It’s pretty likely that you’ll have come across the acronym NFT in the news or on social media in recent weeks.
NFTs are the latest cryptocurrency phenomenon to go mainstream and they’ve been making headlines due to the whopping sums of money involved in their sale.
You’re probably wondering what all the fuss is about.
If you're not sure what an NFT is or how exactly they work (like most of us, let’s be honest!), then we're here to help with this simple guide...
What is an NFT?
Let’s start with the acronym itself. NFT stands for non-fungible token - which probably doesn’t clarify matters much.
‘Non-fungible’ means that something is unique and irreplaceable. A bitcoin or any other cryptocurrency can be described as a fungible item - if you trade one of them for another, you’ll still have exactly the same thing. Put even more simply, if you swap a £10 note for two £5 notes, you will have the same value of currency.
However, a one-of-a-kind piece of original art is non-fungible. If you trade it for a different artwork, you have something completely different.
An NFT is essentially a digital token that's a kind of cryptocurrency, but unlike a regular crypto coin in a blockchain, each NFT is unique and can't be exchanged like-for-like.
NFT technology has been around since at least 2017 and is a product of the current cryptocurrency boom.
How is an NFT different from other cryptocurrencies?
What makes an NFT special is that the file itself stores extra information, which sets it apart from pure currency and allows it to take the form of digital art, video files or music as JPEGs, MP3s, GIFs and more.
It could be anything unique that can be stored digitally - so in a way an NFT could be compared to a physical collector's item, but instead of buying a prestigious painting to hang on your wall, you’d receive a JPEG file.
Because NFTs hold value they are now being bought and sold like other pieces of art – and, like physical art, their value is set by demand and the market.
But here comes the part that confuses many people.
That doesn’t mean that there's only one version of an NFT artwork available.
In the same way that prints of an original classic artwork are created and sold, digital copies of NFTs exist.
But they don’t have the monetary value of the original. It’s like traditional art collecting - anyone can buy a Van Gogh print, but only one person can own the original.
However an artist could also create a series of numbered duplicates of the same piece and sell them all as NFTs - like a limited-edition run of art.
But just right-clicking and saving an image you’ve found of an NFT won't make you a millionaire, because the file you downloaded doesn’t contain the crucial information that makes it part of the blockchain and gives it value.
Why are NFTs being talked about?
Collectors and speculators are quickly getting in on the NFT action, and there's currently lots of money being made in the market.
The current craze hit new highs in March when a digital collage by the American digital artist Beeple was auctioned for nearly $70m, a sale which made him the third-most expensive living artist ever.
Dozens of NFT artworks have now been sold for more than a million dollars, including a music video, a dance track and the first-ever tweet from Twitter CEO Jack Dorsey.
Buying an NFT gives you some usage rights (like being able to post it online or use it as your profile picture), plus there are the ‘bragging rights’ that come with owning a piece of art, with a blockchain entry to confirm it.
For some investors they’re like any other speculative asset - you buy and hope that the value increases, so it can be sold for a profit.
Whether or not NFTs are here for the long-term or are something of an expensive fad, they have quickly become an on-trend plaything for the super-rich.
NFTs have given new meaning to digital art and recent prices indicate they are set to become a real part of the future of art and the wider digital sphere.