Non-fungible tokens (NFTs) seem to have exploded out of the ether this year. From art and music to tacos and toilet paper, these digital assets are selling like 17th-century exotic Dutch tulips—some for millions of dollars.

But are NFTs worth the money—or the hype? Some experts say they’re a bubble poised to pop, like the dot-com craze or Beanie Babies. Others believe NFTs are here to stay, and that they will change investing forever.

What do you mean by non-fungible?

Non-fungible means something which is unique and cannot be exchanged for anything else.

Fungibility is a characteristic of a good or a commodity where each unit is interchangeable and indistinguishable from another. Fungible items can be exchanged because what defines them is their value itself and not any unique set of properties.  

How many NFTs are there?

At the end of October 2021, there were nearly 7,000 different types of cryptocurrencies worldwide. Most NFTs are built on Ethereum, but many of these tokens utilize a different blockchain or were built on a proprietary NFT platform. As a result, there are innumerable individual NFTs representing works of art, videos, video game content, music, and more. As more artists and creators make use of NFTs to secure and monetize their work, this number will only increase over time.

How do NFTs work?

How exactly are NFTs used? Digital art collections, for one. In March 2021, an NFT representing an image, “Everyday: The First 5,000 Days,” by artist Beeple was auctioned by Christie’s for $69 million. The purchaser of the NFT now has ownership of the digital art attached to it. Digital creators Larva Labs auctioned off individual CryptoPunks characters in 2017; some of the NFTs are now worth millions of dollars.

What are the issues with NFTs?

There is no guarantee of constant profit with NFTs as the sector is unregulated. Another problem with NFTs is no one can be sure of their value. If the hype ends, for any reason, the investors can face huge losses. The technical processes involved in trading the tokens can also be daunting and complex for many buyers.

The process of buying the non-fungible tokens involves fees to pay for massively energy-intensive computer transactions or mining, that is needed to verify each transaction.

How Big Is The NFT market?

While trading of NFTs started in 2017, its popularity surged only in early 2021, amid the pandemic, and has been growing steadily.

Citing data from market tracker DappRadar, Reuters reported that sales volumes went up to $10.7 billion in the third quarter of 2021. This, according to the report, was an over eightfold increase from the previous quarter.

Lockdowns forcing people to spend more time on the internet is one of the reasons attributed to the frenzy, the Reuters report pointed out.

With cryptocurrencies making price gains, the new crypto-rich investors are seen to be spending their digital money on NFTs, according to the report. 

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