Owed to a flurry of recent headlines on the subject, you may have just heard about Non-Fungible Tokens, more frequently referred to as NFTs. But what exactly are they? And what determines the value of an NFT? 

The Non-Fungible Token Is Explained

 First, NFTs are digital signatures backed by blockchain technology, the function of which can be various. Blockchain, a type of digital ledger, is most commonly associated with cryptocurrencies such as Bitcoin and Ethereum. The main principle that highlights blockchain’s importance as an emergent technology is its unique identifier within the blockchain; this defines it as a definitive and irrevocable form of original property rights. 

 The general idea is that the chain of ownership, stored within the blockchain ledger, cannot be forged because it is maintained by a network of independent and decentralized computers worldwide. NFTs differentiate from Bitcoin units, which are entirely fungible and identical because they are assigned a unique, non-fungible, and chiefly theoretical value. This quality of being unique establishes the scarcity of the NFT signature and, hence, contributes to the more extreme valuations discoverable in some tokenized transactions making recent news.

How Do NFTs Help Evaluate Original Works of Art?

 According to the BBC, Christie’s, a 254-year-old auction house, just sold a digital-only piece of artwork for the first time. Digital and commercial graphic artists created the piece in question, Beebles, before being auctioned off for an astonishing $69m. An NFT tokenized the transaction, and there was ultimately no exchange of the original composition in any physical form. Another important NFT transactions were the recent sale of an animated GIF of “Nyan Cat.” A sort of Rainbow Pop-Tart meme from 2011 that sold for more than $500,000, along with an ostensibly non-aesthetic image in the form of Jack Dorsey’s very first tweet, selling for more than $6m. 

 What makes these events unprecedented in scope is that the commodities sold are easily visible to the public in digital format. Anyone can view them and even duplicate and store the images on a personal device. Since only one of those tokens is known to exist, their collectible values are merely anchored in the digital certificate of authenticity that secures the unalterable ownership rights to those images. In some instances, NFTs do certain rights to physical artifacts as original copies. Likewise, the artist may certify additional attributes of uniqueness to the deception by creating an NFT. 

NFTs Beyond the Bubble

 While some analysts may contend that artwork and other digital phenomena sold in the form of NFTs represent a financial bubble, there is an undeniable benefit to the average digital content creator in the smart contract that’s frequently built into the sale of an original work. Before NFTs, an artist could not maintain an on-going financial interest, say, his rare and original signed vinyl cover. But, now, with tokenization on the blockchain, not only can he authenticate its originality, he can capture a percentage stake every time the item is resold.