Christie’s auction house has sold a digital-only artwork for a whopping $69 million, but the winner won’t get a sculpture, a painting or even a print.
Instead, he will receive a unique digital token known as a NFT.
While Bitcoin has been hailed as the digital answer to currency, NFTs are now being presented as the digital answer to collectibles.
But there are many skeptics who believe it’s all a bubble that will burst.
What is an NFT?
NFT stands for non-fungible token.
In economics, a fungible asset is something with units that can be easily exchanged, such as money.
In the case of money, you can exchange a £10 bill for two £5 bills and it will have the same value.
However, if something is not fungible, this is impossible: it means that it has unique properties, so it cannot be exchanged with something else.
It can be a house or a painting like the Mona Lisa, which is unique. You can take a picture of the painting or buy a print, but there will only be one original painting.
NFTs are “unique” assets in the digital world that can be bought and sold like any other property, but have no tangible form of their own.
Digital tokens can be thought of as certificates of ownership of virtual or physical assets.
How do NFTs work?
Traditional works of art, such as paintings, are valuable because they are unique.
But digital files can be duplicated easily and endlessly.
With NFTs, artwork can be “tokenized” to create a digital certificate of ownership that can be bought and sold.
As with cryptocurrencies, a record of who owns what is stored in a shared ledger known as blockchain.
The records cannot be falsified because the ledger is maintained by thousands of computers around the world.
NFTs can also contain smart contracts that can give the artist, for example, a share of any future sales of the token.
What prevents people from copying digital art?
Nothing. Millions of people have seen Beeple’s art that sold for $69 million and the image has been copied and shared countless times.
In many cases, the artist even retains copyright ownership of his work, so he can continue to produce and sell copies.
But the NFT buyer possesses a “token” that proves he owns the “original” work.
Some compare it to buying an autographed print.
People are paying millions of dollars for tokens?
Yes, it’s as crazy as it sounds.
How much are NFTs worth?
In theory, anyone can tokenize their work to sell as NFTs, but interest has been fueled by recent headlines of multi-million dollar sales.
On February 19, an animated Gif of Nyan Cat – a 2011 meme of a pop tart flying cat – sold for more than $500,000.
A few weeks later, musician Grimes sold some of her digital art for more than $6 million.
It’s not just art that gets tokenized and sold. Twitter founder Jack Dorsey has promoted an NFT of the first ever tweet, with bids reaching $2.5 million.
Christie’s sale of an NFT by digital artist Beeple for $69 million set a new record for digital art.
But, as with cryptocurrencies, there are concerns about the environmental impact of blockchain maintenance.
Is it just a bubble?
A day before his record auction, Beeple – whose real name is Mike Winkelmann – stated in an interview, “I actually think there will be a bubble, to be honest.
“And I think we might be in that bubble right now.”
Many are even more skeptical.
David Gerard, author of the book Attack of the 50-foot Blockchain, said he saw NFTs as buying “official collectibles,” similar to trading cards.
“There are some artists who are making a killing on these things … it’s just that you probably won’t,” he warned.
The people who actually sell NFTs are “crypto-grifters,” he said.
“The same guys who have always been at it, trying to come up with a new form of worthless magic bean that they can sell for money.”
Former Christie’s auctioneer Charles Allsopp said the concept of buying NFTs made “no sense at all.”
“The idea of buying something that doesn’t exist is just bizarre,” he said.
“I think people who invest in it are a little silly, but I hope they don’t lose their money.”