This story was originally published in our January/February 2022 issue. Click here to subscribe to read more stories like this one.
Americans spend more than 11 hours a day online, creating and consuming posts, images, tweets and more. And this year we saw more digital media up for sale than ever before — at record prices — in the form of the non-fungible token (NFT). These digital assets, purchased through cryptocurrency, have been around for nearly a decade, but 2021 made them a global phenomenon.
Non-fungible essentially means “one of a kind” — unlike, say, a dollar bill. Both real and digital cash are fungible; one dollar or one Bitcoin is always worth the same as another dollar or Bitcoin. An NFT, on the other hand, is a unique digitally encoded asset that someone can own and whose value is determined by what buyers are willing to pay. For instance, this year the artist Beeple earned $69 million for a digital collage — the highest paid item to date — which is not equal or tradable with any other NFT.
So how does it work? The concept is to create ownership around digital goods. These could be YouTube videos, digital art, mp3s, or special events, like live-streamed shows. A unique digital signature is created — kind of like a copyright — and the product is sold to the highest bidder. Digital cash, as part of a decentralized system for buying NFTs, cuts out the middleman. Blockchain technology enables this purchase by creating a unique and permanent record of exchanges, proving ownership. The most widely used cryptocurrency to purchase NFTs is Ether, the native cryptocurrency for Ethereum.
Unfortunately, NFTs are taking a massive toll on the environment. Ethereum blockchain requires computers constantly running to support its complex cryptography system to validate transactions — currently consuming as much energy as some small countries.
There’s still much we don’t know about NFTs. How will they be taxed? Are they just a fad, or here to stay? But there’s no arguing that cryptocurrency transactions for NFTs generate cold, hard cash — to the tune of tens of millions.