Q&A: "WTF are NFTs?"

Here's the question we'll be tackling today

Hey Nicole! My name is Sara and I live in Madison, WI. I know I may have missed the boat here... but what is an NFT, exactly? I've been pretending I know what they are (or, it is?) for so long, I feel like I'm now at the point where it's kind of embarrassing to ask. Help!

By now, like Sara, you've probably heard about NFTs. Maybe you’ve seen them on social media, or heard your friends talking about it. Maybe you already know that it had something to do with cryptocurrency, but also feel like art is somehow involved; and for some people on the fringes of the conversation, you may think Grimes or digital cat pictures are key.

NFTs? NBD.

If you’re feeling stumped, you’re not alone. So let me clear this up. First things first: N F T = non-fungible token.

Non-fungible more or less means that the item in question is unique and can’t be replaced with something else. In contrast fungible would be something you could do a little swaperoo and end up with the same thing. So the US Dollar, bitcoin, Dogecoin, those are all fungible. That’s because if I had $10 and you had $10, we could say that we have the same thing. I could give you my $10 and you could give me your $10, and it would be a pretty uninteresting trade right? We both ended up with the same thing we started with.

However, if you gave me a signed Babe Ruth baseball card and I gave you a signed Britney Spears poster, we wouldn’t have the same thing because those items are non-fungible.

Next, the token part. That has to do with the digital nature of this asset. Yes, NFTs live on our favorite place: the blockchain. The blockchain is a digital database that stores information like, famously, bitcoin transactions. But these databases can store a lot more information than just that. Really, the blockchain can store any kind of digital information: signatures, intellectual property, digital music, art, you name it. The first NFTs were part of the Ethereum blockchain, although other cryptos have since started their own.

Anything digital can be an NFT: digital art, your tweet, music, this post, anything! But a lot of the current excitement is around art specifically. So let’s double click on that. There are some big-ticket art items that have been sold as NFTs. Someone paid $390,000 for a 50-second video of Grimes, $6.6 million dollars for a 60-second video by digital artist Beeple, and a Gucci ghost gif that first sold for $3,600 and last I checked, is reselling for $16,300.

What's the big deal?

If you buy a NFT, you get basic usage rights; like being able to brag and post about it, with a blockchain entry to show for it. But here’s where it gets weird...er; NFTs can be copied. Truly. You could record your screen while watching that Beeple video that sold for 6 million bucks, and save it to your desktop to watch whenever you’d like. This tends to be the point where people dismiss NFTs. You might be thinking: “Why would I pay millions of dollars for a PDF that I could just print at Costco?” Fair enough. The counterargument is that physical art operates the same way. There are a bunch of replicas of the Mona Lisa, but only one original. The replicas you could buy for cheap online, but to see the real deal, you have to go to Paris. For some people, that’s money well spent.

Here’s my favorite part: NFTs give creators another platform to sell their stuff—and, importantly, every time the original NFT gets resold, the creator gets a cut. That is a huge difference from the way the art world works now. If you’re an artist and use paint on canvas (rather than Microsoft Paint on your computer), once you sell your painting, you’ve sold your painting. That’s it. The only money you’ll see from that work is what you get when you sell it. So even if you sell a piece to a gallery for $1,000 and the gallery resells it for $1,000,000—you are only getting $1,000. You don’t see any benefits of your work increasing in value throughout your career. That’s messed up! With NFTs, the OG creators get a cut every time their NFT is sold.

Because of the way NFTs are improving upon some features of the art world, some people think NFTs are the future of art collecting. Others think that’s a bit of an exaggeration and NFTs are actually more similar to something low-stakes— like Pokemon collecting. Because the barrier to entry is so low, you don’t need to be an established artist to sell an NFT. You don’t even need to be a talented artist to sell an NFT. Whip out your phone and take a selfie. You can use that as an NFT. And because you’re thinking...where can I do that?! OpenSea, Rarible, Nifty Gateway, the tweet one is Valuables by Cent. But remember if you sell your tweet you don’t get dollars you get cryptocurrency.

NFTs have garnered a fair amount of buzz which, at the time I’m writing this, as petered outside of the mainstream headlines and is now only maintaining buzz within the hardcore crytpo community. However, this lull happened with Bitcoin as well, and if that’s any indicator, NFTs could come back as new developments and uses come to light. We’ll have to stay tuned on that one. And where can you go to read more about new developments and uses? Right here on the Money Minute, of course.

xo,

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