What are NFTs and how are people making money from them?

'NFT' stands for 'non-fungible token', but what does that mean? Essentially, it’s a unit of data that can be associated with a real-world or digital asset - typically art, music, a video or an in-game item - with a certain monetary value attached to it.

‘Non-fungible’ means that the item is a one-of-a-kind and non-interchangeable, although it can be sold or traded in the digital marketplace. Bitcoin, conversely, is fungible.

A good analogy would be that you can’t trade the Mona Lisa for another Mona Lisa since there’s only one in existence, although you can sell it or trade it, if you so desire.

If you think we’re being a bit lofty likening NFTs to collecting fine art, consider this; a digital artist known as ‘Beeple’ recently sold a digital artwork NFT for $AU93 million - $AU20 million more than Monet’s painting Nymphéas sold for in 2014.

What am I getting when I buy an NFT?

This is where things get confusing, because while digital art is the thing making the most noise in the NFT space, the variety of NFTs on offer is staggering.

• Internet memes have been sold as NFTs for millions.
• The NBA in America sells highlight clip NFTs called ‘NBA Top Shots’.
• US band Kings of Leon sold its latest album as an NFT and netted a couple of million dollars.
• Nike is selling ‘CryptoKicks’ NFTs to authenticate its sneakers.

When you buy an NFT, the ownership is recorded on a blockchain, the main ones being Ethereum, Flow, Tezos and Solana.

It’s worth noting that buying an NFT doesn’t necessarily give you copyright of the asset. It usually just grants you proof of ownership, meaning the creator of the original asset has the freedom to create more copies in the future — although doing so is frowned upon in the NFT world, as it would obviously drive the asset value down.
The NFT may come with a licence, however, which specifies whether it can be used for commercial or non-commercial use.

Owning an NFT doesn’t necessarily stop it from being copied by others, but a lot of the prestige in the NFT world comes from the bragging rights of claiming ownership of a rare item.
It’s a little like owning the Mona Lisa while other people can only get their hands on a print.

How do I buy NFTs?

NFTs are typically bought using cryptocurrency, although this isn’t a hard and fast rule — NBA Top Shots, for example, can be bought using a credit card.

There are numerous digital marketplaces where you can find NFTs, including OpenSea, Rarible, MakersPlace, SuperRare and Nifty Gateway, where musician Grimes recently sold digital art for over $AU8 million.

How do I make money from an NFT?

An NFT is a speculative asset, so it’s a case of purchasing one and hoping that its value increases over time.
Incredibly, $AU270 million has been spent on NFTs in the first three months of 2021 alone — a sign that NFTs have become a valuable commodity to some, while others predict a dotcom-style bursting of the NFT bubble before too long.

Are there any NFT-related controversies?

Yes. There have been reports of hackers stealing NFTs from unsuspecting victims, and gifting others with malicious NFTs that are able to steal their cryptocurrency.

There's also been a lot of talk about the environmental impact of NFTs: the online blockchains and marketplaces they’re tied up in are powered by an electricity-chewing network of computers, resulting in a less than ideal carbon footprint.

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