Like a digital collectible, an NFT draws its value from its cultural cachet
In recent months, non-fungible tokens (NFTs) have skyrocketed in popularity, leading a digital flower to sell for $20,000, a looping video clip for $26,128, a sock for $60,000 and a LeBron James clip for $99,999.

You can be sure where there’s this level of hype in consumer behavior, brands are keen to get in on it.

February has been explosive for NFTs. In the span of two days, online personality Logan Paul made more than $5 million selling NFTs, according to online video blog TubeFilter, and rapper Post Malone has hopped on the NFT bandwagon, adding a signature twist to the trend by offering fans who make a purchase the opportunity to play beer pong against him. In the music world more broadly, musicians have sold more than $4 million in NFTs, according to industry analyst Cherie Hu. And just last week, Christie’s became the first major auction house to offer a fully digital work.

These tokens, which have been around since 2015, are enjoying a recent surge of interest thanks to a variety of factors. The normalization of cryptocurrency, combined with advances in blockchain technology, a sense of consumer FOMO following the r/WallStreetBets episode and an evolving understanding of how ownership works on the open internet have all contributed to the rising popularity of the NFT market.

While the technology at play and the value system behind NFTs can appear complex, the factors fueling the market ––fandom, royalty economics and the laws of scarcity––are themselves age-old propellers of consumer behavior. As Hu wrote, “NFTs help close the stubborn gap between the emotional value and market value of art in a digital world.”

Want to know more? We’ve created a primer on NFTs and the brands, like Nike, that are already exploring them.

What is an NFT?

Put simply, an NFT is a record that shows who owns a unique piece of digital content, similar to the way a vehicle title shows who owns a particular car. In theory, any piece of digital content can be minted into an NFT, from songs, photographs and works of digital art to tweets, memes, published articles and podcasts.

When someone “mints” an NFT, they create a file that lives on the blockchain, which means it cannot be copy and pasted, edited, deleted or otherwise manipulated.

Investor and cryptomedia analyst Jesse Walden compares NFTs to a “digital passport,” in that they follow the media across the internet, bearing information that can be updated but never destroyed.

An NFT is non-fungible because it is not interchangeable; each NFT is distinct and has a unique ID.

While many associate blockchain with Bitcoin, NFTs use a different kind of cryptocurrency called Ethereum. To buy an NFT, you must first buy Ether. Then you can shop for NFTs on a handful of platforms.

SuperRare, a marketplace for digital art, has grown from $1 million in gross sales in October to a forecast topping $10 million in sales in February, said co-founder Jonathan Perkins. NBA Top Shot allows you to buy NFTs of NBA clips, and Zora, which looks a bit like the cryptomedia version of Tumblr, lets users browse through a variety of NFTs.

Why buy an NFT?

When you buy an NFT, you gain ownership of the content in question, but it can still travel freely across the internet, be viewed, listened to or saved by anyone who wants to do so. At first, this might sound like it reduces the value of an NFT: What good is “ownership” of a work of digital art if everyone has equal access to it?

In reality, the more a file is shared and seen online, the more cultural value it accrues. Walden, the technologist, uses the work of Andy Warhol as an example.

Here’s the cool part, though: When you buy an NFT through an online platform, which is known as a primary market transaction, the platform takes a percentage cut––between 3% and 15%––and the creator takes the rest of the revenue. Then, if you decide to sell that NFT to a new buyer, which is known as a secondary transaction, you receive 90% of that revenue, but the original creator also gets a cut, generally 10%.

This continues… forever.

“Artists are literally waking up to an email that says, ‘You just got $10,000 because this collector sold your artwork to another collector,’” Perkins said. “It creates a really powerful dynamic.”