What are NFTs/Non-Fungible Tokens?
You can buy Sketchy Robot's digital drawings as NFTs. Since this is a relatively new market, this page provides some background on what NFTs are.
A NFT/Non-Fungible Token is a unique digital file whose ownership is tracked on a blockchain.
Similar to cryptocurrencies like bitcoin, NFTs are cryptographic tokens. A blockchain is used as a digital ledger to keep track of the ownership of the NFT. Unlike NFTs, cryptocurrencies are fungible. Any bitcoin is equal to any other bitcoin. NFTs on the other hand are not mutually interchangeable ('non fungible'). Each NFT is unique.
Unlike normal digital files, NFTs cannot be copied. Because the ownership of an NFT is tracked on a blockchain, there is a unique owner of the NFT at any point in time, and you can trace the ownership back to the original creator of the NFT. You can think of this as the equivalent of the provenance of a physical work of art. While we are used to thinking about establishing authenticity of a physical work of art, we are not used to thinking about authenticity of a digital file. Traditionally, digital files do not have any means to recognize authenticity and can be copied an unlimited number of times without any loss of information.
The buyer of a NFT does not gain exclusive access to the work. The same file that was used to create the NFT also exists as a traditional digital file that can be copied without any restrictions. You can think of the NFT as a digital contract that says that the owner of the contract is also owner of this other digital file, with a link to the file with the digital work of art.
NFTs are created by recording them on a blockchain ledger. Different standards exist on how to do this, and different blockchains support NFTs. Two of the more common one are standards ERC-721 and ERC-1155 for the Ethereum blockchain. In practice, NFTs are often created by uploading the digital file of the work of art onto an NFT auction website, which can then also be used to auction or trade the NFT.
The creator of a NFT does not have to prove that he/she is the original creator of the work of art, and there have been cases where NFTs were created without the necessary permissions of the original creator. An artist can also create multiple NFTs from the same digital file. While each NFT is guaranteed to be unique, there is no guarantee that it is the only NFT that has been created of a given digital file.
One of the earliest NFT art projects is CryptoPunks, released in 2017. Some projects with NFT like features go back to 2014. The NFT market came to the attention of a broader audience in March 2021, when a work of the digital artist Beeple sold for $69 million at a Christie's auction.
NFTs are controversial because of their carbon footprint. Each transaction on a blockchain has to be verified by a network of computers. And since each sale of an NFT has to be recorded as a transaction on a blockchain, it results directly in energy usage. The amount of energy used by a NFT can be significant. A study by Memo Akten estimated that the average crypto-art transaction has a carbon footprint of around 340kWh and 211kg of CO2. For comparison, the average U.S. home uses about 900kWh per month. There are some initiatives underway to reduce the carbon footprint of digital art, and options to offset carbon emissions caused by digital art transactions.