NFTs are blowing up the digital art and collectibles worlds. Here’s how they work.

Digital art and collectibles are blowing up on the blockchain.
A person putting an Apple Pencil on a blank iPad Mini screen.
This could be you making your billion dollar NFT. Sakura Phutthalong

Twitter founder Jack Dorsey wants to sell you (or someone a lot richer than you) his first tweet. NFL star Rob Gronkowski would like for you to purchase his most notable Super Bowl moments. Before non-fungible tokens (NFTs) came along, these statements wouldn’t have made any sense. Now, however, the digital art and collectibles market has started to explode thanks to the blockchain. These NFTs give creators and investors the ability to sell and buy exclusively digital objects that range from weird 3D videos to songs and everything in between. But, before you go trying to start your career slinging NFTs, you have to know how they work. Here are some answers to common questions.

So, what’s an NFT again?

NFTs are collectibles that only exist in the digital world. The general concept goes back to early last decade, in some form or another, with platforms like Counterparty, which operated on the Bitcoin blockchain. But, the concept has really taken off since roughly 2017, when projects like the adorable CryptoKitties went viral.

To understand the concept, think about it like the money you have in the bank. You store it there instead of bringing home the physical dollars and stuffing them under your mattress because there’s a digital record of it and you don’t need the physical assets. It works similarly for collectibles. Rather than buying a pack of sports cards, bringing them home, and stuffing them into a box to store, you pay for a pack of digital cards. The issuer only allows a certain number of people to buy each specific digital card, and the transactions get marked down on an official register called a blockchain.

This works for pretty much any digital work. Artists can make videos, photographs, songs, and 3D renderings and then sell a number of official versions to people who want to buy them. The purchasers don’t get a physical product, but they do have ownership of the digital object on the blockchain record, which is public and uneditable through unofficial channels. They can later sell that ownership to someone else for whatever currency they prefer.

[Related: How the world’s most expensive trading cards get authenticated]

Just because you buy an NFT doesn’t mean you’re the only one who will get to see it. In fact, someone could easily just go online, find the media included in that NFT you bought, and download it. Whether it’s a weird 3D animated video, a drawing done by a famous street artist, or a video of an impressive sports highlight, anyone else who wants to see will be able to do so. But, according to the blockchain register, you’ll still own it. So, while anyone can see or watch the media in question, only owners will be able to sell their position on it.

This is hard. Can you give me an example?

Consider the NBA’s wildly popular NFT program called Top Shots. The organization picks highlights from top players and offers NFTs of them in limited releases. Customers buy digital “packs” of NFTs that contain randomized highlights that have been offered as tokens. The company only offers a certain number of each token, and even puts some special edition versions of the tokens up for auction or sale. So, you might luck out and get a LeBron James dunk video as one of your NFTs, but someone who is really lucky might get a token that’s considered a holographic version of the same dunk. It works just like trading cards do in the physical world, only all of it lives online.

The same thing goes for digital artists. Say an illustrator creates a drawing and then issues 20 official NFT slots associated with it. Only 20 people can then buy the art, which they can turn around and sell as if they had bought a physical painting. All of the transactions remain visible to everyone via the blockchain.

Why would anyone do this instead of buying physical collectibles or art?

Physical objects come with their own set of challenges and expenses. If you’re an artist, shipping out works takes considerable time and money, while introducing opportunities for works to get lost or destroyed along the way. The same is true for collectibles. By digitizing the process, it takes away that entire part of the process.

Digital assets are also easier to store and harder to lose as long as you don’t lose access to your account information.

Lastly, and maybe most importantly, because they live on the blockchain and there’s no physical object, NFTs aren’t susceptible to counterfeiting the way art and other collectibles typically are.

Are NFTs actually worth anything?

Right now, cash is flying around the NFT world like confetti in Time Square on New Year’s Eve. A digital artist named Beeple created an NFT of a collage that recently sold for $6.6 million. The NBA Top Shots mentioned above can sell for tens of thousands of dollars each. And even big auction houses like Christie’s have gotten in on the action.

How do I buy and sell NFTs?

Sadly, you can’t just plunk a card table out in front of your house with a sign that says “NFT animated gifs: $10,000 each” and expect to make enough cash to retire. To buy NFTs, you’ll likely want to go through an online marketplace like Nifty Gateway, SuperRare, or OpenSea. There are a ton of different options out there, however, and the field is expanding quickly. Many marketplaces specialize in specific kinds of NFTs. For instance, Kings of Leon used the music-centric platform YellowHeart to sell digital art related to their albums.

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Most marketplaces also allow artists to create NFTs through their platforms, but larger players like Nifty Gateway require artists to apply to be partners. So you can’t just start drawingstick figures on Microsoft Paint to cover your Bentley payments.

What are some downsides of NFTs?

This is where things get even more complex. Many of the major NFT platforms use the Ethereum blockchain, which consumes vast amounts of energy. Without getting too far into the crypto weeds, Etherum uses a digital mining process similar to that of bitcoin to maintain its records. Computers solve increasingly complex mathematical problems to verify transactions.

Ethereum is popular because it can handle transactions outside of its own blockchain, which makes it more flexible than something like Bitcoin. Ethereum transactions, however, require huge amounts of energy because of the computing power required to process each transaction. Some proponents argue that the huge energy usage is offset by reductions in other areas. For example, artists and companies aren’t manufacturing or shipping physical products with factories or trucks. And unlike physical sports cards, digital don’t require paper or ink.

Still, Etherium’s power-guzzling systems seem untenable for the future, which leaves some experts questioning where NFTs go next.