Non-fungible tokens - or NFTs - have exploded in popularity in 2021.

NFT artworks have been selling for millions of dollars.

While some are perplexed why so much money is being spent on items only exist in digital form and can be viewed by anyone for free, others view NFTs as the next phase in art collection.

So what exactly is an NFT?

An NFT is a digital asset that exists on a blockchain, a record of transactions kept on networked computers.

The blockchain serves as a public ledger, allowing anyone to verify the NFT's authenticity and who owns it.

So unlike most digital items which can be endlessly reproduced, each NFT has a unique digital signature, meaning that it is one of a kind.

They're usually bought with cryptocurrencies or in dollars and the blockchain keeps a record of transactions.

While anyone can view the NFT, only the buyer has the status of being the official owner - a kind of digital bragging rights.

Colborn Bell, the co-founder and director of Museum of Crypto Art:

"It's really just 'seeing is believing'. I think the biggest step is beginning to abstract it from the computer screen and from the phones. Because when you see it on a computer, people think, 'Oh, this is just a screen saver arts or this belongs on a computer.' No, this belongs in something much bigger."

What kind of NFTs exist?

All kinds of digital objects - images, videos, music, text and even tweets.

But it's digital art that has seen some of the most high-profile sales.

Take the NBA Top Shot platform. Enthusiasts can buy collectible NFTs in the form of video highlights of moments from games.

NFTs can also be patches of land in virtual world environments, digital clothing, or exclusive use of a cryptocurrency wallet name.

In March, the first tweet from Twitter boss Jack Dorsey sold for $2.9 million as an NFT.

NFTs have been traded since around 2017.

They surged in popularity in early 2021, then another explosive jump around August.

Sales volumes surged to $10.7 billion in the third quarter of 2021, according to data from market tracker DappRadar.

Max Moore is Sotheby's vice president of Contemporary Art Department:

"As we move more and more into that type of society where technology is intertwined and intersected and more powerful in increasing ways that NFTs and digital assets will just be a reflection of our preferences and our values as a human society"

Why have NFTs surged?

Some attribute the frenzy to lockdowns forcing people to spend more time at home on the internet.

For some people, it is the digital equivalent of buying an expensive pair of sneakers, a way of communicating social status and personal taste.

For others, the lure lies in rapidly rising prices and the prospect of big returns.

Some buyers "flip" NFTs, selling them on for profit.

In October 2020, Miami-based art collector Pablo Rodriguez-Fraile spent almost $67,000 on a 10-second video artwork that he could have watched for free online.

He sold it for $6.6 million in February 2021.

"It's the same argument as, you know, you can going 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]. It's a full career of a multi-generational, like a generational career in this space of being the best of the best."

Enthusiasts see NFTs as the future of ownership.

They believe all kinds of property - from event tickets to houses - will eventually have their ownership status tokenized in this way.

But there are risks in investing in NFTs.

Like cryptocurrencies, NFTs remain largely unregulated.

Anybody can create and sell an NFT and there is no guarantee of its value.

And in a market where many participants use pseudonyms, fraud and scams are also a risk.