What Are NFTs?

Since NFTs exploded in popularity, there’s been no shortage of headlines about pictures of apes that sell for millions of dollars, a horde of nefarious hackers stealing them and the countless other ways they can be compromised. Unless you’re deep in the crypto space, these stories may have left you wondering, “What are NFTs?”

The answer is non-fungible tokens, which were invented as a way to create digital representations of real-world objects. Like virtual currency, nfts are stored on the blockchain, which means that records of their ownership can never be erased or forged. They are also “permissionless,” meaning that anyone can create them and share them with the world without needing to ask for permission. Finally, they are “unique,” which means that there is only one of them in existence at any given time (or crypto wallet address, to be precise).

NFTs were originally created for use in gaming and collectibles, but the idea is being expanded to other kinds of digital assets, including art, music and video content. This is why there’s a growing interest in NFTs among artists, musicians and others who want to build an audience and monetize their work in a new way.

In some cases, this involves selling physical goods like T-shirts and posters; in other cases it involves building a digital collection that people can trade and buy into. The popular CryptoKitties collection, for instance, has seen a lot of growth in recent months, with the total value of its tokens traded daily recently exceeding $15 million.

As with cryptocurrency, NFTs have an inherent value that comes from their underlying technology. The Ethereum blockchain, where NFTs are created and stored, has the ability to record immutable, timestamped records that cannot be altered or erased, and is maintained by thousands of computers around the world. That makes it impossible to counterfeit or forge an NFT, which gives it a degree of authenticity that isn’t present in other forms of digital media. In addition, NFTs can be programmed to contain smart contracts that allow the original creator to receive a cut of any future sales or resales of the asset.

Despite the rise of NFTs, they are not expected to replace traditional artforms like sculpture and paintings. Instead, they will co-exist with them as a way to monetize and distribute their work in new ways. “The genie’s out of the bottle, and this is just going to grow,” says Schachter. “There will be 3-D hologram projections of sculptures that you can interact with, and NFTs that make it possible to digitally collect and trade them.”

For now, most NFTs are traded on proprietary marketplaces that specialize in them. This includes specialized NFT collections such as OpenSea and Rarible, as well as the more general platforms like eBay and Amazon. In some cases, these marketplaces have their own verification and buyer protection processes, but the rules seem to vary widely. As a result, it is important to keep the old adage “caveat emptor” in mind when shopping for NFTs.

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