Canadian musician and visual artist Claire Boucher (aka Grimes) sold $6 million worth of digital artwork on March 2. A total of 10 artworks were put up for auction, and a video called Death of the Old fetched the highest price at $389,000. Further, 700 copies of two short videos, Earth and Mars, were sold for a total of $5.18 million. Interestingly, all the pieces were sold as Non-Fungible Tokens (NFTs). NFTs have gained massive popularity in recent time, especially in the digital art and games space.
An NFT is a digital certificate, aka cryptographic token, that lives on a blockchain. Individuals can purchase authentic and credible digital goods, mostly images, videos, and animations, using NFT.
NFTs are unique, and keep a record of an individual’s transaction history. Though the buyer may not physically possess Grimes’ digital art, he/she has the proprietary rights to the particular piece of art, ratified by the blockchain network. The digital asset comes with a license that allows the buyer to put them on social media, a digital marketplace, a game world or a virtual museum.
What Are NFTs?
An NFT is a unique cryptographically-generated token that uses blockchain technology to link with a unique asset. They represent tangible and intangible items such as arts, sports cards, and even virtual real estate. No two NFTs are the same and are easily verifiable. Each NFT includes specific information such as the buyer’s name, date of the event and the venue.
Fungible tokens such as bitcoins are tradeable, and their value remains the same even after exchange. Unlike regular cryptocurrencies such as Ether (ETH), Bitcoin, and Monero (XMR), NFTs cannot be directly exchanged with one another.
Popular features of NFTs include:
- They are indivisible, meaning that NFTs cannot be divided into smaller denominations, as in bitcoins.
- Since the NFT data is stored on the blockchain, the tokens cannot be destroyed, removed or replicated.
- Being on the blockchain allows easy tracing of the original owner and eliminates the need for third-party verification.
- NFTs derive their value from the fact that they are scarce. Although NFT developers can create any number of NFTs, they are purposely limited to add value.
Over time, the usage of NFTs has spread across various industries and are most commonly found as Ethereum tokens built on ERC-721 (Ethereum Request for Comments 721) Standard. It was first introduced in 2018 by William Entriken, Dieter Shirley, Jacob Evans, Nastassia Sachs.
ERC-721 describes how to build non-fungible or unique tokens on the Ethereum blockchain. It implements API for tokens within a computer-generated transaction protocol called the Smart Contract. ERC-721 provides functionalities for transferring a token from one account to another, get the token account balance, identify the owner of a particular token, and identify the total supply of the token on the network.
Grimes is not the only one to get on the NFT bandwagon. In 2020, another digital artist Beeple sold $3.5 million worth of art through the Nifty Gateway marketplace. Artists such as Chris Torres (who created Nyan Cat, an animated cat) and electronic musician 3LAU made $600,000 and $11 million, respectively.
Billionaire investor Mark Cuban has auctioned several digital goods online and even various assets such as a Maxi Kleber dunk moment card from NBA Top Shot. In fact, NBA Top Shots have seen a sale worth $100 million in less than a year, and its parent company currently has a valuation of $2 billion.
In 2017, Cryptokitties, a popular leisure game on the ERC-720 protocol, became the first mainstream usage of NFT, allowing users to collect, purchase, sell, and breed virtual cats.
24X24 pixel art images, a niche category of collectables CryptoPunks, are sold at $18,000 per piece.
Nadya Ivanova, chief operating officer of research firm L’Atelier says NFTs are here to stay. In an interview, Ivanova said, “We’re seeing a new generation of traders within the NFT market; people who are digitally native looking for digital native asset classes outside of established asset markets. These are people who have amassed reputation and wealth and want to invest it in purely virtual assets like NFTs.”
NFTs are a potential tool to fight identity theft. Digital artists can turn their work into NFTs for copyright purposes. It’s very efficient in protecting important documents such as academic transcripts and medical records.
NFTs have also started to converge with decentralised finance, especially in yield farming strategies. However, NFT is still in its infancy, and its primary application areas are limited mainly to the cryptocurrency community and developers.