Kings of Leon, the alternative rock band hailing from the US recently made waves when they released their eighth album as an NFT. This was close on the heels of Grimes, the Canadian songstress who sold $6 million worth of digital art as NFT.
So what is NFT? Why is it such a big buzzword in the world of cryptocurrency?
NFT stands for non-fungible tokens. It is a unique digital token that cannot be easily exchanged.
Okay, let's start at the beginning. 'Tokens' in its most general dictionary definition means something that can be exchanged in return for various goods and services. It can also be an inanimate object of value or a tangible representation of quality.
In the world of crypto, any object that can be digitally transferred from one person to another is called a token. Unlike Coins, Tokens do not have the privilege of residing on their own blockchain. They depend on an existing blockchain to function and can be assigned a programmable value that can be recorded and maintained using a private key.
An example of a token would be the general coins themselves. Bitcoin, Etherium, Litecoin and many that you have probably heard of, have a value assigned to them that can be exchanged for goods or services.
But, here is where the plot thickens. Payment tokens aren't the only kind of tokens. There are three more kinds, Utility tokens, Security tokens and Non-fungible tokens.
In the interest of this article and not frying our brains to mush, we'll stick to non-fungible tokens.
Uh-huh! So what are Non-fungible tokens?
So glad you asked. You remember that old vase in your house that your parents always told you not to touch because it was one of a kind and expensive?
In the most basic sense, non-fungible tokens are the same thing. They are unique, easily identifiable tokens that are not easy to exchange. They can in themselves be a representation of a digital item or have a physical item be attached to it on exchange.
Let's take that vase as an example, imagine it being a physical item linked to a digital currency. Since it is very expensive, it is not easily exchanged and is unique because it is the only vase of its kind in the world.
They also can't be divided and are a representation of one whole asset, in this case, our friendly vase. In the world of crypto, NFT is niche but slowly gaining popularity owing to support from prominent names such as Elon Musk.
Since they are based on the same bitcoin technology that others are based on, they also have higher security and ownership can be ascribed using authentication of these assets.
So your vase is unique, protected and has a private key that only you can use.
Okay. But, why are they niche?
They are niche in the same way art is considered niche. It is expensive and relegated to a core audience that resides deep within the world of crypto. They have been gaining a lot of popularity though, mostly due to the association with high end digital art.
Recently, it has gotten a lot more mainstream thanks to exposure from personalities such as Elon Musk and his partner, the Canadian songstress Grimes. Grimes sold $6 million of digital art using NFT.
While that may sound like a big number, it was estimated that the overall NFT market was worth more than $250 million in 2020.
Assets such as the iconic Nyan cat GIF or a video of LeBron James fetched hundreds of thousands of dollars at auctions. It is also a market driven by scarcity and high demand, since there aren't many to go around which makes them really expensive and are like a collectors item for those with spare change to spend on them.