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What is an NFT and why are digital collectibles all the rage?

A new world of collectible digital tokens is taking the internet by storm, but what are they exactly?

Chris Jarrard

March 9, 2021 7:50 AM

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Headlines have been made recently in the world of collectible sports memorabilia. One sports fan reportedly paid $208,000 for a digital video of a LeBron James dunk from another collector. The collectible video was part of NBA Top Shot, a collection of NBA-licensed digital items that function similarly to the conventional trading cards of the past. 

These items are also known as non-fungible tokens or NFTs for short. Sports memorabilia fans, digital art collectors, and speculative investors are hopping in on the bandwagon. Are these items the future of memorabilia or collectibles? How do they work? Why the crazy money?

What is NFT?

NFTs are unique digital files whose authenticity is verified by the blockchain, an ever-expanding digital ledger that records all sorts of digital transactions. Being non-fungible means that the tokens are not mutually interchangeable. Unlike Bitcoin, you cannot exchange one NFT for another as each is unique. They cannot be divided into smaller portions like most currencies or precious metals. 

The cryptographic origins of NFTs ensure their digital scarcity and proof of ownership. NFTs can be used across a variety of applications, such as digital art or collectibles. This type of item is of particular interest to digital artists as it prevents the art from being endlessly copied and a specific piece of digital art can have a verifiable chain of custody. In some cases, the artist can collect royalties on an item that passes between owners multiple times.

The explosion in the popularity of NFTs in pop culture

The first use of NFTs in relation to collectible items came in 2017 with the introduction of CryptoPunks from Larva Labs. The digital works of art are part of a series of 10,000 unique digital illustrations with proof of ownership stored in the Ethereum blockchain. Each CryptoPunk was algorithmically generated and no two are alike. 

More recently, Dapper Labs launched a mobile application in partnership with the NBA in the form of NBA TopShot. This series of licensed collectible images and videos feature NBA star highlights that are acquired via pack, similar to baseball or Pokemon cards. As with any collectible, the TopShot items vary in value based on what collectors are willing to pay on the open market.

While it's true that any random person on the internet could download a GIF of LeBron James dunking a basketball, any particular dunk featured on a TopShot collectible, the NFT version will be unique.

What's the catch?

As with any type of collectible, there exists the chance that the worldwide buzz will subside, and demand for such items will plummet. Just ask the thousands of folks who invested heavily into Beanie Babies in the late 1990s. There is also controversy around the amount of electric energy needed to create NFTs and the potential impact on the environment. One digital artist estimates that producing six works of crypto-art used more electricity than her entire studio consumed over a two-year period. The math required to complete transactions in the blockchain is unsustainable in the long-term, but the future of NFT is as uncertain as the street values for the next pack of NBA TopShot collectibles.

Chris Jarrard

Contributing Tech Editor

Chris Jarrard likes playing games, crankin' tunes, and looking for fights on obscure online message boards. He understands that breakfast food is the only true food. Don't @ him.