also lets you buy and trade digital currencies. After you've got some ETH, just visit an NFT marketplace like the ones listed above and start your NFT shopping spree!
Further reading...Beeple sold an NFT for $69 million - The Verge
Here Are the 10 Most Expensive NFT Artworks... - Artnet News
Non-fungible token - Wikipedia