Money for old rope?
Tuesday, August 24, 2021
Where Bitcoin was seen as the digital answer to currency, NFTs are the digital answer to collectables.
In March 2021, Christie’s auction house made history by selling a piece of art called The First 5000 Days. Created by the artist Beeple, it sold for $69m (£50m). While achieving considerably less than the most expensive work of art ever sold at auction, Salvator Mundi by Leonardo da Vinci for $450m in 2017, it currently holds the record for the most expensive piece of digital art.
So how can something you can’t touch be worth so much money? First you need to understand NFTs and why collectors are spending millions to acquire them. NFT means non-fungible token.
In economic terms, something that is fungible can be interchanged with something else that has equal value. For example, one £20 note can be swapped with two £10 notes.
Non-fungible is something that cannot be interchanged with something else and is completely unique, like the Sistine Chapel or the Mona Lisa.
Yes, you can take a picture or even buy a life-size print of either, but there will only ever be one original. The same theory applies to digital art.
Even though they can be easily and endlessly duplicated, by being ‘tokenised’ there is a digital certificate of ownership that can be bought and sold. This is a NFT.
Just like cryptocurrency, a record of who owns what is stored on an unforgeable shared ledger, maintained by thousands of computers around the world, known as the blockchain.
So, by owning the NFT you hold the token that proves you own the original piece of work.
Beeple isn’t the only one cashing in on this new trend of collectables.
In February this year, an animated Gif of the 2011 meme Nyan Cat sold for more than $500,000. Musician Grimes sold some of her digital art for more than £6m. Twitter’s founder Jack Dorsey sold his first tweet for $2.9m.
But there is one thing about NFTs that most people misunderstand. By owning the NFT, you can display the token and show that you own the token, but you do not own the copyright.
Say for example you buy a physical painting; you own the canvas and the paint that went into making it, you did not buy the copyright. That still belongs to the original creator. In fact, Mike Winklemann, Beeple’s real name, auctioned one of the individual images from The First 5000 Days after it was sold at auction. Called Ocean Front, the single image sold for $6m on NFT marketplace Nifty Gateway with proceeds going to a non-profit called Open Earth Foundation.
Winklemann can legally licence his sold digital art for use on t-shirts, hats, prints, postcards etc. while the original still belongs to a wealthy entrepreneur from Singapore. Of course, there are critics.
Some argue that NFTs are an investment bubble which could burst at any time, while others argue about the environmental impact of using blockchain technology which require huge power-hungry server farms.
One thing is for certain, like all pieces of art, the value of a NFT is determined by what people are willing to pay for it—not what it is worth.
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