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MAKE YOURSELF SCARCE

The complete guide to NFTs

An NFT art gallery in New York City.
REUTERS/Dan Fastenberg
An NFT art gallery in New York City.
Published Last updated

Table of contents

I. What is an NFT?
II. A short history of NFTs
III. How to make an NFT (we tried it)
IV. Where to buy and sell NFTs
V. 30 second case study: NFT art
VI. 30 second case study: NFTs in fashion
VII. The carbon footprint of NFTs
VIII. NFT reading list

Non-fungible tokens (NFTs) are having a moment. They’re making headlines in art, sports, fashion, and video games and they’re attracting increased interest from investors. But what is an NFT, really, and why do people buy them? If you work in media, or art, or sports, or law do you really need to care? We’ve been covering the explosion of NFTs and in this guide we’ve collected all our coverage as well as the best outside resources to help you understand what’s real and what’s hype. Grab your private key and get your metadata ready, we’re diving into NFTs.

What is an NFT?

NFT stands for non-fungible token and is often described as a way of tracking ownership of a unique digital asset. Think about baseball cards: the image and the information on a baseball card aren’t rare—anyone could go find and copy the picture of the player or their stats—but the card itself is rare because only a limited number were printed and so baseball cards often have value. The same logic helped everything from Beanie Babies to sneakers to comic books become collectable.

NFTs are an attempt to create this sort of scarcity online, where files are constantly being copied as part of how the internet operates. For collectors, investors, and some artists, the idea of introducing scarcity or uniqueness into the worlds of digital art, content, and memorabilia has obvious appeal.

OK, but still what is an NFT? It’s ultimately a bunch of text, a unique string of characters, that can be tracked on a blockchain—usually the Ethereum blockchain. The text is called a token.  Blockchain technology uses cryptography to allow a network of computers to reliably record and verify transactions without any central oversight. If you pay someone one bitcoin, a worldwide network of computers verifies that transaction, rather than a bank. When you create or “mint” an NFT, a new token is created and recorded on the blockchain’s ledger; instead of a fungible unit of cryptocurrency, the token is completely unique and can be bought or sold using blockchain. Although the digital image connected to an NFT can be easily copied, the NFT is unique, as is the private key used to prove ownership of it.

So far, so good on the scarcity front: when you mint a token there’s just one like it and it’s ready to bounce around the blockchain. But how does it relate to any other digital thing, like a piece of art? The answer, so far, is not that satisfying: Each NFT comes with a bit of “metadata” that includes a link to some digital file. Here’s the image of Nyan Cat that was sold—er, the NFT of which was sold—for just over $640,000:

Here’s the metadata associated with that NFT:

{“name”: “Nyan Cat”, “description”: “Nyan Cat is the name of an animation uploaded on April 2 2011, and became a viral internet sensation. The design of Nyan Cat was inspired by my cat Marty, who crossed the Rainbow Bridge but lives on in spirit.nnI am the original artist behind the iconic GIF and have remastered the image for its 10 year anniversary.  Owning this piece grants the following stats:nnCharisma +10nLuck +10nHappiness +15nn________________n1400x1400 – 12 Frames “, “image”: “ipfs://ipfs/Qmcg8f4F9cig2JWXunxJcdBe58Q5myYXPmGfuMn1TVeswD/nft.mp4”}

The NFT comes with a mention of a digital file but this raises some problems.

  1. First, the metadata is often not stored on the blockchain, so while the NFT can never be altered, metadata that’s stored “off chain” sometimes can be.
  2.  Second, and more importantly, there’s no way to verify that the person minting the NFT owns or has anything to do with the file in question.

In March, Jack Dorsey sold an NFT linked to one of his tweets for $2.7 million; there’s no technical reason why you couldn’t go mint an NFT of one of Jack’s tweets right now. Predictably, plenty of people are busy minting NFTs based on art they did not create.

With NFTs, the token is the only thing that’s unique and the only thing a buyer actually owns. Its connection to another digital asset is, at least for now, a bit tenuous. As Quartz’s Samanth Subramanian and David Yanofsky wrote of their experience selling an article as an NFT, “The buyer, praise their generous soul, is really paying for that bit of blockchain, that stamp of uniqueness.”

-Walter Frick, executive editor, membership

A short history of NFTs

2012: Bitcoin users start adding bits of metadata to the blockchain, dubbed “colored coins,” to signal transfer of other assets.

2014: Technologists Kevin McCoy and Anil Dash invent “a first version of a blockchain-backed means of asserting ownership over an original digital work” which they call “monetized graphics.”

June 2017: Matt Hall and John Watkinson, of Larva Labs, launch CryptoPunks, a collection of 10,000 algorithmically generated unique images inspired by the London punk scene. They use smart contracts to allow the images to be traded on the Ethereum blockchain.

