By Elizabeth Howcroft

LONDON, (Reuters) – Non-fungible tokens, a digital asset type, are gaining popularity. NFT artworks have been selling for many millions of dollars.

It is a confusing trend that can confuse those wondering why so much is being spent to buy items in digital format. These items are free and accessible by all. NFTs are seen as the next stage in art collection by supporters.

What is an NFT?

An NFT (non-financial token) is a digital asset. It can exist on a blockchain. A record of transactions stored on computers connected to the internet, it’s called a “blockchain”. It is a public ledger that can be accessed by anyone who wants to confirm the NFT’s authenticity or identify its owner.

Every NFT, which is unlike many digital objects that are easily reproduced in endless quantities, has its own digital signature. This means it’s unique.

NFTs can be bought in cryptocurrency or dollars. The blockchain also keeps track of all transactions. While anyone can view the NFT, only the buyer has the status of being the official owner – a kind of digital bragging rights.

A buyer who purchases an NFT for an image or video doesn’t usually get copyright.

WHAT KIND of NFTS IS EXISTING?

All kinds of digital objects – images, videos, music, text and even tweets – can be bought and sold as NFTs.

The most prominent sales of digital art have been in digital art, and fans can trade or collect NFTs related to specific players or teams.

On the National Basketball Association Top Shot Platform, fans can purchase collectible NFTs as video highlights from moments of games.

These highlights are free to view on YouTube and other sites, but people buy the right to be the NFT owner. This is because of the digital signature.

Also, NFTs could be digital clothing, patches of land or the exclusive use of a cryptocurrency wallet.

The first tweet from Twitter (NYSE:) boss Jack Dorsey – “just setting up my twttr” – sold for $2.9 million as an NFT in March.

HOW MUCH HAS MARKET GROWN?

NFTs were traded around 2017 and saw an explosion in their popularity by early 2021. Then, in August 2018, NFTs experienced another dramatic rise in demand.

DappRadar’s data shows that sales volume rose to $10.7 billion during the third quarter. It was eight times more than the quarter before.

OpenSea is the NFT market with the highest sales, and October saw $2.6 BILLION in transactions. That’s a significant increase over the $4.8 MILLION in October 2020.

WHY IS NFTS SUPPORTED?

Many attribute this frenzy to the lockdowns that force people to spend more time online at home.

NFTs are seen as a way to have possessions in online and virtual environments, which can communicate social status and personal taste – for some people, it is the digital equivalent of buying an expensive pair of sneakers.

Others are lured by the promise of high returns and rapidly rising prices. Many buyers buy NFTs and “flip”, selling them off within days, hours or for a profit.

Recent price increases in cryptocurrency such as Bitcoin, which rose about 300% in 2020 have created an entirely new class of crypto-rich investors who use their cryptocurrencies to buy NFTs.

WHY ARE THE NFTS Important?

NFTs will be the new way of owning property, say NFT-enthusiasts. All kinds of property – from event tickets to houses – will eventually have their ownership status tokenised in this way, they believe.

NFTs are a way for artists to solve their problem with how to monetise digital works. NFTs can provide more income for artists, since they will receive a royalty every time an NFT is sold after it has been purchased.

NFTs, according to NFTs proponents, could transform gaming, music and sports.

WHAT ARE THE RISKS

Much like cryptocurrencies and NFTs, they are not regulated. NFTs can be created and sold by anyone. However, there are no guarantees of their value. If the hype is gone, losses can pile up.

There is a high risk of fraud in markets where there are many players using pseudonyms.

Reporting by Elizabeth Howcroft. Editing by Janet McBride