What are NFTs?

Marlee R., Editor and Chief

What are NFTs?
Graphic by Marlee Rafter

NFT, Non-Fungible Tokens, are a unique type of cryptocurrency bought and sold by approximately 60,000 people monthly across the internet, with prices ranging from the low 100s to millions of dollars, depending on the current cryptocurrency market, utility, and valuation.

On May 3, 2014, Kevin McCoy created the first NFT. It was a short video of his wife. At first, the NFT business was small, but it grew over time to the multi-billion market it is today. NFTs allow people to support artists they like. When an NFT is purchased, the owner gains fundamental usage rights, so they can do things such as setting it as their profile picture or posting the image on social media.

Mr. Conrad Bridges, CEO of Personality Pups, plans to release some NFTs for his company. He explains NFTs like this, “Think of an NFT as a digital version of a baseball trading card. Suppose you have someone coming into Major League Baseball as a rookie. They usually print up these trading cards, baseball cards for them, and as their career goes on, and they’re very good, they become an all-star. That baseball card becomes valuable over time, so think of NFTs like a digital baseball card.” The difference between NFTs and baseball cards is that baseball cards are traded and sold for money; however, NFTs are bought and sold with cryptocurrency. Cryptocurrency is an encrypted data string that represents money. It’s a lot like the stock market. Generally, people purchase cryptocurrency when the market is low and sell it when the market is high. The most commonly used cryptocurrencies are Etherium and Bitcoin.

Three attributes make NFTs valuable. “The first thing that makes NFTs valuable is cryptocurrency itself. If the cryptocurrency market is high, the NFT value will go up. If the cryptocurrency market is low, the NFT value will go down.” Mr. Bridges stated. The utility of an NFT is the second attribute that can affect its price. An example of utility is when someone creates an NFT, and someone else purchases its usage rights. They can then put the NFT on a video game. As that game makes money, the NFT creator will make money too. Valuation is the third attribute that can change and affect an NFT’s value. Valuation is when the NFT’s value rises due to the company it originally belonged to. The value of Mr. Bridge’s NFTs for his company will increase as his company grows and generates revenue.

Previous owners can also make NFTs more valuable. For example, NBA player Stephen Curry purchased an NFT for about 180,000 US dollars. He set that NFT as his profile picture on Twitter. Because he owned that NFT if he tries to sell it, it will be worth much more. This example shows how utility and valuation work hand in hand.

Though he could never have guessed that a brief video of his wife would start something so big, Kevin McCoy built the foundation for a market that will grow and prosper for many generations.