In recent weeks, cryptocurrencies like Dogecoin have crept further into the mainstream, as values increase – and decrease – and prominent tech figures like Elon Musk tweet their support for the blockchain technologies.
But even more recently, a new player seems to have entered the blockchain arena – NFTs.
On 5 March, rock band Kings of Leon released new album ‘When You See Yourself’ as a non-fungible token (NFT), and earlier this week, an original Banksy was burnt and destroyed before being sold via NFT for £274,000.
But that sum pales in comparison to what an American digital artist’s work – Everydays: The First 5000 Days – has been snapped up for.
Artist, graphic designer and animator Beeple – real name Mike Winkelmann – began creating a piece of art every day for 5,000 days in 2007.
The first NFT of an artwork to be listed at prominent auction house Christie's, it sold for $69 million on 11 March. It is the third most expensive artwork by a living artist.
But what does it all mean? What are NFTs, how do they work, and what do they mean for the future?
Here is everything you need to know.
What is a non-fungible token?
Non-fungible tokens are cryptographic tokens that represent something unique.
Unlike bitcoin and other cryptocurrencies, they do not represent a mutually interchangeable commodity (in cryptocurrency’s case, money). This means you cannot part with an NFT and have it be replaced with something of equal value later, as you would be able to a sum of cash.
That means they are – by definition – non “fungible"; you cannot exchange them for other cryptocurrencies or goods, like you can with money.
When did NFTs start?
Their history dates back to 2017, when American studio Larva Labs developed CryptoPunks, a series of collectable digital characters traded through NFTs, which serve as a good starting point in getting your head around the technology.
There are 10,000 unique CryptoPunks to collect. But being digital commodities, the ability to make copies which could be traded freely – thus reducing their value – is easy.
So, CryptoPunks were made digitally scarce through the use of blockchain, a kind of ‘Cloud’ technology for financial assets that keeps track of file ownership through advanced security protocols.
This gives a proof of ownership to each Punks’ holder, meaning there will only ever be one true copy of each of the 10,000 digital characters in the world.
How are they used?
NFTs main use has been found in the digital art world.
In the traditional, ‘physical’ art world, when an artist completes a work, that is the only copy of it. There is only one physical copy of da Vinci’s Mona Lisa for example, a scarcity which helps add to its astronomical value.
Forgeries are difficult when replicating physical art, thanks to the cumulative expertise of art historians and experts around the world, and the technology that can be used to rat out fakes.
But when dealing with digital art, pieces can be copied much more readily, usually with just the simple duplication of a file.
NFTs put an end to that, encrypting the digital source of an artwork with blockchain to ensure it remains the definitive version of that piece.
For example, a digital artwork could be embedded into this article, but it would not be THE artwork.
In theory that artwork could be copied an infinite amount of times, which essentially renders it worthless in a monetary sense. However, the person in ownership of an artwork’s NFT holds on to something much more valuable; the ‘original’ piece.
How do they affect music?
In early March, Kings of Leon became the first band to release a major rock album through NFTs.
Their eighth studio album is still readily available in all the usual formats, but fans who purchase one of their $50 NFT albums become the owners of blockchain tokens that grant access to limited edition extras like “moving artwork” and vinyl versions.
These tokens are only available to be purchased for two weeks after the album’s 5 March release date, after which no more will be produced.
This essentially means that Kings of Leon have been able to provide deluxe edition versions of their new album with all the extras that fans expect completely digitally.
That’s especially handy during a global pandemic, a time when popping out to a physical store is a harder challenge than usual; the NFT tokens can be redeemed for physical goods at a later date.
NFTs give even digital albums and other artworks collectability and value beyond what would usually be expected from what is essentially a handful of computer files.
They can be sold to other collectors for as much as they’re prepared to pay.
A version of this article originally appeared on our sister title, the Edinburgh Evening News