You've probably heard well-nigh the latest new digital craze: non-fungible tokens or NFTs. These unique digital codes rely on the same blockchain applied science as cryptocurrencies like Ethereum, but with a big difference: NFTs are completely unique and establish buying of digital assets.

I wrote an article in 2018 about an online game chosen CryptoKitties, which involved collecting and breeding one-of-a-kind digital cats that lived on the Ethereum blockchain. These cats could be bought, bred and sold for Ethereum cryptocurrency, and ownership of the cats used NFT technology manner before it was cool.

Fast forward three years and nosotros're living in an age where Twitter founder Jack Dorsey tin can sale off an NFT for his first-e'er tweet for $2.9 meg, and digital artwork sells for hundreds of thousands of dollars, which rightly leaves people in the art world and beyond scratching their heads and wondering but what a not-fungible token is, why it matters and if there's annihilation behind the hype.

Run across: NFTs cheat sheet: Everything you need to know most non-fungible tokens (costless PDF) (TechRepublic)

What are NFTs?

Not-fungible tokens are, in a style, a lot like cryptocurrency. The tape of their being lives on blockchains, they can exist bought and sold using cryptocurrency, and there isn't necessarily a concrete asset that ties them to the real earth.

NFTs differ from cryptocurrency in that they're non-fungible, meaning they can't be exchanged for an identical item. Cash, for example, is a fungible nugget: Each dollar may be unique, but the item dollar y'all have doesn't matter. If you swap a $10 bill for two five-dollar ones, you still have $ten. Merchandise your $10 for an autographed baseball game card, withal, and you then have a non-fungible item: information technology's unique, and while it may have a monetary value, it isn't itself a trade article.

Meet: There'due south more to cryptocurrency than Bitcoin: 5 other digital coins to consider (gratis PDF) (TechRepublic)

Other examples of not-fungible goods include artwork, houses, website domain names, your pet cat and parcels of land.

Here'southward where NFTs come in: they're digital tokens on a blockchain that represent a unique item, like Jack Dorsey's tweet, a crypto kitty, a slice of digital art or even a physical asset with buying tied to an NFT.

What rights does ownership of an NFT confer?

If the idea of claiming buying to a tweet, a GIF, a piece of belongings in an online game or a virtual cat seems odd, y'all're non lonely in thinking and then. NFTs accept been controversial, and it's just every bit easy to observe support for them online as it is to find people who recollect they don't make any sense.

Daniel Van Boom, editor at TechRepublic sister site CNET, said people who don't understand NFTs are in expert company. He wrote: "Information technology'due south incomprehensible that clips, memes and gifs are selling for 6, seven and even 8 figures."

Even more than disruptive is what owning an NFT means: If you purchase the NFT of a unique piece of art, you accept sole ownership over information technology and tin exercise with that art what you want, correct? Not exactly.

Take, for example, Nyan Cat, an blithe GIF of a true cat with a trunk made out of a toaster pastry, flying through space with a rainbow in its wake. An NFT of Nyan Cat recently sold for $590,000, but equally CNET points out, the possessor of the Nyan Cat NFT is only that: the owner of the Nyan Cat NFT. The intellectual and creative rights to the piece of work are yet owned by the artist who created it.

SEE: NFTs: A passing trend or here to stay? Americans and United kingdom residents have very different opinions (TechRepublic)

From CNET reporter Oscar Gonzalez: "What the owner of the token has is a tape and a hash code showing ownership of the unique token associated with the detail digital asset. People might download Nyan True cat and use it on social media if they want, but they won't ain the token. This also ways they can't sell the token as the owner can."

Ownership of NFT avails can vary based on the transaction, but the Nyan Cat example is a typical example in which the creator still owns the work, but the NFT purchaser owns the original copy. Zip well-nigh an NFT inherently confers copyright, which is why a $69 million NFT of a piece of digital art by Beeple (whose name is Michael Joseph Winkelmann) tin be copied and re-copied without anyone breaking the law.

