NFT's (short for Non-Fungible Tokens) are among the most exciting new technologies of the past years. They bring a new approach to selling art in the digital age. If you have never heard about NFT's here are some facts to get you on board:
This highest sell of an NFT was a massive $69 million, the sixth highest price in history for a work of a living artist
NFT market capitalisation went up by almost 10x in just 2 years
Participation from major brands such as Ubisoft, Warner Bros, NBA and Formula 1
To understand how NFT's are transforming the art market we first have to understand how art was sold prior to the existence of NFT's.
With the invention of the internet, parts of the art market shifted to an online presence. Online sales doubled during the COVID-19 pandemic, making up for almost 25 % of the total art market value. However most digital art products are not unique. A picture on the internet can easily be copied by anyone making it almost impossible to distinguish an original from a copy.
The problem NFT's are solving is the digital copying of an unique product - no one wants to buy an art piece if anyone can just make identical versions of it. Afterall many art pieces are valued highly because of their rarity and uniqueness.
So how does it work?
An NFT is a certificate to identify an art asset as unique. The NFT is stored on the blockchain making it forgery-proof and easily tradeable. This also means that an artwork can be made unique even if there exist millions of digital copies of it. The key to all of this is the non-fungible part of the token. To understand it we first have to understand what a fungible token is.
If you take a $1 bill you will find a unique code on it, with which you can distinguish this very bill from other $1 bills. This code represents your token. However, no matter what code you have printed on your $1 bill, its still the same value as any other $1 bill, thus interchangeable. This is called a "fungible" finance product.
Most cryptocurrencies work the same way. One bitcoin is worth the same as another, even though they are represented by different tokens in your wallet.
NFT's are Non-fungible, meaning they are not interchangeable. Non-fungible tokens represent an asset and not a value. This makes them suitable for selling digital art or collectibles, as these things do not have a fixed value.
How to trade NFT's?
NFT's are traded on many online platforms. As most pieces are stored on the ethereum blockchain, art pieces are bought and sold with the ethereum token (ETH).
After the market took of prices for art and collectibles skyrocketed. Collectables like the "CryptoPunks", the first NFT's running on the ethereum blockchain, are traded for prices up to in the seven-figures.
While many might smile at 24x24 pixels getting sold for millions of dollars it just shows what potential this market might have. While the outlook of NFT's is yet to be seen in the coming years, the technology already plays a big role in todays art market. If you are interested in trading NFT's, here is a list of some of the biggest exchange platforms: