Why are some NFTs worth millions of dollars?
NFTs are being promoted as the digital equivalent of collectibles, much as how Bitcoin was heralded as the digital answer to currency. However, many skeptics believe they are a bubble that will burst soon.
What is a non-fungible token?
A fungible asset in economics is one that has easily interchangeable units, such as money.
When exchanging money, a £10 note can be exchanged for two £5 notes and remain of same worth.
However, if something is non-fungible, this is not possible since it has particular characteristics that prevent it from being substituted for anything else.
It may be a home or an exceptional painting like the Mona Lisa. There is only ever going to be one original artwork, but you can take a picture of it or buy a print.
In the digital world, NFTs are “one-of-a-kind” assets that may be purchased and sold just like any other item of property, but they lack a physical form of their own.
The digital tokens can be viewed as ownership documents for tangible or digital assets.
How do NFTs function?
Paintings and other traditional works of art are valuable because they are unique. However, it is simple and limitless to copy digital files.
Using NFTs, a digital certificate of ownership for the artwork may be “tokenized” and traded. A record of who owns what is kept on a shared ledger known as the blockchain, just like with cryptocurrency.
The ledger is maintained by thousands of computers all across the world, making it impossible to counterfeit the information. Additionally, NFTs may include smart contracts that, for instance, grant the artist a share of any future token sales.
What is the value of NFTs?
In theory, anyone can tokenize their work to sell as an NFT, but news stories about sales of millions of dollars have stoked interest.
A Nyan Cat animated GIF, a 2011 meme featuring a flying pop-tart cat, sold for over $500,000 (£365,000).
A few weeks later, musician Grimes fetched more than $6 million for some of her digital artwork.
Not simply works of art are tokenized and sold. Jack Dorsey, the creator of Twitter, pushed an NFT of the very first tweet, and bids reached $2.5 million.
A new record for digital art was set when Christie’s sold an NFT by digital artist Beeple for $69 million (£50 million).
Sorare, a French company that offers football trading cards as NFTs, has raised $680 million (£498 million).
But much like with cryptocurrencies, there are worries about how maintaining the blockchain may affect the ecosystem.
What prevents anyone from copying the digital art?
Nothing. Beeple’s artwork, which sold for $69 million, has been viewed by millions of people and has been copied and shared countless times.
Many times, the artist even keeps the copyright ownership of their creation, allowing them to keep making and selling copies.
The purchaser of the NFT, however, has a “token” that attests to their ownership of the “original” piece.
Some equate it to purchasing a hand-signed print.
What about a bubble?
Beeple, whose real name is Mike Winkelmann, said to the BBC the day before his record-breaking auction: “I honestly do think there will be a bubble, to be quite honest. And I believe that bubble may already be around us.” Many people are even more doubtful.
Author of Attack of the 50-foot Blockchain David Gerard stated that he viewed NFTs as trading cards-like purchases of “official collectables.”
“Some artists are undoubtedly wealthy off of this stuff… only that you won’t probably,” he cautioned. He called the folks who are actually selling the NFTs “crypto-grifters.”
The same individuals who have always been involved are attempting to create a new variety of useless magic beans that they can market for profit.
The idea of purchasing NFTs, according to former Christie’s auctioneer Charles Allsopp, “makes no sense.” He told the BBC, “The idea of buying something that isn’t there is just strange.
“I hope they don’t lose their money, but I think the folks that invest in it are a little bit mugs.”