What are NFTs?

[Music] what's worth more a cute cat lebron james dunking or this tweet if you ask the internet it's the tweet in the past year these three items were valued online for the combined total of 4.4 million dollars what gives them that value it's because they're non-fundable tokens for nfts they represent a unique piece of media like an image or video and they live on a blockchain at the start of 2021 few people had heard of nfts by the end of the year over 24 billion dollars had been spent on them it's a wild potentially lucrative

marketplace why would anyone pay 69 million dollars for a jpeg and a hyperlink you're afraid of missing out so it is a frenzy but i also think in the frenzy we're seeing the pillars of stability grow as well are they just overpriced digital art or a promising technology that could transform the way we live the most exciting uses for nfts are possibly things that we can't even imagine yet [Music] to many the world of crypto is a foreign universe as bizarre as alice in wonderland i'm alice fullwood as the economist's finance correspondent i have spent

lots of time writing about crypto and nfts one of my pieces was on our cover in september with a pretty cool image it would make a good nft right we thought as much so we decided to sell it as one and down into the rabbit hole i went three two one in this world everyone talks in acronyms money is cryptocurrency and goods are nfts an nft is a token a digital asset that exists on a blockchain cryptocurrencies like bitcoin are also tokens but bitcoins are fungible or interchangeable you can swap one bitcoin for another one

and still have the same thing you can't do that with an nft they are non-functable or unique assets they link to the media they represent providing an irrefutable digital certificate of ownership to sell ours i minted an nft linking to our cover image and put it up for sale on an nft auction site and watched as the bids came through our nft sold for 99.9 ether a cryptocurrency commonly used by nfts it was equivalent to about 420 thousand dollars we donated the net proceeds to the economist educational foundation an independent charity we support but why

was it worth more than the other images of our cover going around online the fact that our nft was the only one minted by the economist gave it scarcity with that came value and purchasing it on the blockchain meant the buyer could prove they were the rightful owner being able to track provenance and monetary value has been a real game changer for digital artists which makes sense when one of the men who created them is one i've been doing digital art for a long long time um and got interested in it uh in the 90s

you would do internet-based projects but in all of those cases that media kind of goes out and it's kind of just out in the wild right and there's no question of economic value of that stuff for a long time it was difficult for digital artists to make money with their work until blockchains like the one that underpins bitcoin were invented that was something that artists needed they needed a way to be able to share their work as they were doing but they also needed to be able to hang on to something so that they could

have you know be able to participate in a market in 2014 kevin teamed up with a technical expert anil dash to mint the world's first nft and present the idea to a conference full of people hey are you interested in some animated gif art am i ever i got a good i got a i got a cool thing here check this out hey do you want to you want to buy that yeah name your price in any currency maybe you're not surprised to hear the audience didn't really understand what we were talking about at the

same time even back then and you know in 2014 i knew that it was an important idea and i knew that it was a potentially transformative idea it took seven years for nfts to hit the mainstream in 2020 around 150 000 nfts were sold on openc one of the biggest nft trading platforms in 2021 more than four times that were being sold monthly there were a few things that drove that boom the first is covert 19. it seems as though lock down boredom or stimulus checks tempted a lot of young people and new people into

dabbling in experimental kinds of financial markets you saw bitcoin reaching new all-time highs you saw the sort of second biggest cryptocurrency ethereum also reaching new all-time highs as crypto wealth grew the supply of nfts grew with it new artists started minting nfts in their thousands skyrocketing some to previously unimaginable levels of success some were shocked when traditional auction houses like sotheby's and christie's bought in on the action [Music] kesh is a digital artist whose work featured in one of christie's first nft auctions i don't think that 13 year old kesh would have ever imagined that

she would be selling her artworks at christie's next to warhol and some of the greatest artists that have ever lived it's just so exciting because it really just shows the evolution of digital art in a sense and the fact that it is now really being considered as a real art form on the business side of things the shift to nfts has been lucrative colleen is vice president of auctions at artnet a global marketplace for online fine arts sales that made the leap to nfts in late 2021 for our art nft inaugural sale the average transaction

price in that sale showed a two hundred and seventy percent increase versus the average transaction price in one of our traditional sales and likewise a hundred percent of our buyers in that first sale were new to artnet auctions we were able to cultivate an entirely new potential client base by putting our toes in this world and i think the runway for growth there is undeniable but buying and selling nfts comes with a lot of risks for those minting them it can be a legal quagmire quentin tarantino learned that the hard way when he tried to

sell the script of pulp fiction as an nft the typist is the only person who has ever seen it uh he was like well that sounds like it would be a pretty good nft he's now being sued by miramax who say it's their intellectual property for those investing in nfts there's another real danger inflated prices those who are thinking of investing in nfts for investment purposes the reality is 99 of them might not trade on the secondary market for much of anything skeptics say the whole market is a ponzi scheme where those who got in

early are now making money as new buyers enter the market and bid up prices but these flaws haven't stopped nfts from being widely used they are moving beyond the world of art and into the metaverse [Music] virtual worlds like these are growing in number and scale you can read our coverage on them by clicking the link above nfts could be the building blocks for digital economy within these spaces the things you buy be it a hat for your avatar or a plot of land can be purchased as nfts but some gamers are skeptical they worry

that this is just another way for video game companies to make money from players big brands are also seeing dollar signs adidas for example has started making metaverse ready digital clothing but nfts could also have more serious uses being able to securely document and track ownership could open up some powerful new possibilities at their core nfts are just unique digital representations of assets and that could essentially apply to any asset be it real world or digital a university degree for example could be issued as an nft a degree living securely on a blockchain and verified

by the university would be near impossible to fake and could be linked up to existing online sites like linkedin nfts in real estate could streamline the process of buying a home you could dream up hundreds or thousands of different ways to potentially use that technology but if nfts are to become more widely used there needs to be a lot of innovation the lack of a middleman means there's no one to help if there are any mistakes in a transaction handling nfts is also expensive adding nft to a blockchain involves paying fees known as gas which

fluctuate wildly and can end up costing a lot we paid around 98 to sell hours the carbon cost can also be high most nfts are issued on the ethereum blockchain and the network of computers that maintains the ethereum blockchain uses an awful lot of energy to do it the carbon cost of our auction was about the same as a long-haul economy flight there are thousands of startups trying to find solutions to these problems it's a time reminiscent of the dot-com boom when market madness surrounded a new technology but when the dust settled the internet became

the backbone of our society could the same happen with nfts there's both investment potential there's trading potential and there's very functional potential as well in so far as things authenticate or provide proof of ownership so i think gold rush absolutely paradigm shift absolutely and on the precipice of a new era really right now nfts especially those linked to digital artworks are over-hyped and overpriced but the technology is worth watching closely it's possible that when collecting a degree or buying a house our future could lie with nfts thank you for watching for more of our coverage

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