An NFT just sold for $69 million – What are NFTs and why should you care?
NFTs have been in the headlines on and off for a while, with a recent spike. Many people had not even heard of NFTs until just a few weeks ago when Beeple sold an art NFT for $69 million
Even though NFTs have been around for a few years, most people are still not very familiar with them. Even people who regularly use and invest in cryptocurrency may not understand the intricacies of NFTs. Whether you have been aware of NFTs for a few years or only heard of them after Beeple’s historic sale, there is plenty to learn.
If you feel that you have more to learn about NFTs, then you are not alone. To help you in that quest, we’ve gathered all the most important information you need to know about NFTs in a single spot.
NFT stands for non-fungible token. Most people compare it to a digital version of a collectible.
Essentially, NFTs are digital tokens that represent a specific asset, such as a piece of art, instead of a traditional fungible asset. For those who need a refresher, fungible refers to the ability to be divided into equal bits, with each unit having the same value. So, fiat and cryptocurrencies are both fungible. Something like a house or a painting is not.
The idea is that non-fungible tokens let you prove and enforce ownership of an asset. Because they are digital, they are used specifically with digital collectibles in most cases. However, you can also use them to show ownership of anything else, including real estate or clothing.
NFTs are not securities
One very important distinction is that NFTs are not a type of security. For example, you cannot make, sell, or own an NFT of a common enterprise. Securities require completely different registration and must follow a long list of legal regulations.
How do NFTs work?
Like cryptocurrencies, NFTs rely on the blockchain to function and show ownership. Each NFT is connected to a specific digital asset. The token represents the item. By using the blockchain, the ownership of the digital asset is recorded on the blockchain, which is an immutable ledger.
NFTs can be fractionalized
Some of the NFTs that people have developed are also fractionalized. This makes it possible to own just a part of the underlying collectible. An example would be buying a fraction of an art NFT and therefore becoming a partial owner.
This fractionalization makes NFTs more accessible, as you do not have to be able to afford the entire token.
The most common types of NFTs
Although nearly anything that is non-fungible can become an NFT, the idea of NFTs is more popular in some spaces than others. Art and online gaming are among the most popular.
- Art: Art NFTs let someone own a piece of art, even if they do not have a place to physically store it safely. Art NFTs can also be set up, so artists receive a percentage of the secondary sales, something artists do not typically receive.
- Programmable Art: A sub-type of art NFTs is programmable art. This refers to art that uses blockchain data to update features in certain cases. An example would be programmable art that has a different background depending on its price.
- Gaming: Another space with significant opportunities for NFTs is gaming. This typically comes in the form of in-game items, such as armor, keys, or other objects within a game. In this use case, NFTs let players easily prove their ownership of an item or sell it if they want. Think of it as a blockchain version of the Steam Community Market that lets gamers buy and sell in-game items. Compared to centralized markets like that, these decentralized NFT markets reduce transaction fees and boost efficiency.
- Social: There is also a newer category of NFTs that many people may not be aware of called social tokens. These are tokens issued by people or communities. An early example was tokenizing people’s time. Another is tokenizing their future income. $RAC is another example, this one from RAC, the recording artist. Holders of the token get special incentives, like early access to merchandise.
The first major example: CryptoKitties
No discussion of NFTs is complete without mentioning CryptoKitties. This was one of the first NFT projects and grew impressively. It is an Ethereum-based game that lets you collect, exchange, and breed virtual cats. Each kitty is unique and indivisible. Despite simply being virtual cats, CryptoKitties involved millions of dollars’ worth of transactions and was popular enough to clog the Ethereum blockchain.
NFTs allow artists, musicians, and others in creative fields to track ownership of their properties. Most importantly, they also give them another method of monetizing their work.
This is particularly important given the high rate of piracy with digital art, music, and movies because of the internet. Even streaming services where people can legally listen to music or watch movies hurt the creators’ ability to monetize, as they aren’t usually fairly compensated. Essentially, the current state of entertainment makes it incredibly hard for creators to monetize their work, but NFTs create an opportunity to do just that.
Even when the streaming services or pirated versions of content still exist, NFTs let fans of creators show their support. The one-of-a-kind nature of NFTs also motivates people to buy one of these tokens, even if they can access the digital asset without it. It comes down to bragging rights, a point of pride, and the fear of missing out. An individual’s interest in the item or creator is also a significant factor.
An example – Jack Dorsey’s tweet
For an example of how an NFT can work even when the asset in question is readily available, look at Jack Dorsey’s announcement about his first Tweet. Jack Dorsey is the Twitter CEO, and he said he would turn this first tweet into an NFT. He then planned to auction it off and donate the proceeds to charity.
just setting up my twttr— jack (@jack) March 21, 2006
If he went through with this, anyone would still be able to log into Twitter and look at the tweet in question. However, only one person, the owner of the NFT, would own it and have a claim to it. They would not gain many benefits from it, other than bragging rights and the knowledge that they helped a charity. Even so, there would likely still be a great deal of interest. After all, this is the only way that someone could own something as historic as Dorsey’s first tweet.
