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  • Collectors have long been willing to shell out huge sums of money on unique items such as paintings, baseball cards and vintage cars.

  • But now, collectible items have moved into the digital space in the form of NFTs, or non-fungible tokens.

  • So what exactly are NFTs? And why are they suddenly being sold for millions?

  • NFTs, known as "NFTies" by insiders, are a type of digital asset.

  • Ownership of these tokens is recorded on a blockchain, a digital ledger using similar technology to the networks that underpin bitcoin and other cryptocurrencies.

  • But unlike currencies, where every token is of equal value and could be swapped for any other, NFTs have unique qualities which stop them from being interchangeable, or "fungible".

  • You can think of them like the crypto alternative to rare Pokémon or baseball cards.

  • And just like the traditional art market, NFTs are often sold at auction, with prospective buyers bidding against each other until a price is reached.

  • The rise of the internet meant that images, videos and songs could be reproduced and distributed infinitely online, often without any royalties being paid to their creators.

  • And even tech giants such as YouTube and Spotify have faced criticism for not compensating artists sufficiently for their work.

  • Proponents of NFTs say they address this problem by allowing ownership to be recorded on the blockchain, preventing unlimited reproduction or piracy, and enabling creators to reap the financial rewards.

  • Rock band Kings of Leon sold NFTs over two weeks in March 2021, which gave buyers access to a deluxe form of their album for $50, whilst also auctioning off an even more exclusive version limited to just 18 copies.

  • In the same month, the NFT of Twitter CEO Jack Dorsey's first tweet sold for nearly $3 million to Sina Estavi, a Malaysia-based crypto entrepreneur.

  • Meanwhile, art dealers are also getting in on the action, with auction house Christie's running an auction for a virtual work from the artist Beeple, which eventually sold for nearly $70 million.

  • But NFTs aren't a totally new phenomenon.

  • CryptoKitties, a virtual pet game based on the blockchain Ethereum, was so popular in 2017 that they clogged up the network of cryptocurrency Ether.

  • To date, these colorful online cats have generated sales of over $40 million.

  • So, why are we hearing so much about NFTs now?

  • The coronavirus pandemic played a big role in the NFT boom.

  • In 2020, the total value of NFT transactions quadrupled to $250 million, and the market looks set to grow further in 2021.

  • That's in no small part because of stay-at-home restrictions that resulted in most people spending a lot more time on the internet,

  • and many having spare cash on hand as in-person spending opportunities were limited.

  • It's a trend with parallels in the rise of retail traders betting on GameStop and other historically-unloved stocks promoted on the Reddit board WallStreetBets.

  • The craze also arrives at a time when Bitcoin and other cryptocurrencies have surged in value, with Bitcoin briefly reaching a record high price of over $60,000 in March 2021.

  • Many NFTs are priced in Ether, the digital token of the Ethereum blockchain.

  • That currency hovered around $2,000 in February 2021 before losing nearly a third of its value in a matter of days, reminding investors of cryptocurrencies' wild volatility.

  • Many investors are buying NFTs as a speculative investment, hoping to flip them at a much higher price than they originally paid.

  • But a growing number of people are also holding NFTs long term as collectibles.

  • Major brands including the NBA and Formula 1 have launched projects centered around NFTs which can be collected or traded.

  • And people are also finding other uses for NFTs, such as virtual real estate and video games.

  • Nevertheless, the NFT space has been met with skepticism from some creators and investors.

  • Critics view it as another crypto fad that will eventually drift into irrelevance, while there are also concerns about the carbon emissions needed to generate these tokens.

  • But expect to hear more about NFTs so long as collectors are willing to buy them.

  • Thank you so much for watching. Would you buy an NFT?

  • Let us know in the comments section and don't forget to subscribe.

  • Bye for now.

Collectors have long been willing to shell out huge sums of money on unique items such as paintings, baseball cards and vintage cars.

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