It seems like every month the internet brings a new cryptocurrency-related phenomenon that leaves the average person wondering, “am I missing out somehow?” Last month it was Dogecoin, this time around it’s the phenomenon of non-fungible tokens (henceforth called NFTs). The recent hype is due, in some part, to the fact that Christie’s Auction House recently sold its first-ever NFT artwork — a collage of digital images by the artist Beeple — for $69.3 million.
Now it seems like everyone (with some measure of fame) is getting in on the NFT trend. And yes, some people are making money from it.
Internet celebrities like Jack Dorsey, Ethan Klein, and Logan Paul; musicians like Grimes, Kings of Leon, and Shawn Mendes; brands like Taco Bell and the NBA — they’re all creating non-fungible tokens and selling them to whoever is interested and has the money. With a digital wallet and a purchase of the cryptocurrency Ethereum, you can create your own NFT and upload it to a marketplace where you too can sell it. If you’re virtually unknown that might not mean much, but if you’re an independent artist it might prove an exciting new source of revenue.
And if you’re rich and believe that the blockchain is the future… well then, this might be a fun way to spend your money!
“Okay great, but… what the f*ck is a non-fungible token?”
was on CNBC this morning to talk about the sale and what it means for digital art and NFT's in general 👍👍👍https://t.co/aqYKaszrTr
— beeple (@beeple) March 12, 2021
NFT’s are virtual collectibles that are one-of-a-kind and easily verifiable as such, due to a unique string of characters in the image’s metadata stored on the Blockchain, which if you’re unfamiliar, is the digital database that makes cryptocurrencies like Ethereum and Bitcoin safe and secure. When you own the NFT, you have what basically amounts to a digital certificate of authenticity for that image. It’s a way of showing ownership of something that is otherwise easily distributed. But unlike cryptocurrencies like Bitcoin or Ethereum, NFTs are non-fungible, which means they’re completely unique and, as such, are valued independently from one another.
In short: You could trade a dollar for 100 pennies or 4 quarters, but you’d still have a dollar. NFTs don’t work that way. Their value is self-defined — which makes them a natural fit for the art world.
According to CNN Business, NFTs were first popularized thanks to an online digital trading game related to Ethereum, called CyptoKitties. The game allowed people to purchase and sell unique gifs of virtual cats, with their purchases stored on the digital ledger of the Blockchain.
“Wait, so NFTs are basically just JPEGs?”
Right. Or a GIF. Or a PNG. Or a video clip. Any virtual real estate works.
“Can’t people just take screenshots of the NFTs?”
Yes, and you can screenshot the painting “Crown” by Jean-Michel Basquiat, but that doesn’t mean you own it. While anyone can screenshot your NFT, only one person has the unique code stored on the Blockchain that says that they own it, which means only one person can trade or sell that NFT on NFT marketplaces like OpenSea, Rarible, Nifty Gateway, and Mintable, to name a few.
“Wait, so this is just for clout?”
That’s really simplifying it but, yes, NFTs are very much a way for rich people and other investors to say “this digital thing I can’t hold is important enough for me to throw money at so that I can say that I own it.” It sounds almost stupid, but in an increasingly digital world, it’s certainly a way to create scarcity amongst something that is otherwise essentially infinitely available.
“And these things are actually valuable?”
just setting up my twttr
— jack (@jack) March 21, 2006
Not just to the people buying them, who can flip and trade them on the NFT marketplace much like a share in a stock, but to the people making them, too. Dapper Labs, which also made CryptoKitties, started a digital collectible line called NBA Top Shot that’s minting NFTs of basketball highlight videos as a sort of new-age digital trading card. As mentioned above, the digital artist Beeple just sold an NFT for nearly $70 million (the auction house will take a sizeable commission, but obviously the moment was life-changing). Pitchfork reports that electronic musician Grimes auctioned off $5.8 million worth of digital art pieces in just 20 minutes, a screenshot of Twitter CEO Jack Dorsey’s first tweet just sold for $2.5 million and according to NBC News Shawn Mendes has been using NFTs to sell digital representations of his necklace and guitar to fans who can then use them on digital avatars.
NBC News also reports that features like royalties can be built into NFTs — so that whenever they are traded and sold, the original creator will get a cut of the sale. If done right, this might actually allow independent artists to make money off of their art as it changes hands. That’s pretty exciting!
“Wait so the value of this stuff is artificial?”
Yes, like, well everything, the value of an NFT is essentially based on the market’s interest in owning that NFT, which means at any time the value can diminish or skyrocket. So yes, this is just a fad that can fizzle out at any moment — like Beanie Babies or Pokemon cards — or it can make you rich. Or you can treat it like an asset, holding (or hopefully growing in) value.
While that still all sounds a little confusing, it’s important to note that all value measures are assigned by humans. Most are totally abstract. Diamonds are just rare rocks. Gold is a less-rare mineral. Real estate is tangible in some ways (it gives you shelter) but real estate speculation deals in all sorts of intangibles. Cash is paper with a dead person’s face on it. Collectibles are only worth money because there are people out there willing to pay for them. If no one wanted a Michael Jordan rookie card, it would be value-less.
That said, virtually anything can hold value if people in the marketplace are willing to assign it value. Whether it will hold that value is a different story. Who knows, maybe these NFT Pringles will be worth a fortune someday. Only time and the whims of chip lovers will tell.