What makes them special: Anyone can create them
One of the things that makes NFTs so interesting and important is that anyone can issue, trade, or own them. That means that NFTs give collectibles and non-fungible objects some of the same benefits as cryptocurrency. Some of those include ease of transfer and their borderless nature.
The recent attention to NFTs comes from the increasing interest in cryptocurrency. After all, both cryptos and NFTs use the blockchain and have many similar traits. The biggest difference is that cryptocurrencies are fungible, while NFTs are not.
Pay attention to the rights – Whether you are the seller or the buyer
Whether you choose to create and sell an NFT or buy one, you should be aware of the rights involved. This tends to be more important for the artist than the buyer, but it can affect both.
Most NFTs come in the form of a grant that an artist makes to the buyer. The buyer has a license to access the underlying content because they own the NFT. The artist usually still owns the underlying content.
A common example would be if you bought a one-of-a-kind, autographed signed record and owned it but did not own any songs on it. You would not be able to sell or reproduce the songs on the record.
Buyers should be aware of authenticity
Anyone thinking of buying an NFT should pay attention to its authenticity. Unfortunately, there is a market for counterfeits, and you don’t want to waste money accidentally by buying counterfeits.
The good news is that by their nature, specifically their integration with the blockchain, it is easy to verify that NFTs are authentic. This is something that is not so easy with physical objects, especially as counterfeits advance.
What can you do with digital art or other NFTs?
Even with all of the above information, it is common to wonder what the point of buying or creating an NFT is. Or, in other words, what can you do with it?
The answer will depend on the collectible. Digital art, for example, could be displayed in frames within a physical setting. Or you can display it in an online collection. This last point is particularly common as virtual reality becomes increasingly common.
Async Art offers a completely different option. This is a digital marketplace with programmable art. What is interesting about this marketplace is that an artist will create something, and someone will buy the “master” copy. That master copy will have various layers, each of which can have a different owner. The owners of those layers can change their attributes, which would result in changes to the “master” copy.
Throughout the last few years, NFTs have been increasingly appearing in the media, and here are just some of the examples.
In December 2019, Nike patented CryptoKicks. This system would use NFTs for footwear. It connects physical shoes with their digital versions. The idea was to make them available for trading on digital marketplaces, use in games, and more.
Beeple’s Crossroads selling for $6.6 Million
In recent months, NFTs rose to headlines again, thanks to Beeple’s art called Crossroads. Beeple is a digital artist whose real name is Mike Winkelmann. In February 2021, this art was resold for $6.6 million on Nifty Gateway, an NFT platform. As the most expensive NFT then, it made headlines.
Beeple’s $69 million sale
The biggest NFT sale and the one that gained the most attention was also from Beeple. In March 2021, Beeple sold a piece of digital art via an auction at Christie’s for $69 million.
Christie's is proud to offer "Everydays - The First 5000 Days" by @beeple as the first purely digital work of art ever offered by a major auction house. Bidding will be open from Feb 25-Mar 11.— Christie's (@ChristiesInc) February 16, 2021
Learn more here https://t.co/srx95HCE0o | NFT issued in partnership w/ @makersplaceco pic.twitter.com/zymq2DSjy7
Grimes’s artwork auction
Also, in February 2021, musician Grimes similarly generated a large amount at $6 million on Nifty Gateway, with an artwork auction. This is the WarNymph Collection and includes 10 works that sold within 20 minutes.
First tokenized album
February 2021 also saw the auction for the first tokenized album. 3LAU sold 33 different NFTs in 24 hours, for $11.7 million total.
Some of the most common current uses of NFTs include for art, games, and social tokens. Those who believe in the potential of NFTs feel that they will eventually help connect traditional assets with digital assets. They argue that NFTs could be used to make it more efficient to transfer assets.
They also see opportunities for NFTs in things like digital advertising, where you would own the space and could sell advertising rights to it. They also see the potential for NFTs in terms of loyalty points, licenses, and more.
For these potential uses of NFTs to become more mainstream, however, developers would have to overcome scaling issues related to transaction fees.
Ready to take the next step? Discover Nexford’s programs
The Market Minute: What You Need To Know About NFTs
What are NFTs: everything you need to know about non-fungible tokens
A beginner’s guide to NFTs
A Guide to Crypto Collectibles and Non-fungible Tokens (NFTs)
A beginner’s guide to NFTs, the crypto potentially worth millions
Beeple sold an NFT for $69 million
About the Author
Fadl Al Tarzi
Fadl is Founder & CEO of Nexford University. His vision is to enable greater social and economic mobility through high-quality, affordable education.