It’s hard to think of a worse name than non-fungible token. Is it a mushroom? Can you use it to play an arcade game? NFTs are about as far from organic matter as you can get, but there is a connection to video games.
NFTs are one-of-a-kind digital files of almost anything: a tweet, an illustration, a particularly good play during a basketball game, even tasting notes. NFTs are both a novelty and an investment opportunity. Companies ranging from Hasbro to Major League Baseball to Vogue are experimenting with NFTs. Bourbon experts and wineries are getting in on this trend too.
NFTs only exist online and they have their own storage facility and monetary system. Here’s a quick explanation of the basics and the buzz surrounding these new products.
Built on blockchain
The NBA is selling NFTs but you can’t keep them in a shoebox. The storage system for NFTs is the blockchain. Blockchain is a ledger of transactions duplicated and distributed across a network. According to IBM, anything of value can be tracked and traded on the blockchain, which reduces risk and cuts costs.
This is where the non-fungible part comes in. Each NFT is a link on a particular blockchain; there can’t be two copies. Each link comes with its own provenance as well. Buyers and sellers can see the source of the file as well as each transaction. Some creators have built royalties into these transactions so that they get a cut of each sale. That’s why NFTs are so hot in the art world right now. Sotheby’s has an NFT gallery where digital artworks have sold for millions of dollars.
Bought and sold with cryptocurrency
The other thing to know about NFTs is that many are bold and sold with cryptocurrency. Fiat money is the coins in that jar on your kitchen counter. Cryptocurrency is digital money secured by cryptography. That makes it almost impossible to counterfeit. Bitcoin and Ethereum are the most well-known cryptocurrencies, but there are many other options. This digital money lives on the blockchain, just as NFTs do. You don’t have to use cryptocurrency to buy NFTs, but sometimes that’s the only option. It’s easy enough to open up a crypto wallet to store your cryptocurrency and your NFTs.
That’s where collectors come in. The rapper Snoop Dogg started collecting NFTs under the alias Cozomo de’ Medici earlier this year. Crypto wallets are public—remember the blockchain is all about transparency and traceability—so you can see what he has collected. He has more than 1,300 items worth more than $17 million.
Anyone can launch a cryptocurrency or mint an NFT. Building a community is an important part of the process as well. Several wineries have offered NFTs linked to bottles and Glenfiddich is experimenting in this space also.
It’s tempting to start buying up NFTs, but there are as many scams (possibly more) as there are legitimate sellers. The whole raison d’être for cryptocurrency is decentralization. When you cut out the middleman, you reduce costs but you also take on risk. There’s no central bank or government agency to appeal to if you choose poorly and a bad actor disappears into the ether with your coins.
NFTs in the metaverse
Now that you’ve mastered the basic concepts of NFTs, you may want to know: What’s the use of having a one-of-a-kind collector’s item if you can’t show it off? Well, if Mark Zuckerberg and the founders of Decentraland and Epic Games CEO Tim Sweeney are right, you’ll be able to show off your NFTs in one of many metaverses. Zuckerberg talks about building this next iteration of the Internet, but there are online worlds you can visit right now. There’s no interoperability yet, so you can’t move an item purchased in one world to a different one. But hope springs eternal, especially for tech companies hoping to claim a corner of these virtual worlds.
Decentraland is a virtual community where users can buy and sell digital real estate, play games and socialize. There is a tavern in this virtual world, although avatars can’t drink yet. There are other ways for bourbon and wine connoisseurs to get a taste of NFTs.
Check out our next blog post to see who is doing what with spirits and non-fungible tokens.