Recall of owning an NFT like owning an original van Gogh: Certain, you accept the artwork the man himself painted, but in that location are countless prints of information technology in other people'due south homes. The big difference is that information technology's basically incommunicable to claim ownership of a virtual item that can be copied without fault unlimited times, while a physically original van Gogh painting is (with the exception of a skilled forgery) unmistakably the original painting.

When you think of information technology similar that, it's almost as if an NFT is only worth the bragging rights that come with it.

How are NFTs created, and how are NFTs sold?

In an commodity for OneZero, Allen Gannett walked through the process of creating his own NFTs and what was involved. Hint: You'd meliorate take some spare cash if you want to try getting rich off your own art.

"There are three steps: the actual creation of the art, the "minting" of them (transforming the file to a 1-of-one NFT) and selling them," Gannett said. Buying NFTs, on the other hand, is just like bidding on any type of online sale.

See: Dole partnership creates an NFT series as a start footstep to fight global hunger (TechRepublic)

With a digital asset in manus, anyone wishing to mint an NFT needs to choose an NFT market place, like Nifty Gateway, SuperRare or Rarible, where the digital nugget can be uploaded and minted into an NFT on whichever blockchain the market operates on–nearly NFTs are part of the Ethereum blockchain.

Here's where we arrive at sticking signal number one: Some of the larger exchanges require NFT minters to utilize to publish works. "I had imagined that I could walk in, throw downwards my best art and soon be showing my work to the masses. Instead, I was met by forms asking me to explicate who I was and my background," Gannett said.

Creators who get in past that signal are now faced with the second obstruction to minting an NFT: money. Like everything to do with the blockchain, you need to put up some serious coin to get your transaction added. In Gannett'south case, "doing this would cost .67 ETH (Ethereum) or, equally we would say in normal-speak: $997. These fees vary based on how 'congested' the Ethereum network is," he said. Naming one particular slice of NFT artwork in order to sell information technology price Gannett an additional $86, and publishing four NFT images for sale concluded up costing a total of $ane,300.

"The side by side morning time I received a bid of .05 ETH (about $76) for each of my four NFTs. The Ethereum gas fees for accepting the bids? $88…each," Gannet said. "Just I sold one, because even if I lost $12 on it, I'm now, technically… a professional NFT artist." Gas fees are the cost that must be paid into the Ethereum blockchain for verifying a transaction, such every bit the sale of an NFT, acceptance of a smart contract or the buy/auction of Ethereum cryptocurrency.

SEE: Quick glossary: Blockchain (TechRepublic Premium)

How could NFTs touch businesses?

There are diverse ways in which NFTs could bear on businesses: They take the potential to transform buying rights, and they tin be used equally tools for selling digital and physical merchandise.

The NBA, for example, has created a new line of NFT collectibles chosen Top Shots, which are essentially short, collectible highlights from games that act equally a sort of digital trading bill of fare. They've been successful enough that i LeBron James Top Shot sold for more than than $200,000.

Celebrities, like rapper Mail Malone, accept also gotten into the NFT game. Malone recently partnered with crypto firm Fyooz to create NFTs that would allow owners to trade them for a game of beer pong. Other celebrities have sold art, songs and other digital products on NFT marketplaces.

"Blockchain-backed worlds are ripe for opportunity. Now is the time to build the structures to support NFTs and notice your make's adjacent audience on the decentralized spider web," futurist Cathy Hackl said in Forbes.

SEE: How blockchain volition disrupt business organisation: A special report (free PDF) (TechRepublic)

When tied to digital or concrete avails, NFTs provide a new ways of establishing ownership besides. "The file itself—whether a photograph, a video, an ebook or annihilation else—must 'live' somewhere else. You tin can create a permanent, secured record of the asset on a blockchain, and that tape can exist 'tied' cryptographically to the nugget wherever it lives off-chain, but they do non reside together," intellectual property lawyers Lance Koonce and Sean Sullivan said.

