At the start of 2021, only hardcore crypto fans knew what NFTs were.
At the close of the year, market data showed that nearly $41bn had been spent on the digital artworks and collectables.
The industry has proven divisive; some preach their potential to revolutionise the art world, others are more cynical.
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There are also regulatory issues. A bug in OpenSea, the largest NFT marketplace, has let hackers buy NFTs for well below their market value, sometimes making hundreds of thousands of dollars in profit.
At least $1 million worth of NFTs were ‘stolen’ in just 12-hours, leading to massive financial losses for the creators, according to blockchain analysis company Elliptic.
The Verge noticed that the ‘hack’ was referenced weeks ago on Twitter this but exploitation of it picked up this week.
The flaw let users access old listings, so they could buy the NFTs at its original, cheaper price.
Under this loophole, one of the Bored Ape Yacht Club NFT’s, number 9991 to be exact, was purchased for 0.77 ETH ($1,760) and resold for 84.2 ETH ($192,400). That’s a profit of $190,000.
This isn’t the first slip up that has affected the Bored Ape Yacht Club, a prestigious collection of more than 10,000 NFTs.
At the end of last year, user Maxnaut was meant to list his Bored Ape for 75 ether, or around $300,000.
Instead he accidentally listed it for 0.75 ether, which is just $3,066. That’s one hundredth of the intended price, for a ‘fat finger’ error – a human rather than technical mistake.
Despite the risks involved, the Bored Apes have spearheaded the NFT phenomenon.
Celebrities are splurging hundreds of thousands on images of cartoon apes, with Jimmy Fallon, Steph Curry, Post Malone and Eminem owning their own.
The one bought by Eminem, for around $450,000 (£334,000), was made to look slightly like him with a cap and gold chain.
NFTs have been gaining popularity for more than a year now, with well-known content creators Logan Paul and Addison Rae throwing their support in with the more hardcore techhie fans.
From CryptoPunks to pet rocks, it was the biggest crypto story of 2021, and the bubble hasn’t burst yet as game publishers have tried to muscle in on the action.
If you still don’t really understand what NFTs are, we break it all down below.
What are NFTs?
NFTs stands for non-fungible tokens – not that this makes it any clearer.
In economics, fungible basically means it is interchangeable. So, non-fungible means it is unique.
NFTs are kind of like a collectable card: you can’t exchange them for the same thing.
NFTs are mostly associated with digital art, but they can actually be anything digital.
And when we say anything, we mean it.
A 50-second video by Grimes sold for $390,000, while someone paid $69 million for a piece of digital art by Beeple.
In March 2021, Twitter’s founder and previous CEO Jack Dorsey sold his first Tweet as an NFT, for a whopping $2,915,835.47.
That Tweet can be screenshot by anybody, so why did someone pay almost $3million for it?
Why does anyone pay big sums of money for a cartoon ape, or a non-physical piece of art?
The confusing distinction is that you aren’t buying the image, you are buying the non-fungible token that is connected to the image.
Non-fungible tokens are files that live on a blockchain and verify ownership of a work of digital art.
It is a database entry that is most often stored on the Ethereum blockchain. When you buy an NFT, you are given a cryptographic record which sort of functions like a digital deed. It keeps a record on the blockchain that you own the original piece.
In a way, it is similar to how physical art works.
Anyone can own a print or a picture of an artwork, but only one person can own the original.
The difference is that you own the rights to the data rather than a painting hung on your wall.
It may not always be an original piece of art. Sometimes it’s one of many uniquely numbered pieces, like you see with Pokemon trading cards. And anybody can still download the same file that you paid thousands or millions for.
So forking out for a NFT is more about owning an asset that you may want to resell, or for the high-end auctions, being able to say that you own said NFT. It also gives you rights to share the image however you wish.
It’s also a community thing: buying a Bored Ape Club NFT gives you access to the clique.
On Twitter, the owners have changed their profile pictures to the Bored Ape cartoons.
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How can you buy NFTs?
There’s a few reasons that you may wish to buy a NFT.
First, you might be a collector who treats them like a speculative asset that you hope to flip for more money later down the line.
Otherwise, you are a humble buyer who wants to support the creator. One of the easiest ways to browse for and buy NFTs is through a platform. There’s a few, including Rarible to Mintable, but the biggest one of all is OpenSea.
However, you need to own the cryptocurrency Ether, the coin that exists on the Ethereum blockchain where NFTs usually live, to buy them.
You can buy ETH from crypto exchanges such as Coinbase. To store them, you need to set up a digital wallet. This comes in useful later, as you need to be able to access this wallet to buy a NFT.
Next, you need to connect this wallet to OpenSea, which you can do by visiting OpenSea.io and going to your profile.
Once that’s all set up you are free to browse the endless amounts of NFTs, from the affordable ‘buy it now’ pieces to the high-end pieces that go to auction.
Some of the NFTs are listed as free, but you still have to pay a ‘gas fee’ to own it, due to the energy needed to make the transaction through the blockchain.
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