Non-fungible tokens (NFTs) have been a hot asset class in 2021. Through the end of March, the combined market cap of major NFT projects was up 1,785%, year to date.

As the name suggests, a non-fungible asset is meant to be a unique asset that is non-fungible. This means an NFT cannot be interchanged with other assets of the same type. This is what is particularly exciting about them for many investors. Each NFT is made up of information that makes the token unique. Unlike the art marketplace, which has constant issues with provenance, an NFT can be traced back to its original issuer via the blockchain used. NFTs are essentially digital assets produced on a smart contract platform, such as Ethereum, that is backed by blockchain technology.

NFTs are basically virtual deeds that convey ownership of a digital asset. Each digital asset gets uploaded to a digital blockchain ledger that contains all the asset’s significant information, such as date of creation, date of sale, sale price and identity of buyer. The creator of the NFT can set the terms of the digital smart contract and can even permit the creator to take a cut of any future NFT resales.

NFTs making headlines include the first tweet from CEO Jack Dorsey, which sold for $2.9 million. Even musicians are getting into the game, such as 3LAU, who made millions of dollars from NFTs, including some based off his album Ultraviolet. The rock band Kings of Leon released a new album as an NFT with some of the proceeds being used to help raise funds for live music crews.

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