"[NFTs] can exist used to correspond other, unique assets that are either online or in the physical world," Koonce and Sullivan said.

Here's where businesses have the potential to practise something with the engineering science behind NFTs. The tokenization of buying, every bit CoinTelegraph points out, could help assert ownership of physical objects by "keeping them secure, ultimately revolutionizing the compensation, storage, legality and the security of holding."

NFTs, similar the cryptocurrency and blockchain industries as a whole, are notwithstanding a Wild West of gamble and little regulation, but given time, NFTs could go a valuable investment for businesses looking to secure their holding or products with a digital buying chain. Information technology's a far cry from the NFT art markets of 2021, merely like cryptocurrency, the underlying engineering may be the affair that lasts rather than its initial speculative application.

Is the NFT market place already in a chimera?

Popular cultural sensation of NFTs is still relatively new, only as CNN pointed out, the bubble may already be bursting. "The boilerplate price for an NFT on Apr 5 was virtually $1,256—down from more than $4,000 in late Feb," wrote CNN Business concern digital correspondent Paul La Monica.

Even Beeple, perhaps the biggest winner in the electric current NFT craze, said he thinks NFTs are in a bubble, much similar the dot com bust of the early 2000s. "But it didn't wipe out the internet. And then the applied science itself is potent enough where I call back it'due south going to outlive that," Beeple said.

Another trouble with NFTs, similar that of cryptocurrency, is that many people who remember they understand what they're investing in aren't as enlightened equally they should be, said Koonce and Sullivan. "At that place may be misconceptions amongst purchasers that by buying an NFT associated with underlying digital assets, they are purchasing the nugget itself rather than just the token."

SEE: Move over athletes and gamers—digital influencers want in on the NFT trend (TechRepublic)

Every bit mentioned to a higher place, NFT ownership ultimately only amounts to bragging rights. Those bragging rights may be worth millions of dollars, but only if someone else thinks they're that valuable and is willing to purchase them.

"What NFTs really do is create scarcity. It'south artificial scarcity, but that'southward nothing unusual: Nike and Kanye Westward created artificial scarcity when they decided to only produce 200 Yeezy Red October sneakers, which is why that particular pair of sneakers runs over $10,000," said CNET's Smash.

The difference between sneakers and, say, a token representing a picture of sneakers, is that buying the sneakers ways you lot own a pair. Buying the NFT only means yous ain a unique token that says you own the moving-picture show of the sneakers, which tin all the same be copied, shared, printed and hung on the wall by anyone who wants to do so.

In addition, NFTs and their fungible-token cousins on the blockchain have an environmental problem: they eat tons of free energy. Bitcoin mining alone consumes the aforementioned amount of energy per year as the entire country of Sweden, and that doesn't accept into account other currencies that consume up tons of energy every bit well; Ethereum, where most NFTs live, uses roughly the same amount of energy per year as an entire company.

French creative person Joanie Lemercier recently sold a fix of 6 NFTs on Nifty Gateway for several g dollars in a thing of seconds. The energy required to complete the sale was a massive eight.7 megawatt-hours. The average U.S. home consumes ten.7 MWh per twelvemonth, for comparison, pregnant that unmarried sale ate almost a year'southward worth of electricity for the average dwelling house. The art was later resold, requiring a similar amount of energy.

"Does acquiring bragging rights to a digital epitome that anyone with an internet connection can savor constitute an unavoidable role of one'due south carbon footprint?" Peter Howson asked on The Conversation.

At that place'due south an splendid engineering underlying NFTs that, similar blockchains in general, have the potential to transform supply chains, buying and business, but the tech is withal in its infancy. Whether NFTs will show to be practical tools or just some other short-lived digital bubble remains to be seen.


Image: elenabs/Getty Images