Explained: Non-fungible tokens or NFTs

You may have heard of a 10-second video artwork that sold for $6.6 million in late February.

Or perhaps the video clip of a LeBron James slam dunk that a fan paid $208,000 to own.

These transactions are part of a new digital investment craze that has exploded over the past year.

But what makes these assets, that exist solely on the internet, so valuable?

These digital assets are known non-fungible tokens, or NFTs. Blockchain technology allows these items to be publicly authenticated, serving as a digital signature to certify who owns it and that it is an original work.

NFTs cannot be exchanged on a like-for-like basis, as each one is unique – in contrast to fungible assets like dollars, stocks or bars of gold.

Take it from art collector and investor Pablo Rodriguez-Fraile who bought a 10-second video clip by artist Beeple in October, and turned it around for $6.6 million at the end of February.

"It's the same argument as, you know, you can go into the Louvre and take a picture of the Mona Lisa and you can have it there, but it doesn't have any value because you don't have the provenance or the history or the work. Again, the reality here is that this is very, very valuable because of who is behind [it].”

The start of the rush has been linked to the launch of the NBA’s Top Shot website, which allows users to buy and trade NFTs in the form of video clip highlights of games.

A user paid $208,000 to acquire a clip of a Lebron James slam dunk.

(SOUNDBITE) (English) DAPPER LABS CEO, ROHAM GHAREGOZLOU, SAYING: “It's been really cool because we launched the public beta in October, and already since then we've processed over almost $250 million in transactions.”

Some athletes are seizing on the opportunity. Super Bowl-winning tight end Rob Gronkowski is launching his own digital trading cards as NFTs in March, telling Reuters he expects millions.

“So this is a digital trading card that I am letting, you know, my fans be able to get a piece of the action and share these iconic Super Bowl moments with me in this all new digital format.”

Examples of NFTs range from digital artworks and sports cards to pieces of land in virtual environments, and even as digital memorabilia.

Twitter boss Jack Dorsey has just put up for sale the first tweet ever – his own from 15 years ago.

An early bid stood at $2.5 million. Dorsey has said proceeds will go to a charity fighting extreme poverty.

Like many new niche investment areas, there is the risk of major losses if the hype dies down.

OpenSea, a marketplace for NFTs, saw monthly sales volume grow to $86.3 million in February, citing blockchain data. Just a year ago, sales were at $1.5 million.

For now, enthusiasts and traders, like NFT investor Nate Hart, are caught up in the excitement.

"The hype is extremely high right now. // I've used the analogy a couple of times that early NFT guys have kind of been presented with the same opportunity as maybe people who found Bitcoin early were. Nobody can predict the future, but the opportunity is huge.”