- [Narrator] This is Nyan Cat.
He's part cat, part Pop-Tart.
The GIF of a rainbow-casting feline
was a viral meme back in 2011.
Fast forward to February 2021,
the original GIF was sold at an online auction
for 300 Ether,
the cryptocurrency that powers the Etherium network.
That was equivalent to nearly $600,000 at the time.
You may be asking how someone can own the original copy
of a GIF that was pervasive around the internet.
It's because it was sold as an NFT or non-fungible token,
which acts like a digital certificate of authenticity.
The market for NFTs ballooned in 2020,
climbing to a market cap of at least 338 million
from about 41 million in 2018.
But skeptics are asking whether these assets
are really worth the value assigned to them,
especially if all it takes to view them
is an internet connection.
To understand how NFTs work,
first you need to understand what fungibility is.
Fungibility refers to the ability of an asset
to be exchanged or substituted
with similar assets of the same value.
A simple example of a fungible asset is currency.
Say you have five one-dollar bills in your wallet.
You may not want to carry around so much change
so you exchange them for a single five-dollar bill.
The value of your money is still five dollars
regardless of the fact it's now in a different form.
Non-fungible assets are the opposite.
Each one is unique
and can't be easily substituted for something similar.
Think of the "Mona Lisa."
It's an original piece of art.
It couldn't be swapped out for, say,
a "Mona Lisa" poster from the Louvre gift shop
because the poster doesn't hold the same value.
- The idea behind NFTs is that
you have this digital signature
in the way that a great work of art
might bear the signature of the person who created it
so you can always go and look at the original and say,
"Yes, this is the real one. This is authentic."
A NFT winds up having that through the blockchain
where the information is recorded.
- [Narrator] NFTs are cryptocurrencies
but unlike fungible cryptocurrencies like bitcoin,
they are completely unique.
They exist as a string of numbers and letters
stored on a blockchain ledger.
This information can contain who owns the digital asset,
who sold it, and when it was sold.
This information is also encrypted,
ensuring the NFT's authenticity and scarcity.
In doing so, they fix a difficult problem
for digital creators on the internet:
how to make your creation scarce
and therefore more valuable.
- So, with NFTs, you wind up having the scarcity
because they are non-fungible and because of that,
there's only one of these tokens that can exist.
It can't be traded for anything similar
because there is nothing similar that exists.
And so, you wind up getting
that scarcity and that limitation
which helps drive up some of the prices.
- [Narrator] One of the early applications
of creating this scarcity
was the digital collectible game Cryptokitties,
which emerged in 2017.
Users were able to buy, trade, and breed
digital cat collectibles.
Each new cat was an NFT
which certified its originality and ownership.
Since then, NFTs have been applied
to video games, digital art, and sports memorabilia.
One example is NBA Top Shot,
which allows users to procure a collection
of digital basketball highlights,
like a video clip of a posterizing dunk.
All highlights are NFTs and have become big business.
By mid-March, NBA Top Shot had clocked in
over $338 million in sales
since it went live in October 2020.
Non-fungible tokens are making their way
into the mainstream art world as well.
Auction house Christie's opened bidding
for its first purely digital art NFT.
Bids rocketed into the millions of dollars.
- People are really excited about NFTs
because, unlike with the blockchain underlying bitcoin,
you can do a lot more complex things with it.
You can wind up setting terms within it
such as, you know, the original creator
upon each resale of this asset will get x-amount.
Or you can take it and you can have an NFT
that itself mints other NFTs.
And it winds up having all of these
really untested applications.
The surface has only been scratched
in terms of its potential.
- [Narrator] Along with all the hype around NFTs,
experts have raised some concerns.
One issue is that not all NFTs verify
the person selling a digital art piece
is actually the original creator.
This is difficult particularly in online marketplaces.
- One of the concerns is that anyone can essentially
go on a lot of these marketplaces and say,
"I am the person who created this token,"
and it can be really hard to verify that,
especially if you don't know who they actually are
or they're saying someone that they're not.
- [Narrator] And some are skeptical
that ownership alone makes digital assets valuable.
When it comes to digital art,
a buyer owns the original digital painting
but the person can't keep others from copying the image
and sharing or changing it online.
- You have had a lot of scams
in cryptocurrencies just historically
and so the concern is that, you know,
people are hyping these up.
They're saying, like, "Go buy these NFTs. It's great."
But in reality, you know,
there's always gotta be a buyer for there to be a seller
and people might decide all of a sudden, you know,
"Let me cash in my profits,"
and someone's going to be stuck holding the bag.
- [Narrator] Proponents are bullish
on the potential for NFTs
but critics are wary that it may be
a digital bubble in the making.
(suspenseful music)