If you’ve been keeping an eye on cryptocurrency, you’ve probably heard of the buzzy term nfts. It stands for non-fungible token, and it’s a big deal in the crypto world. In a nutshell, nfts make it impossible for one digital representation to be exactly like another — each is unique. It’s a shift from the cryptocurrency paradigm, in which every bitcoin is the same and can be swapped for one-for-one with other coins.
This makes it easy to create and trade a variety of digital objects that have some sort of value, whether they’re collectibles (like virtual cats) or assets in a video game. It’s not a new concept, but interest in NFTs has spiked recently. It’s not hard to see why, with headlines about NFTs that sell for millions of dollars, and a proliferation of games, art, and other tokens in the market.
NFTs aren’t just a way to make trading or owning digital creations easier, but also a new way of making those creations valuable. With NFTs, a record of ownership is stored on the blockchain, which is a record that can’t be forged. Each NFT can also contain a smart contract, which may give the creator a cut of any future sales or some other kind of ongoing revenue stream.
This is why NFTs are sometimes described as a kind of “digital futures” or the “future of intellectual property.” Traditional works of art are valuable because they’re one-of-a-kind, but digital files can be copied and endlessly duplicated. NFTs allow artists to tokenise their work, and then put it on the blockchain so that a certificate of ownership can be traded or sold.
In practice, the most popular NFTs are often those related to video games or other virtual worlds. There are collections of digital trading cards for athletes and celebrities, NFTs that represent membership in online communities, or even NFTs that can be used to unlock special bonuses within the game. The NFT market is also expanding into more art and other forms of media, though those categories have yet to take over as much of the NFT ecosystem as the gaming and metaverse categories.
Ultimately, NFTs aren’t a panacea, and they’re definitely not without their problems. It’s not clear, for example, if they’re actually a replacement for physical goods in the long run, and many of them suffer from the same issues as other cryptocurrency investments: They can be illiquid, volatile, or difficult to understand. But they are a promising technology and an interesting experiment in the future of creativity, ownership, and value. As with any investment, it’s important to do your research before jumping in. And, as with any crypto venture, you should always proceed with a healthy dose of caution. This article is part of a series on crypto and blockchain technologies by Kevin Roose, a Times technology columnist. Follow him on Twitter.