November 2017: CryptoKitties, an experiment created at hackathon in Waterloo, take the idea even further: the digital assets aren’t just tradeable on blockchain but “breed” over time based on code written into a smart contract. The project also pioneered ERC721, one of the major standards for representing NFTs on the Ethereum blockchain. A year later, the project had raised $28 million in venture capital.

April 2018: Major League Baseball partners with game developer Lucid Sight to offer NFT baseball cards.

February 2021: The creator of Nyan Cat sells an NFT of the animated meme for 300 ETH ($580,000). A clip of Lebron James dunking sells for $200,000 (stored on the Flow blockchain, not Ethereum). And Jack Dorsey sells an NFT linked to a tweet for 1,630.58 ETH ($2.9 million).

March 2021: The digital artist Beeple sells a work for $69 million, the most expensive NFT purchase as of this writing.

How to make an NFT

In March, Quartz became the first news organization to sell a text article as an NFT. Here’s how we did it:

  1. We turned to OpenSea, the largest marketplace for NFTs. OpenSea has sold the full gamut of NFTs: digital art, cryptokitties collectibles, land in virtual worlds, trading cards, and other digital artifacts, each of them distinct, their uniqueness verified by a blockchain.
  2. OpenSea asked us to install MetaMask, a browser extension that manages digital assets. MetaMask’s login details (which include a 12-word “seed phrase”) let us into OpenSea, where we opened a Quartz “collection.” These collections hold the items of sale: images, videos, audios, or 3D models, in a variety of file formats, each no bigger than 100 MB.
  3. We uploaded this article, fashioned into an image that included its text, its lead image, and a QR code with a link to this piece online. So far, these steps took only about 10 minutes.
  4. We paid $250 in fees, which included a $200 “gas fee” at the time of listing, paid to “mint” the NFT on the blockchain, and a $50 fee to transfer the token’s ownership on to zonted. These fees had to be paid in Ethereum.
  5. We waited for bidders. The bidding was plodding. In about 12 hours, Quartz had received three offers The third was by a buyer who goes by zonted, for 1 Ethereum ($1,800). And there the action languished until March 22, when the auction closed. OpenSea took a 2.5% commission on the sale. (The proceeds of the sale will be contributed to the Lauren Brown Fellowship at the International Women’s Media Foundation, which supports women journalists from underrepresented backgrounds.)
  6. We chose to buy a carbon offset. There’s no requirement to offset the carbon emissions produced by NFTs, but they can be sizable (more on that below). Quartz’s Metamask transactions were responsible for the equivalent 267 kg of carbon dioxide emissions, a little more than a flight from London to Rome. We purchased a 1,000 kg carbon offset from Offsetra for £5 ($7) that is based on the building of wind turbines in Honduras.

-Samanth Subramanian, senior reporter, and David Yanofsky, Things editor

Read more about Quartz’s experience here and here.

Where to buy and sell NFTs

OpenSea: An NFT marketplace that Quartz used to sell its NFT. In March, the company raised $23 million in venture capital funding, led by Andreessen Horowitz. The startup is based in New York.

NiftyGateway: An NFT marketplace and wallet app that in 2019 was acquired by Gemini, the cryptocurrency company founded by the Winklevoss twins. (‘Nifty’ is another term for a non-fungible token based on the pronunciation of NFT.) In March, the company partnered with Sotheby’s to auction digital art by the artist Pak; it also announced that month that some users had had their accounts taken over by hackers.

Rarible: A marketplace for minting and trading NFTs and other crypto assets. The company is headquartered near Philadelphia and has raised $1.8 million, according to Crunchbase.

Case study #1: NFT art

Christie’s historic $69.3 million auction for crypto art in March got some artists looking into how blockchain can bolster their livelihoods. The question on their minds: Can anyone make a fortune in the NFT market? Is it truly a democratic platform?

The answer is nuanced. To strike gold in NFTs, an artist must have two things: acumen and an audience. Profitable crypto artists spend time developing their fan base and educating themselves in sometimes quixotic cryptocurrency and blockchain protocols—including how to avoid scammers—apart from practicing their craft. Despite Beeple’s seemingly overnight success, he had been honing his digital art skills for over a decade before his first NFT sale. Everydays—The First 5,000 Days, his $69.3 million collage, in fact is a collection of the daily digital drawing exercises he’s been making and sharing since 2007.

Judging artistic merit is, of course, subjective. To command the millions that Beeple does, it helps to have an institution like Christie’s to back you up. Mike Steib, CEO of the art marketplace Artsy, argues that the NFT market isn’t exactly the free-for-all platform many believe it is. “Who sold Beeple? It wasn’t a democratic process,” he argues. “Christie’s, the largest gatekeeper in the entire art world, sold Beeple.”

