Last year the first tweet from the co-founder of Twitter, Jack Dorsey, sold for a staggering $2.9 million. Many other digital items have also been selling for confusingly high amounts of money, but how?

Short answer; Non-Fungible Tokens, or NFT’s. The NFT marketplace has been the latest craze. Although being around since 2014, they have been increasing in popularity, now becoming a multimillion-dollar ecosystem.

Understanding an intangible thing like NFT can seem complicated, but we can start to understand what they are and why they matter by taking it step by step.

First, we have to understand what NFT stands for.

What does NFT stand for?

NFT stands for Non-Fungible Token. 

Non-fungible things can’t be replaced with other things – they are one of a kind. Think of artwork; there is only one Mona Lisa on the entire planet. You can’t get another like it. It’s unique, so it’s a non-fungible asset. 

The same goes for NFT’s. No two NFTs are the same, and because of this, they are not interchangeable with each other. “Each has a digital signature that makes it impossible for Non-Fungible Tokens to be exchanged for or equal to one another,” Forbes explains. This is what makes them non-fungible.

To understand better, think of their opposite, fungible assets. Think of a pair of shoes that you really like. You can go to the store and buy a pair. The brand is making hundreds of thousands of pairs of the same model, so you don’t mind if they send you the first one or the last one they made. 

Those shoes are fungible, meaning you can replace them.

What are Non-Fungible Tokens?

NFT’s can be anything digital, from an image, a video clip, or now trending; digital art. When purchasing a Non-Fungible Token, you buy the original copy of the digital token. 

“Essentially, NFTs are like physical collector’s items, only digital. So instead of getting an actual oil painting to hang on the wall, the buyer gets a digital file instead”, Forbes explains.

But what stops people from screenshotting that picture you just purchased? Or downloading that video purchased by someone else? 

Well, nothing. That’s not really the point. Anyone still has access to all of these things, yet the buyer is the only one who has the original copy. Think of it as a work of art; many people have Picasso prints, but only one has the original. 

So if everyone has access to it, unlike when someone buys original artwork or a collector’s item, why would someone spend money on purchasing an original video clip or picture when they are all over the internet, available for everyone to see? Well, Forbes also points out that for the same reason art collectors buy art, bragging rights that you own the original one.

Additionally, with the increase in price on Non-Fungible Tokens, many are hoping that their price will increase over time, allowing them to sell further with a profit.

In fact, some Non-Fungible Tokens have been sold for more than original artwork. An NFT of a print by digital artist Beeple sold for $69 million. For reference, that is $15 million more than Monet’s painting Nymphéas sold for in 2014.

The NFT marketplace also supports the original creator/artist by giving them a commission every time the token is sold forward. This ensures that the creator gets rewarded fairly if their art gets popular and increases in value.

How do NFT’s work?

As CNN explains, “In the simplest terms, NFTs transform digital works of art and other collectibles into one-of-a-kind, verifiable assets that are easy to trade on the blockchain.”

A blockchain is an electronic database that stores a record of transactions. It is best known for its role in cryptocurrency and maintaining a secure and decentralized record of transactions. Each Non-Fungible Token has a unique identifying code that ensures its authenticity.

Selling Non-Fungible Tokens

Anyone can create, buy, and sell an NFT, but like artwork or any collector’s item, its demand decides the value for it. If people consider it valuable, then the price will reflect it. Many spend hundreds of thousands of dollars on advertisements, trying to jack up the price on their NFT in order to sell for a profit later on.

Unlike water and other invaluable assets, Non-Fungible Tokens have no inherent value. This is why many believe that the NFT craze is a bubble bound to pop, leaving owners with unprofitable tokens. 

If you want to take a look yourself, some NFT’s marketplaces include OpenSea, Raribel, and more. 

Should I buy NFT’s?

There are many types of NFT’s, making it hard to provide a simple yes or no answer. What is important to understand is that, like cryptocurrency, they are considered risky investments. It is hard to predict which will rise or fall in value, especially if you are a beginner. 

Before considering diving into the NFT marketplace, you need to know how purchasing them works. 

They work a lot like collectibles. Maybe you bought a stack of Pokemon or Yu-Gi-Oh cards when you were young. Some cards were common, while others were more valuable because of their rarity. It was all bound to chance.

Buying most NFT’s goes a little like this. Just like the random pack of cards you used to buy, you pay a base amount of money, and they give you a randomized NFT from their collection.

An example, to better understand, is the Cat Bricks Clubhouse collection. The Cat Bricks Clubhouse is a collection of lego looking figures. They vary by background, hat, shirt, and face. To buy one, you pay a set amount of money and receive a randomized version of the NFT.

The key is that some are rarer than others. For example, there are 2504 of these NFT’s with a blue background, but there are only 80 with a gold one. If you luck out and get a rare version, it can be worth a lot of money, depending on how popular the collection is.

You can keep it and potentially display it in your future metaverse home, or you can wait for offers from fellow collectors or investors and sell it. 

Whether you want to be part of the NFT movement or watch it from afar, it’s helpful to understand it. After all, it’s a big part of the investment world and potentially the future of art collectibles. 

Hopefully, after reading this article, the next time you inevitably hear a conversation about NFT’s, you’ll be able to have your own opinion on the matter, and maybe even an NFT to brag about.