Why are people spending millions on NFTs?

In recent months, some alternative investment vehicles, such as sports trading cards and exotic cars, have sold for record-breaking prices. Now, Non-Fungible Tokens, or NFTs, have also emerged as hot commodities, even if they leave some folks scratching their heads.

What is an NFT? Take a glance at record-breaking NFT sales and you’ll start to get an idea. Mike Winkelmann, for example, created a new piece of art every day, including on his own wedding day.

Then, he bundled the first 5,000 days as a singular piece of art, titled Everydays: the First 5000 Days, and sold the digital file as an NFT, ultimately fetching $69.3 million.

Why would anyone pay so much for a digital art file? Because it’s a Non-Fungible Token, meaning there’s only one original. Ultimately, people value originals and rare items. We could create replicas of sports trading cards or even fine artworks, yet as copies, they won’t be worth all that much. NFTs extend a similar concept of the “original” to digital files, including artworks, songs, and videos.

Of course, many would-be NFT purchasers may wonder about counterfeits. NFTs typically use a blockchain, which is essentially a public ledger, to manage transactions and determine custody.

Multiple copies of blockchains are created and stored, making them difficult to hack or forge but easy to verify.

Are NFTs worth the money? Ultimately, buyers determine value, and so far, many have proven willing to shell out millions for some NFTs. Some argue that NFTs offer the next step for fine art collecting. History will determine if they’re right.