NFTs explained: What are non-fungible tokens, how do they work, and why are they worth millions?

NFTs explained: What are non-fungible tokens, how do they work, and why are they worth millions?

Tokens by the millions

Text: Jean Chua

We all know how art auctions work: interested buyers bid on the price of the artwork, then the winning bidder brings home the esteemed art piece in full glory. But what if you blow millions on an art piece and you don't even get to bring a physical sculpture or painting home? Instead, you'll get a one-of-a-kind digital token known as an NFT. Yep, not a physical item to flaunt as a centerpiece or to frame up on your bedroom wall, it's purely digital. We know of the JPG file, that was famously sold for more than $69 million made by digital artist Mike Winkelmann, known as Beeple. Local publisher Media Publishares (with anchor titles like Vogue Singapore, Buro. Singapore, Esquire Singapore, and Robb Report Singapore) also recently announced a partnership with Vidy, a blockchain-powered digital advertising tool, to launch and develop an NFT platform dedicated to the arts, fashion, and music industry. Its features will include minting, trading and auctioning of NFTs through a tokenised system along with the ability to host social interaction.

So where's the value in this new medium of art? We break down what is now termed as the future of art collection below.

What is an NFT?

NFT stands for non-fungible token. If the fancy economic jargon is confusing you, here's how it works. A fungible transaction means the two objects fundamentally have the same value (think exchanging a bitcoin for another), and hence a non-fungible token, means it has unique properties so once you interchange it for something else you can no longer get back the same thing. Think of it as exchanging a one-of-a-kind trading card with another, with the value of the card being changed.

How do NFTs work?

Well, most NFTs are part of the Ethereum blockchain. Ethereum is a cryptocurrency (much like bitcoin or dogecoin) but its blockchain also helps store extra information in the individual tokens so the NFTs can take the form of art, music, video in the format of JPGS, MP3s, videos, GIFs and more.

Isn't it possible to make money off duplicating NFT files?

Unlike how a traditional painting like the Mona Lisa can't be easily replicated, how can NFTs be profitable when it's so easy to make multiple copies of a digital file? While it's true that you can easily make copies of an NFT are still valid parts of the blockchain, you can't get rich by making duplicates of valuable artwork as the copies made. They certainly won't hold the same value as the original because your duplicated version won't hold the same information as the original NFT. The buyer of the NFT, ultimately owns a "token" that proves they own the original work.

What kind of NFTs are up for purchase?

Anything digital can be an NFT — drawings, music, paintings, and even your best tweets. If you're Elon Musk, that is. The founder of Tesla is now selling a tweet as an NFT and the current highest bid is over 1.1 million.

Where can I buy NFTs?

Unless you've got millions stashed in a safe under your bed, it's safe to say you probably shouldn't be playing around with blowing your cash on NFTs. But if this is just purely for research, you can buy NFTs on a variety of platforms, including OpenSeaSuperRareNifty Gateway, Foundation, Axie MarketplaceRaribleNFT ShowRoom, just to name a few.

Will NFTs harm the environment?

Sadly, yes. Since NFTs use the same blockchain technology as energy-hungry cryptocurrencies, they also end up using a lot of electricity and generate harmful greenhouse gas emissions. As it turns out, digital art collecting can come at a high cost — and we don't just mean the price of the artwork.