What are NFT's and should I care?

An example of hashmask image that accompanies a Non-Fungible Token (NFT). 

[Created by Suum Cuique Labs GmbH,. Full ownership and unlimited commercial usage rights given to the consumer over their NFT. Source: https://www.thehashmasks.com/terms Section 3. A. - https://www.thehashmasks.com/detail/15753, Public Domain, https://commons.wikimedia.org/w/index.php?curid=99636644]

What are NFT’s?

Non-Fungible Tokens, or NFT’s, are designed as a way of certifying ownership of unique digital items. Essentially, in its simplest terms, an NFT is a one-off digital certificate containing the chain of ownership for an item, such as a digitally-rendered picture or a unique mix of a song, which is stored on a decentralized online ledger called the blockchain. Yes, that is its “simplest” terms. Welcome to the 21st century. Storing this certification on the blockchain allows the information to be stored on millions of computers across the world simultaneously, which eliminates the risk of forgery or theft as there is always an up-to-date copy of the certification available on millions of other computers to serve as proof of any transactions. This is the same basic principle employed by cryptocurrency to ensure its security for use in financial transactions.

Where NFT’s are unique in their function from cryptocurrency is that they contain artworks that only the owner of the NFT can verify ownership of. It breaks down like this: An artist creates an artwork. They sell the physical property to a collector. The collector owns the physical property and has a certificate demonstrating as such. The artist still retains the copyright on the product and can choose to reproduce or monetize that image however they want. However, any value derived from the actual physical piece, for which the world has various different measures, now belongs to the owner of the original.

How do you make them?

Making, or “minting, an NFT is simple enough. You can simply choose your platform and upload your artwork, and the company powering that platform will certify metadata indicating ownership and load it onto a blockchain. The overheads on creating an NFT are the data usage and power consumption behind them, which is well documented elsewhere, and marketing and online infrastructure costs to be able to sell these products to the public. These companies are frequently still in the “startup” stage, as the technology behind them has yet to be proven in a commercial market, but there is real money behind these ventures.

How do you buy them?

Buying an NFT is slightly more complex than simply buying an item off the internet with a credit card. Firstly, the marketplaces for NFT’s are crypto-oriented and as a function of their model they accept only cryptocurrency as payment. Ethereum is the cryptocurrency du jour on many of these marketplaces and the exchange rate for 1ETH is $2829.73AU. So, first you must purchase the appropriate cryptocurrency, and several marketplace startups are proposing their own cryptocurrencies to service their NFT markets.

To actually purchase an NFT you must bid or buy on an active NFT marketplace, run by the startups that mint the products for sale. These are apps or websites like …… Bidding is much like any bid on eBay, and if you are successful you are provided with the item, usually through some kind of encrypted drop. Then the ownership on the blockchain ledger is amended to show certification of the exchange. Presto, you own a valuable piece of digital art.

What do they do then?

The problem that arises is what to do with the art then. There has been no mechanism that exists to display them publicly for a profit, and in fact digital images are available to see quite freely on the internet. So where do NFT’s derive their value?

This is both difficult and fairly simple to answer, depending on your perspective on modern art. Many pundits see the digital art revolution as a natural extension of a lifetime growing up with video games and computer rendering. Where art was once about brushstrokes, it is now about an intangible kind of finesse that the finest digital artists in the world possess and for which they have not traditionally received due credit. For many exponents of digital art, it represents the culmination of decades of training and creative problem-solving, and valuing digital art in the way that NFT’s allow for is a natural evolution to the monetization of the artform. It is no longer necessary to work for a video game company or an animation studio; there are now outlets for artwork outside our usual modes, which is arguably one of the strongest draws of art in general.

Scarcity is the name of the game here. NFT’s are a commodity sold on the merit of its scarcity, and NFT’s are usually sold as extremely small-number releases of an item or even just as a single available item. These unique items fetch the highest prices.

How much can they be worth?

As of writing, the highest bid paid for an NFT was for a complex one-off collage titled Everydays: the First 5000 Days by digital artist Beeple, aka Mike Winkelman. The piece was the first NFT artwork to be sold through Christie’s auction house and represents a new level of legitimacy for the form. The piece was the culmination of a project where the artist produced a new digital artwork each day for 5000 days; the piece contains each of those 5000 artworks presented side by side, allowing the viewer to zoom into any of the images and see in detail the artist’s evolution over the course of several years. It is, by any measure, a remarkable piece. The price for this artwork was $69,300,000 once adjusted for US dollars. You can view this artwork here.

This stretches the average upwards fairly significantly, however pieces by relatively unknown artists are selling for tens of thousands of dollars essentially around the clock. Some NFT’s receiving consistently impressive sales are the classic GIFs of meme culture, where creators of some of the internet’s stupidest and most enduring memes are making mind-boggling profits. The well-known Nyan Cat GIF used in memes for close to a decade recently sold for $600,000USD.

Who’s buying them?

The person who bought Beeple’s piece for such an astronomical sum went by the online handle of MetaKovan. His real name is Vignesh Sundaresan, a Tamil entrepreneur from Singapore who runs several crypto-based startups. He revealed his name in a paywalled blog post on subscription-blogging site Substack and used the publicity of the moment to announce more moves in the crypto world.

While not all proponents of NFT’s are of such extraordinary financial means as Mr Sudaresan, many of them remain linked to the cryptocurrency world. It is unusual at this stage to find a person who is involved in the production, sale, or purchase of NFT’s who hasn’t demonstrated some prior knowledge of cryptocurrency. The two modes are linked by technology, and the exclusionary nature of understanding that technology has closed the market accordingly.

Many of the new users of NFT’s are young, fast-learning crypto profiteers who leant into recent market upheavals, such as the incredible GameStop controversy and the market manipulation of Elon Musk’s cultish fans, and came out with money to spend in a currency they have no immediate need to convert. As such, NFT’s are being sold at increasing rates and the markets are becoming easier to locate and engage with all the time.

Who owns the technology?

NFT’s, while still a startup-level technology, have seen limited support from established companies. There is no mechanism to purchase NFT’s from Amazon, for instance. The vast majority of the money and brains behind the technology is coming from digital disruptors of the “silicone valley pirate” type.

OpenSea, which is the largest online NFT marketplace currently operating, is owned by a private company operating out of New York and founded by Devin Finzer and Alex Atallah, two programmers who sought venture capital financing as early as 2018. With an initial capital of $2M in 2018, they successfully raised $28M as of 2020 to launch the platform, and with the immense boom-market that has emerged in early 2021, it seems this year may be incredibly lucrative for the young entrepreneurs behind this company in particular.

As with the users of the technology, most of the creators have significant links to the nascent crypto industry, and in particular financial technologies surrounding them.

Where do we go from here?

NFT’s represent a new form of legitimate art. They are affirming the ‘realness’ of digital art for a new audience that has grown up with unreal things. For a generation of kids raised on 3D graphics engines and increasingly detailed and emotionally-informed digital art, there is no real difference between a rendered image on a screen and a painting they may never see with their own eyes anyway, and in fact they can find a more immersive experience with that digitally rendered art than with abstract notions of fine art hanging in museums. Audiences today seem to be in touch with the individuality of art, and digital are with its accessibility and versatility has tapped into a zeitgeist that people have undermined or ignored unless packaged as a AAA-title videogame or the latest dazzling Pixar offering.

From here it seems the sensible choice is to embrace this new technology as an expression of a generation that is trying for something newer than we’ve dared envision for a long time – arguably since the leisurely innovations of modern industrialization like radio and television – before the bleak dusk of intransigence darkens our imaginations for the future.

KMM