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What exactly is an NFT?

What exactly is an NFT?

As 2022 tries to bed down amidst extreme storms, both environmental and political, almost everywhere you look you will find mention of something related to crypto or blockchain. 

The most recent example was this year’s US Superbowl, an event watched by an estimated 112mn people worldwide, which, alongside the usual mix of offbeat advertisements saw multi-millions spent to promote some of the higher-profile cryptocurrency exchanges.

However, crypto no longer means just bitcoin, ethereum or the plethora of so-called ‘alt-coins’ that trade every day on exchanges. The relative new guy in town is the non-fungible token. 

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What an NFT is can vary wildly: simple jpegs of colourful cartoonish characters; sophisticated human or artificial intelligence-created ‘art’ in a more traditional sense; or video clips of top sporting moments or viral YouTube videos. Even the first ever tweet, sent by the founder of Twitter, is now an NFT. 

The focus now is on places people can show off their art, and the ‘metaverse’ is already starting to offer people help to display their sometimes extensive and high-value collections.

The origins of NFTs

Some of the very first NFTs date back to 2014, and arguably the most famous early NFTs – the CryptoPunks – were created in 2017. But it was the sudden wave of adoption experienced in mid-2021 that has fuelled the public’s current interest and the staggering growth in the area, with tens of billions of pounds already having been spent by people wanting a slice of the action.

NFTs are touted as ‘one-off’ artworks stored on the blockchain, with their novelty and prestige being in the public traceability of proof of ownership. 

Most of the NFTs currently in circulation are based on the Ethereum blockchain, which is more than just a cryptocurrency as it allows for the creation of smart contracts by, among others, NFT creators. 

These enable people around the globe to buy, transfer and ultimately trade in NFTs across decentralised networks. That said, other crypto blockchains such as Solana and Cardano are now also seeing NFTs being ‘minted’ (the verb used to describe the act of creation of an NFT) and stored on their own blockchain ledgers. 

Even Twitter has taken note and has worked to integrate crypto wallets to enable people to show off their NFTs.

While NFTs are not, strictly speaking, a monetary token like the more run-of-the-mill cryptocurrency we may now be used to, they are still a type of crypto token and in some cases can be worth a great deal. 

For example, many will likely recall the media storm around the $69mn (£52.3mn) sale by Beeple of his 'First 5,000 Days' NFT artwork; then in the autumn of 2021, tens of millions of pounds was made from Sotheby’s auctions of Bored Ape Yacht Club NFTs; and earlier this month there was the sale of a rare CryptoPunk for a very respectable $23.7m. While some may still value Rolexes and supercars, there is a steadily growing portion of the populace who would now rather flash a digital asset, the value of which only those in the know will truly appreciate.