It's fascinating to watch how each generation attaches value to its cultural artifacts. Vincent Van Gogh was a commercial failure. He only sold a handful of his 900 or more paintings during his lifetime, and had to exchange some of his works for food. In 1987, Van Gogh's iconic "Vase with Fifteen Sunflowers" sold at Christie’s in London for $39.9 million.
In March 2021, Christie’s, Twitter and Polkamon share the headlines in a new explosive trend: the NFT marketplace. Jack Dorsey, co-founder of Twitter, sold his first-ever published tweet for $2.9 million. Christie’s auction house sold a digital collage called "Everydays: The First 5,000 Days" for $69.3 million.
These new collectibles — a tweet, a digital image, a gaming video clip — are all non-fungible tokens or NFTs, one-of-a-kind pieces of digital content, typically traded by crypto-currency such as bitcoin and valued in the marketplace as cultural and technological experiences that high-profile investors are willing to spend millions to own.
Cultural Turning Point or Hype?
We all shifted our lives online in response to the pandemic. Our workplaces, our lifestyles and almost everything important to us can be found in the great digital assembly. Following this watershed upheaval, it's unlikely we'll completely return to what used to be normal. So, it’s not surprising the artifacts that have meaning for us are digital — that’s where we live.
NFTs arrived as a spectacle. A tech company purchased a physical piece of art by the elusive artist, Banksy, and then burned it, broadcasting it live on the internet. Then the company unveiled a digital copy of the art they just burned, getting more reaction than the dramatic fire show and original artwork.
It’s about ownership, but not of an object you can touch. An NFT is proof of ownership (token) of a unique piece of code — a tweet, a video, a digital image. You can now "own" a helmet in your favorite video game or a plot of land there. Anything digital could be sold as an NFT if it’s in the auction market (and you have the big digital wallet to acquire it).
Fungibility means the asset can be interchanged easily with other assets of the same kind. Fungible assets simplify exchange. Money is the best example: you can exchange a dollar for four quarters and the value stays the same. And it’s not about limits on supply. Bitcoin supply is limited but still fungible — you can trade one Bitcoin for another and maintain the value. But NFTs are non-fungible because they are unique, i.e., no two assets are the same, even though the supply is unlimited.
Like physical artworks have prints, NFTs can have copies. As an NFT owner, you do not have the copyright to the digital asset, i.e., that’s a separate entitlement. But through the use of blockchain, a shared public ledger, anyone can track ownership and ensure that the NFT isn’t duplicated or altered. It is a certificate of authenticity publicly declared in the blockchain. Someone could try to copy the digital asset, but the blockchain would validate the true owner of the original.
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The Good, the Bad and the Ugly of NFTs
When I heard of the breathtaking sale prices for digital images, I thought about how some digital formats degrade over time and with transfer. Just as there is risk for physical artworks, digital forms come with risks. Image files degrade, file technologies change and retire, and digital wallet holders forget their passwords.
So you may have proof of ownership of a digital asset (a piece of code), but where is that code? It’s not in the blockchain or in your laptop — it’s somewhere else on the web. If the website is taken offline or the artist closes shop, the NFT owner is out of luck and out of the loop. While the NFT industry is still working on best practices for where to safely store assets, buyers will need to be cautious about who they do business with.
Sales of NFTs have skyrocketed, with many auction places selling out instantly and celebrities joining the NFT phenomenon. Spinoff industries like NFT insurance, trading, indices and marketplaces such as OpenSea, Rarible and Grimes’ choice, are also riding the NFT wave, becoming some of the most heavily invested areas in the market.
So while some open questions do remain, I see the new possibilities NFT marketplaces open up for more artists to be found and new ways for us to value them. Even if the art is William Shatner’s dental X-ray.