crypto world can seem baffling, as hundreds of millions of dollars are exchanged for objects
that only exist digitally.
The total value of NFT sales quadrupled to about $250m in 2020, according to a study from
NonFungible and L’Atelier, and have only accelerated. In March of 2021 alone, NFT sales
exceeded $220m, according to NonFungible.com. All-time sales flew to about $534m, with one NFT costing an average of $97.
The market is booming all of a sudden for these NFTs. So what are NFTs, and why are people paying so much money for digital items that anyone can see online for free?
What are NFTs?
Non-fungible tokens (NFTs) are:
1. Digital assets that represent digital items like art, video, pictures, etc...
2. Run on a blockchain network
3. Non-fungible, which means unique, not replicable
4. Valuable for their scarcity
Data for all NFTs are stored on a blockchain, which is a decentralized digital platform for
cryptocurrency transactions. This means that NFTs cannot be destroyed, removed, or replicated. It also protects against counterfeits, because no two NFTs are identical, and all NFTs can be traced to their original creator.
Most NFTs are bought on the Ethereum blockchain, which does require buyers to pay using the cryptocurrency Ethereum, although there are other platforms that have emerged, some of
which allows buyers to use credit cards to buy NFTs.
Taking out the economic jargon, something that is fungible can be mutually interchanged with something else of the same type. For example, bitcoin is fungible, as is currency, oil, and gold. You can trade one bitcoin in exchange for another, and the value you hold is the same. Something non-fungible would be like a rare baseball card or a vintage car. Each NFT accumulates its own value independently of other NFTs.
NFTs derive their value from scarcity, which is interesting considering it is digital. The digital world is, by nature, saturated with content, almost the antithesis of scarcity. NTFs tap into this, and creates scarcity over digital items by allowing ownership over those digital items. A digital file can be copied hundreds of times, but NTFs provide ownership over the original file. Some compare it with physical items: you might be able to buy a copy of the Mona Lisa, but there is only one original, and the original Mona Lisa has a value that copies don’t.
What types of NFTs are there? Who is using NFTs?
All sorts of digital items can become an NFT, including drawings, pictures, videos, music, and texts. Even CEO of Twitter Jack Dorsey created an NFT out of his first-ever tweet, which read “just setting up my twttr” – was auctioned off for $2.9million on March 21, 2021. Digital art has especially seen a lot of excitement with artists selling their digital art as NFTs. In fact, a pinnacle moment of the NFT mania we see right now was when Christie’s’s, a prestigious auction house, sold a digital collage by the artist Beeple for $70 million, making Beeple the third-most expensive living artist in history.
Sports are also getting involved, with the National Basketball Association (NBA) creating their Top Shot platform for fans to buy video highlights of games. Video of LeBron James dunking has sold for as much as $225,000. Actress Lindsey Lohan sold a picture of her face for $59,000. People can buy virtual land in
video games, and NFTs of meme characters.
But still...what is the point of NFTs?
For artists, NFTs allow them to sell their work in a verifiable form that is contemporary with the modern, digital age. NTFs also broaden the accessibility of artworks, reaching people around the world directly, without needing an auction house or gallery. This also means artists get to keep more of the money that their art is bought for. Musicians have also struggled in the digital age to garner profit for their music. NFTs formalize digital ownership for creators. For buyers of NFTs, there’s a natural benefit of financially supporting artists, musicians, or other creators that you enjoy. Buying an NFT also means buying basic usage rights to the image, music, or whatever digital item it is. And of course, people buy and sell NFTs like any speculative asset to make a profit when the value goes up. For long-term impacts, NFT enthusiasts see these tokens changing the future of ownership and property. The first digital NFT home—the Mars House—was sold in March 2021 for over $500,000. Enthusiasts see a future where all kinds of property are tokenized in this way to
For lawyers, the rise of NFTs can be particularly interesting for the legal implications this
disruptive technology will have. There are potential issues around:
● Intellectual property law
● Income tax consequences, as NFTs are treated as taxable property
● Potential issues with the lack of legal precedent and existing structure as NFTs become
involved with estate assets
● Possible scrutiny under US sanction laws or from the Office of Foreign Assets Control as
ordinary people trade NFTs internationally
Have questions about NFTs or want to learn more about how you can get involved in the NFT or cryptocurrency craze? Contact us now to learn more!