In the past year, we’ve seen a wave of blockchain news that leave us wondering, “What is an NFT?”
CryptoKitties games have sold virtual cats for millions, musicians like Grimes and Nyan Cat have earned tens of thousands of dollars in NFT sales, and digital artists like Beeple have created NFT art that has been worth up to $69.3 million. But if an NFT is just a JPEG image that could easily be saved or screenshotted, how are these pieces of art so valuable?
The answer lies in the fact that NFTs are non-fungible, which means they’re unique and cannot be duplicated. This is because they’re recorded on the blockchain and are personal property of their owners — much in the same way that you own your social media content or music files on your computer or phone. They’re also protected by strict laws that safeguard them from being stolen or copied — something that can’t be said for a photo, video, or song on a platform like YouTube, which controls everything about it (including whether it violates community guidelines, runs ads, gets recommended, etc).
This digital provenance makes NFTs especially valuable to collectors and investors. It’s what has fueled the growth of platforms like Rarible and OpenSea, which let anyone collect or invest in NFT art by up-and-coming or well-known creators. They’ve also become popular in the gaming and real estate industries, where NFTs can be used to purchase and trade one-of-a-kind in-game items or virtual land.
Despite this popularity, NFTs are still relatively new and may take some time for the general public to understand and accept them. This is a normal part of the Technology Adoption Cycle, which has been documented and systematized for other new technologies over the years.
NFTs have also faced some criticism from people who claim that they’re not really artwork but just a form of money laundering or speculative investing. This is partially because many NFTs in the early days have been digital creations that already exist somewhere else — like iconic NBA videos or securitized versions of digital art that’s been floating around on Instagram. Then again, it doesn’t take a rocket scientist to figure out that a JPEG that someone could just save or screenshot is not going to hold up as an NFT in a court of law.
In addition, NFTs are vulnerable to the same types of security threats that plague other digital content — like bit rot, file formats that can’t be opened anymore, and website hacks. So even though it may seem like an insignificant inconvenience, it’s a good idea to keep all proof-of-ownership documents, including any receipts or certificates of authenticity, for your NFT purchases in case something goes wrong in the future. After all, what’s more important than a piece of digital art that can’t be stolen or duplicated?