By now, you've likely seen or heard the letters NFT. Whether from a “tastemaker” on Clubhouse, account on Twitter, or a think piece in a tech magazine, it’s clear: NFTs are the new “it” thing on the internet. But what the fuck are they? And what are you buying?
The concept of NFTs can be fairly confusing. That’s partly due to the fact that they so recently found applications in art, crypto, and music, vaulting them into public consciousness. Without a clear understanding of how NFTs will eventually operate, those diving in right now are entering unmapped territory.
Simply put, NFTs are a unique digital representation of an item, whose ownership is tracked and verified on a digital ledger, aka a blockchain. NFT stands for Non Fungible - meaning not able to be replaced or duplicated - Token. And that's exactly what NFTs are: a digital token whose value of ownership is derived from its limited quantity that’s verified and tracked via blockchain.
“NFTs are a class of tokens that sit inside a web3 wallet (blockchain) and represent a singular item. Unlike a currency, that can exchange with other like currencies and still represent the same amount, NFTs are tied directly to an object, such as a baseball card,” explained Graham Friedman, Director at Republic Advisory Services who works in blockchain tech. “In this way, they are a representation of ownership that can be stored, presented, bought, sold, borrowed against, and traded digitally.”
In order to sell an NFT of your work, you first need to have it “minted” at one of the many marketplaces such as Zora or OpenSea. Minting is the process by which NFT representing the work are created and added to a blockchain and an initial number of the product are serialized and offered to the public for sale. Think of it like the first pressing of a vinyl, or the first edition of a book, print of a painting, etc. Anyone can buy the album or the paperback, but an NFT would guarantee whoever was in possession of the first however many made had a way of proving that and therefore possessing a more valuable version of the same piece of work. The important difference here though is that based on the site of minting and agreements, the original artist gets a percentage of every subsequent sale of their work. But what in the hell does that really mean? Can a digital version of something be as valuable as the physical? Could an Elon Musk song be as valuable as a Van Gogh? We’re going to find out soon, as digital NFT artists and those in their periphery head towards bigger releases on blockchain.
I’m selling this song about NFTs as an NFT pic.twitter.com/B4EZLlesPx— Elon Musk (@elonmusk) March 15, 2021
A large portion of NFTs run on Ethereum or are loosely based on its concept of smart contracts. The cryptocurrency that arose in the wake of Bitcoin’s beginnings but with an entirely different use case. The coin and others like it have become the backbone of the NFT phenomenon, acting as the base currency for the market NFTs trade on. When the question of the value of what’s being bought arises, experts point to the cryptos and their related blockchains to explain.
“They all fall under specific coding infrastructure. ERC-721, for example, was an early Ethereum based token that had NFT rules baked into its code. There are numerous versions on Ethereum alone, and more on other chains, all built with specific utility features that define them,” explained Friedman. “NFTs are the object permanence layer of the metaverse(s), they will be all-pervasive.”
Alright so let's take a step back: an NFT acts as both a way to prove ownership of a digital asset and how to distinguish something that is rare from something that isn’t. NBA Top Shots, a digital collectible of NBA 'moments' run on the Flow chain, has been one of the biggest booms in the space. Officially endorsed by the league, the platform sells packs of digital multi-media serialized collectibles. For instance, you can go on the marketplace and buy a highlight of a Mitchell Robinson layup for $10, but it's one of 150,000. On the other hand, you can buy one of eight of a Lebron James dunk for somewhere around $65,000. Ther e’s no commercial license tied to “owning” the highlight, and anyone else can watch the highlight on YouTube or 100 other ways. What the user owns is a minted limited-run and personal use license, more or less the same as a rare baseball card but backed and certified by blockchain. Essentially, there’s no way to license a Top Shot highlight the same way you can’t monetize the new Drake song off iTunes.
Last week, digital artist Beeple made history when he sold an NFT of his art for $69 million at Sotheby’s.
A Liechtenstein sold for $46.2 million last year and a 67 million-year-old dinosaur named Stan sold for $32 at Christie’s and Sotheby’s. Just to put things in perspective a bit.
Why so much money though?
Well, there are several factors. Some real, some based in conspiracy because, you know, 2020 and whatnot. One is the fact that cryptocurrencies have spiked in value. Many early adopters were able to see their wallets boom over the last decade and now have massive holdings of the coin for themselves: digital ‘fuck you' money if you will. So they’ve been spending it, and anything is open game. There’s also the general human mentality of fads and collectibles. The NFT space is essentially like if Pokemon, Beanie Babies, and 100 other things like it were happening simultaneously and those leftover Chuck E Cheese tickets under your bed were suddenly worth $10,000. Finally, there’s also the fact that NFTs invariably give ownership of works to the artists themselves at a time alternative industries are thriving more than ever. A generation that grew up learning how to brand themselves is now seeing the payoff in having dedicated fans, as evidenced in the skyrocketing value of Beeple’s and other’s work. Throw in stimulus checks and FOMO and there you go.
The basics of NFTs make sense once you get used to the idea. However, it's really just the beginning of the rabbit hole. NFTs can have many practical and impractical uses, depending on your perspective. On one hand, there’s the straight collector side of it that somewhat mirrors fads of the past. On the other, you have an entirely digital world where these things actually live and can be worn or shown off via digital avatars a la The Sims or NBA 2K. The most popular right now is named Decentraland and runs on its own crypto, $MANA. Essentially a whole world like Second Life, users can create avatars, wear or display NFTs and even buy homes, operate commercial outlets, and much more. We quite literally may be entering the Matrix.
“I mean just think about it, Gen Z and kids younger than them grew up seeing who they’re talking to on the internet, knowing what they looked like,” said Melanie McClain, A&R at Secretly Group. “Us millennials are kind of weird in that way because we grew up in a more analog world. But worlds like this, having an avatar that represents you and who you are to a global online audience is the next thing for sure.”
Similarly, we’re heading into a future that may or not be dictated by NFTs, but will most assuredly be based somehow in blockchain technology that resembles it. Musicians soon will have the ability to sell limited runs of songs that are minted while also distributing it in a more traditional way, making money both ways like NFT-ing masters and allowing fans to share in money from royalties. A designer can sell a shirt at a boutique that’s paired with a digital NFT that your avatar can wear in a digital world. The applications are numerous so know what it is you’re buying. Not all NFTs are minted the same, for the fine print will help you here as the space is as unregulated as it will likely ever be.
I have two perspectives right now on NFTs," said visual artist, Irwin Awalludin. "On one hand there's optimism at the concept of artists being able to own and sell their work is good, being able to monetize digital artwork. The second part of that is the somewhat pessimistic perspective. There's an instinct that the curation and creation of artist's work is geared toward Ethereum coins and what's the long-term effect?"
I’m not positive yet where the rabbit hole ends, but for the moment I’d guess somewhere near places like Decentraland, just east of the matrix. The website is a fully-immersive online world where users create avatars, buy land, create buildings and sell digital clothing, accessories, houses, and more. In a sense, we’ll all go from communicating on the internet to faceless friends and colleagues to living vicariously through our hypebeast avatar. Anyone who’s played NBA2K’s My Career mode would have a template for this.
There’s no certainty what will happen in the future, but for now, it seems NFTs are the way of the future. Despite worries about their effect on the environment, business of art, business in general, and skepticism about their value, the wide range of applications and the certainty it gives to ownership and provenance of products in a digital world appears to be too enticing to look past.