One Monday morning, a 32-year-vintage entrepreneur logged onto a platform known as NBA Top Shot (now no longer available to us) and, at the side of some friends, spent $208,000 on a video clip of LeBron James dunking.

That man or woman does not get the published rights to the clip, or maybe a bodily replica of it: they've some traces of code that show they are the proprietor of a completely unique virtual asset.

His buy is certainly considered one among many extraordinarily luxurious virtual collectibles bought in latest weeks, including:

~$590,000 for an animation of a cat pulling a rainbow
~$1.five million for a pixelated drawing of a “CryptoPunk”
~$6.6 million for a 10-2nd song video via way of means of artist Beeple
These assets, known as non-fungible tokens ( NFTs ), have sparked an explosion of interest.

NFTs have captured the eye of tech investors ( Mark Cuban ), the modern-day artwork world (the public sale residence Christie's ), and huge business ( Nike ). And everybody from Lindsey Lohan to rock band Kings of Leon is flooding the marketplace with their very own costly digital creations.

But what precisely is an NFT? What makes them so valuable? And what destiny for those virtual assets?

Non-Fungible Token (NFT), Definition


An irreplaceable asset is something unique that is not easily exchangeable. Think a rare Pokémon card, an old car, or a piece of land. This is different from a convertible asset like money (a $5 note is always worth $5, no matter who owns it or what condition it is in).
A token is a type of virtual currency that resides on a blockchain and represents a specific asset, such as a piece of digital art.
So, in simple words, an NFT is a document of ownership of a one-of-a-kind digital asset.

An NFT can represent any type of digital asset: a work of art, an audio file, a video clip, a virtual plot of land.

The NFT is not actually the artifact itself; It is a piece of code on a digital ledger (blockchain) that tells where the artwork resides - usually somewhere else jon the server.

Why go through so much trouble to create a digital asset when you can only buy the real thing? Where is the added value?

Physical collectibles face some challenges:

Verifying authenticity can be difficult and/or time-consuming: an original may be tampered with or duplicated.
Tracing the ownership history of an item can be difficult: There is often no public record of a collectible's life course.
Historically, verifying the legitimacy of digital assets has been even more difficult as there are many copies of copies on the Internet.

NFT campaigners say that blockchain technology solves these problems.

By posting a work on the blockchain, the artist creates an immutable and verifiable public record of its authenticity.

Take CryptoPunks, one of the first NFTs created in 2017.

Only 10,000 cryptopunks have been coded - each a single character with a set of unique traits. For any given character, you can view the complete transaction history of auctions, bids, sales and ownership records.

We can see that the most iconic punk, #6965, originally sold for $1100 and changed hands several times before fetching 800 ETH a few weeks ago (~$1.5 million at the time).

Someone paid $1.5 million for a piece of code naming the owner of a pixelated monkey wearing a hat, defying rational market behavior.

After all, the image above can be easily captured with a screenshot, downloaded, or recreated by anyone with access to Microsoft Paint.

At Top Shot, users can purchase digital packs containing NFTs called "Moments" – short video clips of highlights, such as memorable dunks or burglaries. Like physical business cards, some moments are common (1000+ copies) and some are extremely rare.

Experts say the rapid rise of NFTs is a perfect storm of some big trends:

COVID-19 has made us more connected to the virtual space: more people working from home = more time interacting in virtual space = greater openness to the value of virtual goods and services.
The cryptocurrency boom (and greater acceptance of decentralization ethics) has sparked interest in other digital assets.
Major institutions (such as auction house Christie's) have jumped on board and given credibility and reputation to the NFT.
NFTs are part of another growing niche in the world: virtual real estate.

On the platform, the Earth is divided into 64 billion plots - each one with a set of NFT unique coordinates - that can be purchased by users and monetized with virtual ads.

But the question of "value" remains.

In fact, a music video by LeBron James Dunking is not worth $208,000. A cartoon cat costs no more than $100,000. Lindsay Lohan's selfie doesn't cost $59,000.

Of course, the same can be said of any physical collectible.

An original Hot Wheels car from the 1960s is made from metal and plastic pennies, but can sell for over $50,000 on the market. A painting - wood and pigmented oil - can fetch in the millions.

Like most things in the world, the value of NFTs comes from external factors, not internal factors, including:

Authenticity: Physical collections have all kinds of authentication mechanisms, and none are particularly effective (even acclaimed art experts have been duped by counterfeiters).
In contrast, the originality of NFTs on the blockchain is cemented.
Rarity: Many NFTs are unique or limited. For example, only 10k Cryptopunks have been issued. Of these, only 24 are "monkeys". And only one of the monkeys wears a hat.
Transferability: It can be sold to almost anyone in the world.