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Curious Kids: what are NFTs – and why are they so expensive?

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What is the purpose of making NFTs and what makes some of them so costly? – Tanvi, aged 16, Delhi, India. An NFT is a technology that proves ... Menu Close Home Edition Africa Australia Canada Canada(français) España France Global Indonesia NewZealand UnitedKingdom UnitedStates Edition: Availableeditions Global Getnewsletter Becomeanauthor Signupasareader Signin shutterstock. FrancescRodriguez-Tous,City,UniversityofLondon Author FrancescRodriguez-Tous LecturerinBanking,City,UniversityofLondon Disclosurestatement FrancescRodriguez-Tousdoesnotworkfor,consult,ownsharesinorreceivefundingfromanycompanyororganisationthatwouldbenefitfromthisarticle,andhasdisclosednorelevantaffiliationsbeyondtheiracademicappointment. Partners City,UniversityofLondonprovidesfundingasafoundingpartnerofTheConversationUK. Viewallpartners Email Twitter Facebook LinkedIn WhatsApp Messenger WhatisthepurposeofmakingNFTsandwhatmakessomeofthemsocostly?–Tanvi,aged16,Delhi,India AnNFTisatechnologythatproveswhotheownerofadigitalobjectis.Thisdigitalobjectcouldbeasong,apicture,avideo,atweet–orevenapieceofdigitallandinanonlinegameorvirtualworld.Recently,piecesofdigitallandinaforthcomingvirtualworldcalledOthersidesoldfornearlyUS$6,000(£4,791)each.What’smore,peopleweresokeentobuythemthattheyalsopaidthousandsofdollarsintransactionfees. NFTstandsfornon-fungibletoken.Ifsomethingisnon-fungible,thismeansthatitcannotbereplacedorexchangedforsomethingofidenticalvalue.Anexampleofsomethingfungibleisacurrentcoin,suchasaonepoundcoin,becausethiscanbeexchangedforanotherpoundcoin.Itdoesn’tmatterwhichofthecoinsyouhave–youstillhave£1. Somethinglikeapainting,though,isnon-fungible.Thatparticularpaintingonlyexistsonce.Ifyouboughtapainting,youcouldtakethatpaintingandhangitupinyourbedroom.Itwouldbeyours–nooneelsewouldownthatexactpainting. CuriousKidsisaseriesbyTheConversationthatgiveschildrenthechancetohavetheirquestionsabouttheworldansweredbyexperts.Ifyouhaveaquestionyou’dlikeanexperttoanswer,sendittocuriouskids@theconversation.comandmakesureyouincludetheasker’sfirstname,ageandtownorcity.Wewon’tbeabletoanswereveryquestion,butwe’lldoourverybest. Owningsomethingismoretrickyfordigitalobjects,becausetheycanbecopied.Forinstance,ifyoufindapictureonlinethatyoulike,youcanright-clickit,saveitinyourcomputer,anduseitasabackgroundifyouwant.ThisiswhereNFTscomein. IfyouboughtanNFTofadigitalpaintingfromthepersonwhomadeit,arecordofyourpurchaseiskeptintheblockchain.Theblockchainisagiantdatabasemaintainedbymanypeopleintheircomputers,anditisalmostimpossibletoalter.Oncetheblockchainkeepsarecordofatransaction,it’sthereforever.EveryonecanseethatyouboughttheNFT–anditprovesthatyouaretheonlyownerofthedigitalpainting. Highvalues Somedigitalobjectshavebeenboughtforlargesumsofmoney.Forinstance,in2021,thefirsttweeteversentwassoldforalmostUS$3million.ButwhywouldsomeonepaysomuchmoneyforanNFT? Firstofall,mostNFTsactuallyhavealowprice.Wejustonlygettohearaboutthemwhenevertherehasbeenarecordsale.Itisthesamewithphysicalart.WehearaboutitwhensomeonepaidmillionsforapaintingbyafamousartistlikePicasso,andneveraboutallthepaintingssoldformuchless. NFTsproveownershipofadigitalobject. AlongkornSanguansook/Shutterstock Likephysicalthings,thevalueofdigitalartorotherdigitalobjectsdependsonhowmuchsomeoneiswillingtopayforit–andthatcancomedowntoalotoffactors. Thepersonbuyingitmightthinkitisverybeautifulorimportant,andsoishappytopayalotofmoneyforit.Thepersonwhoboughtthefirsttweet,businessmanSinaEstavi,wroteaboutitonTwitter,saying,“Thisisnotjustatweet!Ithinkyearslaterpeoplewillrealisethetruevalueofthistweet,liketheMonaLisapainting”. TheMonaLisa,apaintingbytheRenaissanceartistLeonardodaVinci,isoneofthemostfamouspiecesofartintheworld.IthangsintheLouvregalleryinParis,andmillionsofpeoplegotoseeiteachyear. Aswellasthefactthatthefirsttweetisuniqueandhistorical,buyingitisalsoamatterofstatus.Onlyonepersonintheworldcansaythattheyownthefirsttweeteversent. Inabubble AnotherreasonNFTsmightbesoexpensiveisbecauseofsomethingeconomistscallabubble.Wesaythatthereisabubbleinamarketwheninvestorsbuythingswiththemainprospectofsellingthemshortlyafterwardsatahigherprice.Thispushesthepriceup. Bubblestendtooccurwhenevernewtechnologyappears.Plentyofinvestorscomewiththeirmoneyafterhearingabouttheastronomicalpriceofanewtechnology,oraboutcelebritiesbuyingthem.Theybuythemwithoutfullyunderstandingthem,justattractedbythemoneytheymightbeabletomakebysellingthemon.SomepeoplethinkthisiswhatishappeningwithNFTs. ThisisnottosaythatNFTshavenovalue:itistosaythatsomeofthepeoplebuyingthemaredoingsosolelytoobtainaprofit,notbecausetheyareinterestedinowninganimage. AnotherreasonNFTsmightbesoexpensiveisbecauseofthepotentialtheyhavetolinkwiththemetaverse.Themetaverseisavirtualuniverseinwhichpeoplewouldberepresentedbyavatarsandowndigitalspace,likethedigitallandsoldintheOthersidevirtualworld. TheBoredApeYachtClubisoneoftheleadingcollectionsofNFTs. mundissima Inthefuture,NFTscouldbedisplayedinthisdigitalspace,inthesamewaywemighthangapaintingupinaphysicalhouse.Itwillprobablyalsobepossibletoconvertsomeofthemintouniqueavatarsthattheownercanusetointeractinthatworld.SinceOthersideisownedbythesamecompanythatcreatedafamouscollectioncalledtheBoredApeYachtClub,maybetherewillbeawayinfutureforavatarversionsoftheseapesandotherNFTstomovearoundintheOtherwisemetaverse. Blockchain CuriousKids NFTs Metaverse Events Moreevents Jobs ResearchFellow,AuthenticationTechnologies Lecturer/SeniorLecturerinMarketing ClinicalEducationStrategy&RiskProjectOfficer Dean,LearningandTeachingInnovation HealthEconomist Morejobs EditorialPolicies Communitystandards Republishingguidelines Analytics Ourfeeds Getnewsletter Whoweare Ourcharter Ourteam Partnersandfunders Resourceformedia Contactus ​ ​ ​

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