As a whole, the traditional art market remains skeptical about crypto art. Steib, whose platform develops and hosts e-commerce websites for art galleries, points out that despite the headline-grabbing auction returns, NFTs represent less than one percent of the art market.

Pressed for a working definition for the crypto art movement, Cock Foster, who founded Nifty Gateway with his twin brother, Duncan hesitates. “I think the movement is still figuring out what it is,” he says. “It’s a community of communities. Every artist has their own community [or fan base] and that is a big part of it.  I don’t know, I would say it’s very interesting and it’s something we’ve never seen before and that’s because it’s powered by this new technology.”

-Anne Quito, design and architecture reporter

Read more about how the art world is responding to NFTs.

Case study #2: NFTs in fashion

Fashion is rarely just about utility. It’s also a means of self-expression and a way to communicate status and identity. With lots of shoppers today seeking ways to signal these attributes in the digital world as much as the physical one, it’s created an opportunity for fashion to go virtual.

At a conference on fashion and technology hosted by Vogue Business in March, Robert Triefus, an executive vice president at Gucci, said it was inevitable that luxury brands would begin to design NFTs. Gucci has yet to delve into the market itself, but for three or four years now it has been making inroads into virtual spaces, creating digital products and environments for games such as The Sims and Zepeto. Recently it also introduced a $12 pair of digital sneakers (paywall) users can purchase through its app and wear in virtual worlds such as Roblox, an online game platform.

While the digital sneakers aren’t NFTs, it’s not hard to conceive of Gucci and other brands releasing NFTs for original virtual goods, or for digital versions of physical goods shoppers have purchased, allowing them to take their real-world items with them into games like Fortnite. “There’s no reason that today you couldn’t buy a bag, get an NFT,” said Ian Rogers, who from 2015 until last year served as chief digital officer at luxury giant LVMH—owner of brands such as Louis Vuitton, Dior, and Celine—in a separate talk at the conference.

Rogers, who now works for cryptocurrency firm Ledger but remains a consultant to LVMH, said NFTs have clear applications in luxury. While makers of high-end goods justify their high price-tags by pointing to their pricey materials and craftsmanship, these traits are only part of their value. “Luxury is the business of building identity,” Rogers said. “You don’t buy a luxury handbag because of its incredible utility. You buy it because the brand has built culture, and that culture is something you want to be a part of.”

Exclusivity also plays a big part in luxury’s value, and NFTs support that as well. A digital asset can be copied, but the private key proving ownership of it is unique. It creates the conditions for scarcity, which is vital to the perceived worth of luxury goods.

A question that remains to be answered is how much consumers will spend on NFTs for high-end fashion. Skeptics are already pointing to NFTs as a bubble waiting to burst. And one reason more shoppers don’t buy cheap counterfeits rather than genuine goods is because fakes are rarely the same quality. If you can easily get an exact copy of a digital item, how much incentive is there to shell out for an NFT?

“It’s a world that still has to be understood,” Triefus said of pricing virtual goods. “For us at the moment we’re looking at experiments and pilots where values are attached to certain experiences or digital products so that we can understand what the value system is.”

-Marc Bain, fashion reporter

Read more about how NFTs could change the fashion business.

The carbon footprint of NFTs

Say you’re an artist in the US and you wanted to ship a digital print to a customer also in the US. Quartz contributor Erin Davis calculates that shipping a print might total something on the order of 2.3 kg of CO2 emissions. That’s the equivalent of taking a short ride in a gas-powered car.

What about for an NFT? It’s hard to know exactly but Erin calculates selling an NFT might take 128 kg of CO2 emissions, the equivalent of approximately 500 miles driven by car.

The reason for all those emissions is the tremendous amount of electricity used by participants in the Ethereum blockchain to verify their transactions. NFT advocates say this will improve dramatically once Ethereum switches from a proof-of-work to a proof-of-stake system for verifying transactions, which will require far less electricity.

Read more about NFTs’ carbon footprint.

NFT reading list

  1. Ars Technica has a good overview of NFTs
  2. OpenSea’s “NFT Bible”
  3. VC firm Andreessen Horowitz’s podcast on NFTs (with transcript) and reading list
  4. Who can sell a Wonder Woman NFT? The artist who drew her or DC Comics?
  5. It’s not too early to start worrying about NFTs and money laundering
  6. A primer on the Interplanetary File System (IPFS) that is used to store the files linked to some NFTs
  7. The IRS says purchasing an NFT with cryptocurrency triggers the US capital gains tax
  8. How much would you pay for a virtual sofa?

📬 Kick off each morning with coffee and the Daily Brief (BYO coffee).

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