The sudden surge in interest around NFTs has created a market worth billions of dollars per year.
An eccentric new trend has swept the web over the last couple of weeks and it’s all about traceable digital collectibles, also known as non-fungible tokens (NFTs). These tokens are unique representations of either digital properties – such as art, music, video, trading cards etc. – or physical items, stored primarily on the Ethereum blockchain. What makes them different from any other digital collectible (say, a Fornite skin) is that each NFT has a distinct signature that allows for ownership to be traced and verified with total confidence. NFTs have been around for years, but used only by a small tech-savvy minority. As a result of the Bitcoin bull run, however, these digital collectibles have begun to capture the attention of the public and gain traction with artists, who see them as an innovative way to monetize their works. By minting a limited supply of NFTs, creators can simulate a scarcity that is driving prices through the roof. Within the last month, for example, synth-pop artist Grimes has generated $6 million in NFT sales, while musician 3LAU sold an album of NFTs for $11 million. As per data from DappRadar, transaction volume across NFT marketplaces stands at $500 million for the last 30 days, compared to just $200 million for the entirety of 2020. While hype has brought visibility and custom to the space, which long-term NFT fanatics will celebrate, there are also dangers attached to the current level of hysteria. According to Oliver Carding, founder of CryptoKaiju, a company that sells NFT-backed vinyl toys, the cyclical nature of crypto trends means a bust will almost certainly follow the boom. And the parties that will suffer are not the celebrities minting the NFTs, but the people buying them up. “The crypto space has always been about empowering the underdog by removing the middleman, not about making Lindsay Lohan richer,” he told TechRadar Pro. “I’m not necessarily saying this is a bubble, because NFTs have been growing organically, but I think we’ll see the space follow a crypto boom cycle.” NFTs differ from other digital collectibles in that they act as an irrefutable proof of ownership and are not controlled by any single entity (i.e. they cannot be destroyed by switching off a server somewhere). They differ from other cryptocurrency assets, meanwhile, in that they are neither interchangeable nor divisible. If an asset is fungible, it can be freely exchanged with another identical version without any loss of value and can also typically be divided into smaller parts. For example, if two people were to swap a unit of Bitcoin with each other, no meaningful change has occurred, and each coin can also be broken down into smaller units called Satoshis. Non-fungible tokens, on the other hand, demonstrate ownership of a unique property and therefore have a unique value, and nor can they be sold off in parts. Many believe the first ever NFTs were attached to an Ethereum-based game called CryptoKitties, launched in late 2017.
