It’s difficult to understand how a random cat video on Youtube could be sold for millions of dollars, but that is the reality of NFTs (non-fungible tokens) and the current mania around digital assets and art.
NFTs can be anything digital – from a photo to a video to a Tweet – and they are tokenized through the unique metadata of these digital assets. Anyone can purchase the token, thereby becoming its owner, with the right to resell this asset. So, NFTs convey ownership of the associated metadata and not the work itself.
These digital assets are heavily encrypted and registered or “minted” on a blockchain, most commonly on Ethereum’s blockchain. In early 2021, NFTs started taking off, mainly in the art world, which has many wondering about their long-term sustainability and value.
What makes them different from something like cryptocurrency is the unique metadata. Cryptocurrency is transferable (or fungible) because one crypto unit is identical to another and, therefore, can be traded. NFTs, on the other hand, have a unique stamp embedded within the digital file that represents that specific item.
“You can use it, exchange it, store it,” explains Andreas Park, an associate professor of finance at the University of Toronto, who specializes in blockchain technology.
“In many ways, this is not very different from what we’re used to, (it’s) just a question of where the ownership certificate lives. In this case, (that’s) on a blockchain.”
While the basic concept of NFTs isn’t that complicated, he says, it does challenge longstanding ideas and social constructs of ownership and copyright.
“I think the principle is that you now own that particular digital item, but you don’t own the copyright to it and there is a lot of legal uncertainty around this.”
Visual artists, musicians, celebrities and even journalists have produced their own NFTs for sale. While some believe NFTs offer interesting future options for ownership of everything from art to real estate to cars, others liken this craze to the hype around Beanie Babies in the 90s.
Whether or not NFTs are a fleeting trend, there is definitely a lot of money being made buying and selling these digital assets.
Graphic designer, Mike Winkelmann, known in the digital art world as “Beeple”, is perhaps the most famous of the NFT digital artists, snapping up millions for his digital art creations.
The graphic designer from South Carolina has fetched tens of millions for his NFTs, with the most famous being his work Everydays: The first 5000 days –– a collection of every one of his digital works in one big piece –– which was auctioned off in early 2021 at Christie’s auction house for almost US$70 million.
Around the same time as the auction, Twitter founder and CEO, Mike Dorsey, sold his first Tweet for $2.9 million last year, proving there is an appetite for these digital entities. Similarly, several American entrepreneurs pooled their money and bought a digital video clip of a LeBron James slam dunk for a cool US$208,000.
Anyone can view the individual images – or even the entire collage of images – online, for free. So why are people willing to spend millions on something they could easily screenshot or download? Simply put: bragging rights. Like traditional art (think a Picasso painting) what makes these NFTs so pricey is their uniqueness.
But this is not a new concept, especially in the art world. An original Picasso is going to be worth so much more than a copy because it’s an original, and that makes it more valuable.
“Any physical picture can be copied,” explains Park. “I have prints of beautiful pictures in this room…so it’s not a new item, but what (the NFT market) does do, is it gives the option of new marketplaces, new use cases for art, particularly digital art.”
However, Park warns, the whole space is still very new and quite complex so NFTs are not the type of investment that should be taken lightly.
“I’m very much against the idea of people speculating, seeing dollar signs and trying to make a buck – this is problematic,” he says.
“People should understand what they’re doing, what they’re getting and understand the risks they’re taking.”