This is what awaits you in this article
If the abbreviation NFT sounds cryptic to you, make no mistake at all. NFT stands for Non-Fungible Token and thus for one of the latest megatrends in the crypto world of virtual realities, digital art and cryptocurrencies. Like the units of digital currencies, an NFT is part of a decentrally stored blockchain, blockchain. However, NFT differs from digital currencies in that they cannot be exchanged arbitrarily – ie. they are not “fungible”. Mens Bitcoin & Co. competing with the global “paper” currencies, many see the NFT as the digital revolution of the art world.
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What can you trade with NFT?
It is the combination of several factors that has triggered the huge success story for NFT since its inception a few years ago. The blockchain process on which it is based makes NFT almost counterfeit-proof. NFT can be linked to digital or real objects and can be traded on digital marketplaces. This makes them almost marketable, digital certificates of authenticity for virtual or material values. Digital artwork, animated graphics, pieces of music, videos or digital gadgets from online games: Almost anything can be linked to an NFT and traded online.
Digital graphics (GIFs), often animated, are especially popular with virtual art collectors. Last year, for example, the famous cat Nyan Cat was sold as an NFT for about 500,000 US dollars, after it had already dragged its tail across screens around the world as an animated GIF for ten years. The most expensive NFT ever is a graphic design: the work “Merge” by the anonymous online artist Pak set a new record at the end of 2021 with a total profit of about 91 million US dollars. But even though these two works of art were sold as NFTs, they are still freely available on the Internet. Like most works of art sold as NFT, it continues to circulate on the World Wide Web.
To some extent, digital trading cards are the virtual equivalent of the well-known Panini cards. Especially playing cards are very popular. For example, FC Bayern Munich – in collaboration with the fantasy football game Sorare – offers licensed player cards such as NFT. Similar digital cards have been around for a long time, for example for the NBA basketball league. Some of the NFT player cards on digital platforms can even be put together to form fantasy teams competing against each other.
game characters and gadgets
NFT is very common in the virtual gaming market. The tokens do not even have to represent the players themselves; for the most part, it’s clothes or equipment for the virtual characters. These so-called in-game gadgets often give the characters special powers or abilities and can also be traded between players. The next generation of virtual games goes a step further, where players can theoretically create NFTs themselves by solving puzzles and making money selling them. In this context, there is also talk of “play-to-earn” games.
Even real objects and works of art can be linked to an NFT. Some painters are already using NFT to sell scans of their artwork. Buyers of such NFTs on real art then typically get access to a high-resolution scan attached to the original painting itself. As a rule, however, they do not acquire the rights to the real image with NFT, and commercial use is usually excluded, as is the case with purely digital art. The trend towards tokenization of real art was recently taken to the extreme by a blockchain group that first burned the work “Morons” by online artist Banksy in an art campaign and then sold the video as an NFT.
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What are the benefits of buying an NFT for buyers and sellers?
As a certificate of authenticity, NFT is almost forgery-proof, immutable and, unlike the work itself, cannot be copied. At the same time, NFTs are a multifaceted and rapidly evolving phenomenon that sometimes leads to legal ambiguities.
NFT opens up a global market for buyers and sellers. Artists in particular benefit from the almost global clientele that they can offer their works to direct and without agents. A significant step forward from the artists’ point of view is that an NFT can be designed via a so-called “smart contract” in such a way that the author receives a certain percentage of royalties at each resale.
From the buyer’s point of view, an NFT first proves that the work associated with the token is an original. As a starting point, the buyer only receives the proof of authenticity and the so-called “simple right of use” with NFT. He can use the artwork for private but not for commercial purposes. As a rule, he does not acquire additional rights to the original or even the copyright. Only in exceptional cases, when the author transfers the “exclusive right of use” to the buyer, can the buyer also reproduce the work or use it exclusively. The only material advantage that the buyer usually has is the potential gain on resale.
What do you own after buying an NFT?
In fact, it is not always entirely clear what the buyer of a token is actually acquiring. An NFT allows you to swap everything and (almost) nothing. All because you can attach almost any file or object to the token; and nothing because the license for commercial use is not normally transferred with the token. Depending on the design of the NFT, the artist himself can continue to circulate his work. One can therefore also imagine NFT works of art as a kind of hand-signed copies.
Strictly speaking, the owner receives only the non-fungible token, which identifies the owner’s name via its metadata, and which is linked to a specific work of art via its digital signature. The simple right of use thus transferred usually allows him to use the file, but not for commercial purposes. Many NFT graphics are posted by buyers on publicly available websites for display for free. The digital artwork itself can usually still be easily viewed on the internet or downloaded. So NFT does not actually create scarcity on the underlying object or artwork itself, but only on the token deposited on a blockchain.
Unlike a privately made copy, the buyer of an NFT can prove that their copy is the authentic version. Similar to an expensive classic painting, where there can be many high-quality copies, but only one original. And NFT is a sure proof of this original.
How does a work of art become an NFT?
The process by which a work of art becomes an NFT is called “minting”, analogous to minting, and is also sometimes referred to as “tokenization”. A digital file is connected to an NFT. It is impossible to delete, edit or change the link to NFT. Of course, the digital object itself is not converted during embossing, but NFT refers to the underlying file, for example by saving the URL. NFT is therefore a forgery proof of the authenticity of the original. Important: Only the artist himself can transform a work of art into an NFT under copyright law unless he has assigned the right to a third party. Converting a copy to an NFT, for example, would be an infringement of copyright.
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How is the price formed?
The price of an NFT is formed solely in accordance with the law of supply and demand. Since no commercial rights are normally sold, there is no current income. The owner of an NFT could not collect his artwork from the artist, even though it was a painting. As such, NFT is not a real asset in itself. Subjective appreciation, scarcity and the buyer’s interest alone determine the price. And the long-term demand obviously depends on whether NFT will eventually establish itself as a digital form of art and investment. Opinions are vastly different here.
In light of the huge sales revenue, experts warn of a speculative bubble. In an interview with the British television station BBC, well-known online artist Mike Winkelmann aka Beeple said: “I think there will be a bubble. And we could already be in one.” He gave the interview a day before his work “Everydays: the First 5000 Days” set a new record with about 69 million US dollars, which was soon repeated by “Merge” was surpassed at 91 million dollars.
Where can you buy and sell NFT?
Most NFTs are based on the blockchains that are also used for common cryptocurrencies. Ethereum blockchain of the widespread cryptocurrency Ether is particularly popular. But blockchains of the digital currencies Polygon and Solana are also often used. NFTs are listed and traded on an ever-growing number of digital marketplaces. These include what is probably the largest NFT hub OpenSea, Crypto.com, Rarible and Binance.
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