What is an NFT and why are digital collectibles all the rage?

A new world of collectible digital tokens is taking the internet by storm, but what are they exactly?

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Headlines have been made recently in the world of collectible sports memorabilia. One sports fan reportedly paid $208,000 for a digital video of a LeBron James dunk from another collector. The collectible video was part of NBA Top Shot, a collection of NBA-licensed digital items that function similarly to the conventional trading cards of the past. 

These items are also known as non-fungible tokens or NFTs for short. Sports memorabilia fans, digital art collectors, and speculative investors are hopping in on the bandwagon. Are these items the future of memorabilia or collectibles? How do they work? Why the crazy money?


What is NFT?

This NFT digital art by recording artist Grimes sold as part of a collection for $6 million.
This NFT digital art by recording artist Grimes sold as part of a collection for $6 million.

NFTs are unique digital files whose authenticity is verified by the blockchain, an ever-expanding digital ledger that records all sorts of digital transactions. Being non-fungible means that the tokens are not mutually interchangeable. Unlike Bitcoin, you cannot exchange one NFT for another as each is unique. They cannot be divided into smaller portions like most currencies or precious metals. 

The cryptographic origins of NFTs ensure their digital scarcity and proof of ownership. NFTs can be used across a variety of applications, such as digital art or collectibles. This type of item is of particular interest to digital artists as it prevents the art from being endlessly copied and a specific piece of digital art can have a verifiable chain of custody. In some cases, the artist can collect royalties on an item that passes between owners multiple times.


The explosion in the popularity of NFTs in pop culture

NBA TopShot has become one of the most talked-about mobile apps in the world over the last year.
NBA TopShot has become one of the most talked-about mobile apps in the world over the last year.

The first use of NFTs in relation to collectible items came in 2017 with the introduction of CryptoPunks from Larva Labs. The digital works of art are part of a series of 10,000 unique digital illustrations with proof of ownership stored in the Ethereum blockchain. Each CryptoPunk was algorithmically generated and no two are alike. 

More recently, Dapper Labs launched a mobile application in partnership with the NBA in the form of NBA TopShot. This series of licensed collectible images and videos feature NBA star highlights that are acquired via pack, similar to baseball or Pokemon cards. As with any collectible, the TopShot items vary in value based on what collectors are willing to pay on the open market.

While it's true that any random person on the internet could download a GIF of LeBron James dunking a basketball, any particular dunk featured on a TopShot collectible, the NFT version will be unique.


What's the catch?

Generating NFTs uses an immense amount of electricity, causing a serious environmental impact.
Generating NFTs uses an immense amount of electricity, causing a serious environmental impact.

As with any type of collectible, there exists the chance that the worldwide buzz will subside, and demand for such items will plummet. Just ask the thousands of folks who invested heavily into Beanie Babies in the late 1990s. There is also controversy around the amount of electric energy needed to create NFTs and the potential impact on the environment. One digital artist estimates that producing six works of crypto-art used more electricity than her entire studio consumed over a two-year period. The math required to complete transactions in the blockchain is unsustainable in the long-term, but the future of NFT is as uncertain as the street values for the next pack of NBA TopShot collectibles.

Contributing Tech Editor

Chris Jarrard likes playing games, crankin' tunes, and looking for fights on obscure online message boards. He understands that breakfast food is the only true food. Don't @ him.

From The Chatty
  • reply
    March 9, 2021 7:50 AM

    Chris Jarrard posted a new article, What is an NFT and why are digital collectibles all the rage?

    • reply
      March 9, 2021 8:00 AM

      Somebody explain to me why these are good, outside of trying to make $ my create an artificial collectors market?

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        March 9, 2021 8:12 AM

        [deleted]

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          March 9, 2021 8:14 AM

          i didn't realize they were connected like that

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          March 9, 2021 11:04 AM

          I would suggest that it raises the profile of blockchain, not any single one implementation of blockchain like bitcoin or Ethereum. lots of uses of blockchain outside digital currency out there.

      • reply
        March 9, 2021 10:52 AM

        Legitimate sources for uses of crypto. can argue about the value of digital goods, but does enable enforcing "uniqueness". Maybe we think about it as the evolution of the "one disc only" wu tang album that pharmabro bought.

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          March 9, 2021 1:48 PM

          check out ever ledger, which is being used for diamonds. its an awesome story and implementation

    • reply
      March 9, 2021 10:05 AM

      I was just wondering what the hell NFTs were. I learned something today!

    • reply
      March 9, 2021 10:39 AM

      I feel bad for everyone that missed out on the Atari NFT's I posted about back in October https://www.shacknews.com/chatty?id=40077427

    • reply
      March 9, 2021 10:40 AM

      Great article!

    • reply
      March 9, 2021 10:47 AM

      NFT = New Fangled Tulip bulbs.

    • reply
      March 9, 2021 10:53 AM

      Huge News!

      The Leonard Nimoy NFT tokens go up for sale in 15+ days!

      https://on.wax.io/nimoy/

    • reply
      March 9, 2021 10:54 AM

      Good article!

      It’s not for me, but I now (sort of) understand why some people are super hyped about this.

    • reply
      March 9, 2021 11:03 AM

      nfts are just a bullshit mlm ponzi scheme to reward crypto investors and a byproduct is a few artists will earn a lot of money and a whole shitload of energy is just going down the drain as a result.

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        March 9, 2021 11:05 AM

        digital pogs

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          March 9, 2021 11:08 AM

          Hey now, my Alf slammer has quadrupled in value over the last twenty-five years. As soon as I find a buyer I'm going in with fifteen other guys for a mtg card pack.

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        March 9, 2021 9:09 PM

        How is it different than owning a digital Hearthstone card? My understanding is that regardless of its reproduction there’s only one owner. So it’s a piece of art that is yours and only yours in a legal sense, but digital.

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      March 9, 2021 11:04 AM

      Probably the dumbest thing to waste money on, and this is coming from a guy who owns a proton lack.

    • reply
      March 9, 2021 10:05 PM

      nintendo needs to get on this. let me buy a digital charmander

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