Where Bitcoin was hailed as the digital answer to currency, NFTs are now being touted as
the digital answer to collectables, but plenty of sceptics fear they're a bubble waiting
It could be a house, or a painting such as the Mona Lisa, which is one of a kind. You
can take a photo of the painting or buy a print but there will only ever be one original
Former Christie's auctioneer Charles Allsopp said the concept of buying NFTs made "no
"The idea of buying something which isn't there is just strange," he told the BBC.
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It might sound ridiculous but the explosive market of crypto-collectibles and crypto-art
is no joke. I investigate cryptocurrencies and have academic publications on Bitcoin
markets. To help you understand what an NFT is and why they’re becoming so popular,
here’s an explainer to make sense of it all.
The bidding on Musk’s tweet has already topped $1 million and millions more are pouring
into the market — he has since tweeted, “Actually, doesn’t feel quite right selling
this. Will pass.” And sites like NBA Top Shot (where you can buy, sell and trade digital
NBA cards) have individual cards selling for over US$200,000.
A non-fungible token (NFT) is a digital file with verified identity and ownership. This
verification is done using blockchain technology. Blockchain technology, simply put, is
an un-hackable system based on the mathematics of cryptography. So, that’s why you hear
a lot of “crypto” when referring to NFTs — crypto-art, crypto-collectibles, etc.
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Poised to radically reconfigure the crypto-asset market, non-fungible tokens, or NFTs,
are revolutionizing our conception of money and value, creating not just entirely new
markets but even new economies that are able to scale globally and to discover value in
undreamt places, relegating to oblivion fiat currencies and old ways of doing business.
Just kidding. The previous paragraph is a parody (if such is possible) of the hype that
in the first half of has come to surround non-fungible tokens. Indeed, the hype has
become so overpowering that it may even defy parody. Non-fungible tokens can have
legitimacy, and I’ll discuss how that can be at the end of this article. But for now the
overwhelming majority of what passes for NFTs is delusion, fueled by the hope of a quick
return and the belief that something can be gotten for nothing (or virtually nothing).
But digital collectibles, whatever else they may be, are—without exception or
remainder—digital files. In other words, they’re just strings of bits. As a string of
bits, a digital file has a fixed number of bits, with the bit at any location in the
string having a definite value of either zero or one.
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Fungibility is the ability of an asset to be interchanged with other individual assets
of the same kind; it implies equal value between the assets. If you own a fungible asset
you can readily interchange it for another of a similar kind. Fungible assets simplify
the exchange and trade processes, and the best example would be (you guessed it) money.
This is where I can explain and emphasize the “non-fungibility” property of NFTs. The
main difference between NFTs and Bitcoins is the fact that Bitcoins are limited, and
fungible (you can trade one Bitcoin with another and both have the same value and
price). NFTs are unique but unlimited, and non-fungible (no two artworks are the same).
While NFTs can appreciate in value (just like real estate), they cannot be interchanged
for another NFT.