From athletes, to music artists, celebrities, and social media influencers being early adopters and promoting non-fungible tokens (NFTs), its popularity has soared. But what are NFTs?

NFT

An NFT is a digital object (e.g., a drawing, animation, piece of music, photo or video with a certificate of authenticity) created by the blockchain technology. The phrase “non-fungible” means it cannot be forged or manipulated; equivalent to a one-of-a-kind trading card. "Quantum," an octagon-shaped animation NFT created in 2014 by New York artist Kevin McCoy, was first associated with an NFT-type certificate of ownership before the term “NFT” was coined. Quantum sold in June 2021 for $1.4 million. According to crypto data firm, Chainalyis, by the end of 2021, sales of NFTs exceeded $40 billion.

Use of NFTs

Campaign fundraisers

Instead of providing donors with campaign t-shirts and hats, political campaigns are offering NFTs.

Reserving electronic vehicles

VinFast, a global electric vehicle (EV) brand, has announced it will use NFTs as part of the EV “early bird” reservation process.

Video games

GameStop Corp. announced that it is launching a division to develop a marketplace for nonfungible tokens of “virtual videogame goods such as avatar outfits and weapons”.

Real estate transactions

ONE Sotheby’s International Realty, Voxel Architects, and Gabe Sierra (NFT collector and general contractor), are “introducing the first ever ‘MetaReal’ mansion that includes a real-world home and a virtual counterpart in the metaverse. Whoever buys the NFT will also own the physical home, set to be completed in Miami in the fourth quarter of 2022.

NFT obstacles

Legal concerns

Hester Peirce, Commissioner of the U.S. Securities and Exchange Commission, warned that selling fractions of NFTs could be illegal because selling fractions would potentially create an investment product that may require regulation.

Hacking

On December 21, 2021, scammers obtained over one million dollars’ worth of cryptocurrency by convincing Discord chat platform community members of Monkey Kingdom and Fractal, respectively, to buy a limited edition NFT.

High energy usage

Joanie Lemercier, a French artist, discovered that the sale of six NFTs of his artwork consumed 8.7 megawatt-hours of energy – equivalent to two years’ worth of energy use in his studio.

Do early adopters have an advantage?

Most early adopters of NFTs may have bragging rights as being the first to use the NFT applications. Music artist, digital artists, athletes, and celebrities may have the greatest financial advantage from selling NFTs.