What is an NFT? | The Economist https://www.economist.com/the-economist-explains/2021/10/12/what-is-...

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The Economist explains

The Economist explains

What is an NFT?
“Non-fungible tokens” use cryptocurrencies’ blockchains to sell original versions
of digital artefacts

Oct 12th 2021 Give this article

1 of 5 2021-11-13, 7:31 PM
What is an NFT? | The Economist https://www.economist.com/the-economist-explains/2021/10/12/what-is-...

“NON-FUNGIBLE TOKENS” (NFTs) leapt from the more obscure corners of the
internet into the mainstream in March 2021 when Christies, a British auction house,
sold a digital work of art for $69m. What it actually �ogged was an NFT, a
cryptocurrency chit that proves a buyer owns an intangible marker connected to a
unique piece of digital art, music or other item. Much like René Magritte’s painting
of a pipe that proclaims “this is not a pipe” an NFT is not the thing it represents.
Tweets, videos of basketball dunks and even the source code to the world wide web
have been sold as NFTs in recent months. From June to September they generated
almost $11bn in sales, an eight-fold increase on the previous four months,
according to DappRadar, a market tracker. What exactly is an NFT? And why are
people spending tens of millions of dollars on them?

An NFT is a record on a cryptocurrency’s blockchain (an immutable ledger that can

record more than just virtual coins) that represents pieces of digital media.
Invented a few years ago, it can link not only to art but also to text, videos or bits of
code. Promoters of NFTs claim that they solve a thorny problem with digital art:
how to own an original. For creators who freely upload their work or sell it as
identical copies, the concept of an original is di�cult to pin down. Exclusivity is
impossible to enforce when digital �les can be shared freely on the internet. But
collectors want the cachet that comes with having an exclusive claim on an artwork.
This is where NFTs �t in.

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To mint an NFT, the creator establishes a unique record of the artwork, generally on
a website. Then the creator places the record on a blockchain, usually Ethereum’s,
which requires a transaction fee known as gas. Possession of a private encryption
key associated with the transaction proves ownership. This gives an artist or
collector something to sell. An NFT may link to a version of the work, but rarely
includes the rights to reproduce or distribute it. That di�erentiates it from a
commercial licensing arrangement, too.

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What is an NFT? | The Economist https://www.economist.com/the-economist-explains/2021/10/12/what-is-...

NFTs have myriad problems. They often change hands using cryptocurrencies,
many of which currently have sky-high valuations, leading to fears of a bubble.
Anyone can mint an NFT, since the systems involved are decentralised, although
doing so with someone else’s work could be infringe their copyright. Some artists
have already claimed misappropriation of their work. Most NFTs are simply links to
images. Unless they have been issued in a certain way to ensure they are tamper-
proof these can in theory be meddled with after the sale. The high electricity usage
of blockchains—Bitcoin’s is greater than that of Chile—has prompted arguments
over whether artists are contributing to climate change by embracing NFTs. And
ownership may be di�cult to prove in the long term, as web-based records may not
last for ever.

Yet NFTs have some value beyond the cryptocurrency hype: artists struggle to make
a living when their works can be easily replicated and pirated. NFTs will create new
problems in an attempt to solve old ones, but for now many creators and collectors
are too busy cashing in to care.

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