A buzzword including digital artwork, animal pictures, trading cards, music, and online gaming, NFT or non-fungible tokens became a major digital topic throughout 2021. By late 2022, the daily market size of NFTs on Ethereum was much lower than in 2021. NFTs first grabbed headlines in March 2021 when the crypto art piece First 5000 Days from Beeple became the most expensive NFT in the world at 69 million U.S. dollars. The digital tokens were not new, however. The sales development of CryptoKitties – a project that involves randomly generated pictures of cats - can be retraced back to 2017. How, then, do NFTs work, and are they disrupting particular industries in 2022?
Cryptocurrencies, NFTs, and the metaverse all featured in a January 2022 webinar created and hosted by Statista, called "The cryptoverse - cryptocurrencies becoming mainstream". The original, unedited 30-minute webinar can be seen here for free, although registration is required.
Creating scarcity on the internet: how an NFT works
An NFT is a digital certificate (a token) that recognizes one as the owner of a digital file with no equal to it (it is non-fungible). These certificates are created (minted) and sold on blockchain - the same technology behind cryptocurrencies. It also tracks transactions to prevent counterfeiting, with Ethereum being the most popular NFT blockchain. An NFT is unique: No matter how many digital copies there are – MP3, JPEG, etc. - there is only one original file. Essentially, an NFT owner buys ownership rights. This (partially) explains why the popularity of NBA Top Shot – a game around basketball highlights videos – resembles that of collectible card games: Certain files are rarer (therefore, more valuable) than others. This scarcity can be extended in other directions too. American rock band Kings of Leon made around two billion U.S. dollars with an NFT surrounding their album in 2021 by giving NFT owners access to photos and unique perks alongside the album. In essence, NFTs serve as the foundation for Web3, specifically Decentralized Finance (DeFi) or the metaverse.
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Raynor de Best
Content expert covering payments and (crypto)currencies