What is NFT, and why it matters in the crypto world

A digital-only artwork has sold at Christie's auction house for an eye-watering $69m (£50m) - but the winning bidder will not receive a sculpture, painting or even a print.

Instead, they get a unique digital token known as an NFT.

Where Bitcoin was hailed as the digital answer to currency, NFTs are now being touted as the digital answer to collectables.

But there are plenty of sceptics who think it is all a bubble that is going to burst.

Non-fungible tokens, or NFTs, are hotter than a summer day in Texas right now. here is what they are and why the world has gone NFT-crazy in the past month.

Fungible (adjective): Replaceable by another identical item; mutually interchangeable.

In economics, a fungible asset is something with units that can be readily interchanged - like money.

With money, you can swap a £10 note for two £5 notes and it will have the same value.

However, if something is non-fungible, this is impossible - it means it has unique properties so it cannot be interchanged with something else.

It could be a house, or a painting such as the Mona Lisa, which is one of a kind. You can take a photo of the painting or buy a print but there will only ever be the one original painting. NFTs are "one-of-a-kind" assets in the digital world that can be bought and sold like any other piece of property, but they have no tangible form of their own.

The digital tokens can be thought of as certificates of ownership for virtual or physical assets.

The Story Behind NFT

And because this is shiny new technology, and we're human beings, and this is the internet, NFTs first went mainstream as—you guessed it—cats.

Created in October 2017, CryptoKitties is a virtual game that allows players to adopt, raise and trade virtual cats.

From its website: "CryptoKitties is one of the world's first blockchain games. 'Blockchain' is the technology that makes things like bitcoin possible. While CryptoKitties isn't a digital currency, it does offer the same security: each CryptoKitty is one-of-a-kind and 100% owned by you. It cannot be replicated, taken away, or destroyed."

So that's it? Virtual cats? Not quite. A lot has happened since, especially in the past month , during which NFTs have turned from the nichiest of niche pursuits into a straight-up global obsession.

ow do NFTs work?

Traditional works of art such as paintings are valuable because they are one of a kind.

But digital files can be easily and endlessly duplicated.

With NFTs, artwork can be "tokenised" to create a digital certificate of ownership that can be bought and sold.

As with crypto-currency, a record of who owns what is stored on a shared ledger known as the blockchain.

The records cannot be forged because the ledger is maintained by thousands of computers around the world.

NFTs can also contain smart contracts that may give the artist, for example, a cut of any future sale of the token.

What's stopping people copying the digital art?

Nothing. Millions of people have seen Beeple's art that sold for $69m and the image has been copied and shared countless times.

But the buyer of the NFT owns a "token" that proves they own the "original" work.

Some people compare it to buying an autographed print.

The Big Bang: On Feb. 15, 2021, the venerable Christies, founded in 1766, became the first major auction house to announce plans to sell a purely digital piece of art—an NFT created by digital artist Mike Winkelmann, aka Beeple.

Called Everydays -The First 5000, it comprises, as the name suggests, 5,000 individual images created every day from 2007 to 2021 and posted on Beeple's Instagram.

An hour after the auction began on Thursday, the price jumped from $100 to $1 million.

But are NFTs just the latest fad, we hear you ask? They could be.

For one, most NFTs currently exist on a single blockchain — Ethereum.

And because humans gonna human, their use is for now largely restricted to creating and selling digital trinkets. Multi-million dollar trinkets, but trinkets nonetheless.

It can also be tricky and time-consuming, not to mention energy-intensive, to develop decentralised applications for NFTs.

There are also teething issues, too technical to go into here, around the protocols used to create them.

That said, they could very well be the next big thing. Truly big. Not for cats and giggles, or a digitally encoded version of this epic LeBron James dunk (which sold for $208,000 on Monday), but for more sober and practical way.

Such as? The most obvious use of unique, hack-proof virtual tokens is storing all kinds of data, private and public—from your birth certificate and health data to land records and much, much more.

More importantly, they could one day revolutionise the way we create and execute agreements to exchange money, shares, property, or virtually any asset through smart contracts. These digital contracts could one day do away with the need for a third-party arbitrator, such as a court, and instead use a computer program on blockchain to confirm that the conditions have been met.