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As the pandemic raged on this year, people across the world continued the shift to all things online, including the purchases of digital art, music, clothing and much more.
Despite not being able to see or feel these things in real life, the craze for non-fungible tokens (NFTs) has now grown into an impressive $27bn (£20.4bn) market.
What is an NFT?
NFTs are unique, one-of-a-kind crypto assets that enable collectors to authenticate, own and trade original authenticated versions of special digital goods using blockchain technology.
They can be anything digital from drawings to videos or GIFs, but they can also be applied to a physical item such as coins or a stamp.
In economics, a fungible asset is something with units that can be readily interchanged, in the same way money can. You are able to swap a £10 ($13) note for two £5 notes and it will have the same value.
However, if something is non-fungible, it has unique properties so it cannot be interchanged with something else.
When an NFT is bought, the person purchasing receives a certificate secured in blockchain technology, which makes them the owner of that specific digital asset.
Specifically, NFTs are typically held on the Ethereum (ETH-USD) blockchain, but other blockchains support them too.
Watch: Investing in crypto and how NFT collections have exploded in 2021
This cannot be replicated or substituted, and it can only have one official owner at any given time.
NFTs are transparent and no one is able to modify the record of ownership or copy/paste a new NFT into existence.
Due to this unique quality the NFT market has become popular in recent years, drawing in a number of wealthy consumers since their creation around 2014.
This year NFTs have become increasingly popular as investors with larger investment pots joined the sector for a slice of the action, while an exchange traded fund (ETF) launched giving investors further exposure to the market.
NFT Investments, an investment vehicle specialising in NFTs, also announced a £35m listing on the Aquis Stock Exchange Growth Market in London in April. It was one of the first NFT stocks to list in the City and the amount raised was a fresh record for the AQSE.
The share placing was “substantially oversubscribed”, and more than three times the amount initially planned, with an order book of demand in excess of £100m.
According to a new report from Chainalysis, the NFT sector is now worth a $27bn segment of the crypto market.
The data also showed that Open Sea, the largest NFT trading platform, saw more than $16bn flowing into it so far this year.
While the vast majority of NFT trading is retail investor-driven, London in particular has ridden the wave, with galleries and auction houses across the City tapping into digital art and NFTs.
Christie’s auction house is currently offering five works by Nigerian artist Osinachi, and the City’s Saatchi Gallery hosted an immersive private view last month, leading to an auction.
The British Museum is also selling NFTs of more than 200 works by Japanese artist Katsushika Hokusai. It has partnered with French startup LaCollection to launch digital postcards with reproduced paintings of Hokusai’s work, including The Great Wave off Kanagawa.
The launch of a Hokusai exhibition at the British Museum, entitled The Great Big Picture Book Of Everything, will contribute to half of the NFTs sold, while the remainder will come from the museum’s own collection, as well 103 never-seen-before drawings discovered from the book.
British contemporary artist Damien Hirst is also set to present his series of 10,000 NFTs at an exhibition taking place as part of this year’s Frieze London art fair.
Collectors can also make a good return by "flipping” a pre-owned NFT on the secondary market.
Chainalysis data found that flipping yields a much higher chance (65%) for a collector to profit while only 28.5% of NFTs purchased during their minting and then sold on a marketplace end up profitable.
On average, the best-performing collectors on Open Sea – a peer-to-peer marketplace for NFTs – make triple their initial investment every time they flip an NFT, whereas the lowest performing group returns an average loss of 0.9 times their initial investment.
During the course of the year a number of NFTs sold for record amounts. In March, digital artist Mike Winkelmann, better known as Beeple, sold an NFT of his work for $69.3m at Christie’s in New York, putting him among the top three most valuable living artists. It became the most expensive NFT ever sold.
Meanwhile, Jack Dorsey, chief executive of Twitter, sold his first tweet as an NFT for more than $2.9m. The tweet, which says, “just setting up my twttr”, was first posted on 21 March 2006.
Dorsey said that all proceeds from his NFT sale would be converted to bitcoin and donated to GiveDirectly, a charity giving cash to people living in poverty. Dorsey’s gift will specifically go to its Africa COVID-19 response.
The viral internet clip known as ‘Charlie Bit My Finger’ was also taken down from YouTube earlier this year, selling as an NFT for more than £500,000.
Elsewhere, even digitally created horses with unique algorithms have been sold. Zed Run, a company which launched in early 2019 with horses selling for as little as $30, recently sold a stable of digital racehorses for more than $250,000.
On its platform, owners pay an entry fee to race their horses against others for a prize pool.