Nothing like a barrage of blockchain news to make you wonder, "Um... what's going on here?" That's how I felt when I read about Grimes getting paid millions of dollars for NFTs, or Nyan Cat being sold as one. By the time we all figured out what was going on, Twitter's founder had put an autographed tweet up for sale as an NFT. We're still seeing headlines about people paying house money for rock clip art months after we first published this explainer, and my mother does not know what an NFT is.
In March 2021, Christies, a British auction house, sold a digital work of art for $69 million, catapulting "NON-FUNGIBLE TOKENS" (NFTs) from the fringes of the internet into the mainstream. It was actually an NFT, a cryptocurrency chit that proves a buyer owns an intangible marker linked to a one-of-a-kind piece of digital art, music, or other item.
An NFT is not the thing it represents, much like René Magritte's painting of a pipe proclaiming, "this is not a pipe." In recent months, NFTs have included tweets, basketball dunk videos, and even the source code for the internet. A market tracker, they generated nearly $11 billion in sales from June to September, an eight-fold increase over the previous four months. What is an NFT, exactly? And why are tens of millions of dollars being spent on them?
An NFT is a record on a cryptocurrency’s blockchain (an immutable ledger that can record more than just virtual coins) that represents pieces of digital media. Invented a few years ago, it can link not only to art but also to text, videos or bits of code. Promoters of NFTs claim they solve a thorny problem with digital art: how to own an original. For creators who freely upload their work or sell it as identical copies, the concept of an original is difficult to pin down. Exclusivity is impossible to enforce when digital files can be shared freely on the internet. But collectors want the cachet that comes with having an exclusive claim on an artwork. This is where NFTs fit in.
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