What happens when digital artists and blockchain developers join forces? They create a new class of asset. In the first half of 2021, non-fungible tokens (NFTs) garnered $2.5 billion in sales. Some notable sales include “EVERYDAYS: The First 5000 Days,” the first purely digital work of art ever auctioned by a major house. The piece sold for $69 million. Twitter founder Jack Dorsey sold his first tweet as an NFT as well, raising $3 million.
Why are people willing to pay so much for these pieces? What is the benefit to owning a digital asset that’s so easily copied? The trick lies on the blockchain side of the NFT. Blockchain provides secure and effective proof of ownership; anyone can download a digital file, but only the owner can sell it. Digital keys secure NFTs using the same technology that allows cryptocurrencies to operate. The public key acts as the ownership agreement while the private key authorizes changes in ownership. All the while, blockchain maintains a tamper proof ledger of transactions on the digital asset. As for how much exclusive ownership of a digital asset is worth, only the market can decide.
Still, there’s more than pure speculation determining an NFT’s worth. An artist can place digital scarcity on their work to drive its price up. Since digital files can generate unlimited perfect copies, scarcity requires other limitations to be placed on a digital collectible. Some examples are partial availability, in which the full version of a work is only visible to its owners, or digital marking, where the file is marked in a way that shows who owns the file. Sometimes the latter is a hidden mark while other times it is fully visible. Either way, NFTs are a new asset that has caught the attention of the market.