You know Nyan Cat? The legendary GIF, which depicts a gray feline with the body of a Pop-Tart soaring through space (and leaving a rainbow-colored chemtrail), recently sold for $590,000 in an online auction put on by the meme’s original creator. No, GIFs that anyone can find and share for free usually aren’t considered commodities, and yes, this has something to do with the latest crypto-related trend you might have heard of: NFTs. Also hopping on the NFT, or non-fungible token, craze in recent weeks: Lindsay Lohan. Mark Cuban. The band Kings of Leon, which is releasing a new album not in the usual manner but as an NFT. The experimental pop singer Grimes made headlines earlier this week when she made about $6 million selling artwork, much of which featured flying babies, that came in the form of NFTs.
NFTs? Small fortunes for GIFs?? Lindsay Lohan crypto assets??? It’s a lot. Here’s what you need (“need”) to know.
What, exactly, is an NFT?
An NFT is a one-of-a-kind digital keepsake (hence “token”) that isn’t interchangeable with other tokens (hence “non-fungible”). This is different from a cryptocurrency like Bitcoin, since all Bitcoins are worth the same price at any given time. NFTs accrue value independently, which make them optimal for selling art and other collectors’ items. You also can’t sell a fraction of an NFT, as you can with Bitcoin. NFTs have been popular since around 2017 among artists who create digital works and are looking for ways to monetize something that is otherwise freely available and easy to reproduce. For example, Christie’s announced last month that it would be the first major auction house to sell an NFT-based artwork. Bids for the work, a collage of digital faces and drawings created by an artist known as Beeple, have already reached $3 million.
What do you actually get when you buy an NFT?
This part is a bit confusing. Take the art that Grimes sold: The digital images and short videos she put up for sale—and which went for prices as high as $389,000—are freely available on the web, so you don’t really have to “own” anything to view and appreciate the art, nor did buying one get you something like a canvas or other physical object. In buying the NFT, you don’t even get the original picture or movie file, the copyright, or the reproduction rights. It essentially functions as a certificate of ownership that you can buy or sell; owners also often get a license to display that piece of digital art on social media or another public space. Blockchain technology, the digital ledger that underlies crypto assets, keeps track of who owns that token. These NFTs can be kept in a digital wallet, like Enjin or MetaMask, where people also store cryptocurrencies like Bitcoin. Many have described owning an NFT as entitling someone to bragging rights, and it’s also a way for people to financially support artists they admire. Artists will often get a cut of the proceeds each time an NFT is sold after the initial purchase.
Are NFTs new?
No. The first widely popular use of NFTs was CryptoKitties, tradeable cartoon kittens that exist on the Ethereum blockchain. These were launched by the design studio AxiomZen in 2017 during a cryptocurrency boom; owners could auction off their CryptoKitties in a virtual marketplace for the Ethereum cryptocurrency or breed them with other people to make more CryptoKitties. Within the first few days, users had traded $1.3 million worth of CryptoKitties, with some going for tens and hundreds of thousands of dollars. The average price is now about $50.
Why are NFTs blowing up now?
The latest NFT craze is thanks in part to a blockchain-based virtual trading card marketplace known as NBA Top Shot. The collectibles in that case are basketball highlights, which can go for up to hundreds of thousands of dollars. Last month, one buyer shelled out $208,000 for a clip of a LeBron James dunk, while another paid $100,000 for a clip of Memphis Grizzlies’ Ja Morant dunking over the Phoenix Suns’ Aron Baynes. (Yes, they’re highlights, like the kind you can just pull up on YouTube.)
Feeding into the hype are recent endorsements from the likes of Mark Cuban, who’s been selling NFTs related to the Dallas Mavericks; Lindsay Lohan, who sold an NFT portrait for about $59,000; and YouTuber Logan Paul, who sold NFT Pokémon cards featuring his likeness for $5 million. Cryptocurrency in general has been on a hot streak for the last few months, which is surely contributing to the NFT hype. The price of Bitcoin has been reaching record highs since January, when Grimes’ boyfriend, Elon Musk, directed Tesla to purchase $1.5 billion worth of the cryptocurrency.
What else can you use NFTs for?
Video game developers have found uses for NFTs, allowing players to purchase assets within a game. Players have long been able to use real money to buy in-game items like skins, but the introduction of NFTs adds another layer of ownership. Traditionally, when you’ve purchased a weapon or a vehicle in a game, that asset will eventually become useless when you stop logging into your account. Pegging that item to an NFT allows you to own and sell that item outside the confines of the game. Last year, in the blockchain-based racing game F1 Delta Time, one player paid $223,000 for an NFT representing a segment of a racetrack, which entitles the buyer to gameplay fees for events that occur on that track.
How can I buy an NFT? Walk me through it.
It depends on what kind of NFT you want, but people often purchase them through online marketplaces. The first thing you’ll want to do is to get a wallet like MetaMask, which you can install as a browser extension. You can then use your wallet to connect to an NFT marketplace like OpenSea or Rarible. From there, you can buy items in the marketplace at a fixed price or bid on them, usually with the Ethereum cryptocurrency.
Is this a bubble? NBA highlights? Seriously??
Investors have been warning that there could be an NFT bubble given the outrageous sums that people have been paying for these digital assets. For what it’s worth, Mark Cuban’s prediction is that these prices will eventually settle down as the initial excitement wears off and more competitors enter the market, though the underlying concept of using blockchain to sell virtual items will have staying power.
OK, make this easy for me. What does this all mean?
There have been innumerable takes on this trend. Some commentators have made sweeping pronouncements about a possibly profound societal shift in the way we think about property ownership, while others have argued that it reveals the absurdity of the art world’s obsession with authenticity. After the hype dies down, though, NFTs may just end up being a cool way to support artists and brag to people that you own Nyan Cat.
Future Tense is a partnership of Slate, New America, and Arizona State University that examines emerging technologies, public policy, and society.
