Why Is Everyone Investing in NFTs?

Non-fungible tokens, or NFTs, have become an overnight investing phenomenon, with $60 million in sales on Tuesday—surpassing total sales for the entirety of 2020. An NFT is a type of cryptographic token used to make digital media unique and...

Why Is Everyone Investing in NFTs?

Illustration for article titled Why Is Everyone Investing in NFTs?

Photo: Polunina Mariia (Shutterstock)

Non-fungible tokens, or NFTs, have become an overnight investing phenomenon, with $60 million in sales on Tuesday—surpassing total sales for the entirety of 2020. An NFT is a type of cryptographic token used to make digital media unique and therefore collectible, whether that’s a GIF or even a sports highlight. If you’re wondering why everyone has suddenly forgotten how to take a simple screenshot, or are otherwise baffled by this—you’re not alone.

What are NFTs?

Using blockchain technology, NFTs designate an official copy of digital media, which then can be sold by artists, musicians, or sports entities to make money on content that would otherwise be cheap or free. NFTs are different from cryptocurrencies because they’re not interchangeable—each one is unique.

If you buy an NFT through a crypto asset marketplace, it’s yours to keep in your digital wallet, or put up for sale on the marketplace. When sold, all computers on a decentralized network record the transaction on a shared ledger, which, in effect, is a certification of authenticity that can’t be altered or erased.

NFTs have a wide range of uses, including collectible sports cards, digital art, and virtual real estate. Per Yahoo, brands like Nike, Louis Vuitton, and the NBA have already begun generating NFT-based assets, with the NBA launching a dedicated collectible site called NBA Top Shot. Last week, artist Chris Torres sold a one-of-a-kind version of Nyan Cat, a popular meme of a flying cat with a Pop-Tart body leaving a rainbow trail, for the equivalent of roughly $580,000, per the New York Times. Rick and Morty’s Justin Roiland has also jumped into NFTs.

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Why would anyone spend money on this?

It might seem bizarre to buy the “authentic” version of something you can easily screengrab off your desktop, but it’s easy to overlook the emotional value of collecting, especially when it comes to original art. Some of the appeal is owning an authentic item created by an artist you like, and the bragging rights that come with it. Essentially, this isn’t very different than owning an original Andy Warhol painting that can be displayed, sold, or shared—it just happens to be digital. Plus, crypto art finally unlocks the problem of artists getting paid, as the creators can program these assets to pay them royalties each time the collectible is sold.

Moreover—and possibly more importantly (if we’re explaining the renewed interest in NFTs, which have been around for years)—people increasingly see these digital assets as speculative investments, since they can be bought and sold on online marketplaces (an NBA Top Shot digital collectible card of basketball star LeBron James recently sold for $100,000, for example).

The increase in recreational investing during the pandemic is likely a factor, too: most of these exchanges accept cryptocurrencies, of course, which meets the demand of individual investors that have stockpiles of cryptocurrency and are looking to spend it on something that’s both fun and has potential to make more money later. Whether this interest will continue to sustain half-million dollar valuations of a flying cat GIF remains to be seen.