So What Are NFTs Exactly?
This here pixelated ape face — which you could quite easily screenshot right now, go ahead, honestly just do it — is apparently worth one-point-two million US dollars.
That’s just one of several bananas ideas cropping up at a new frontier in the febrile world of cryptofinance. Great fortunes are being made, of course. But more intriguingly, the future of how we all experience art, play games and even share memes is looking ripe for revolutionary change.
So join us today as we voyage through the crypto looking glass and ask: exactly what are NFTs?
An NFT, or Non-Fungible Token, is essentially a database record on the blockchain, that refers to a unique, specific digital asset. That asset might be a song, or a GIF, or, as we’ve seen, a pixelated doodle of a chimp in a do-rag.
Bitcoin derives value from scarcity and the icy mathematical certitude of the blockchain. Central governments can’t mess with it by printing more, and the ledger is ironclad secure. NFTs harness that same principle to offer reliable proof of origin and ownership as they pertain to artistic assets. The Non-Fungible Token isn’t a work of art in itself, by the way. But it is a certification, engraved forever on the blockchain, providing priceless proof of provenance and authenticity.
Baffled yet? Let’s look at some more weird examples, like our blocky ape buddy back there, that some dude actually paid $1.2 million dollars for, just for a giggle, then delve into what the hell it all means.
Okay, remember Nyan Cat? The adorable viral moggy-and-Pop-Tart hybrid who sailed out of the stars and into our hearts back in those carefree innocent days of 2011? Creator Chris Torres marked its tenth anniversary with a ‘remastered’ edition of the classic GIF that just sold, via the magic of NFTs, for the frankly ludicrous sum of 300 Ethereum coins. That’s about $590,000 in real money. Or, if you like, a three-bedroom house in Los Angeles.
‘I’m very surprised with the success,’ Torres told Nasdaq, reasonably enough, ‘but I think I’m most glad knowing that I’ve basically opened the door to a whole new meme economy.’
It isn’t only daft animal pictures making big bucks in this brave new world of NFTs. Short video clips of basketball games are also doing a lively trade — one depicting LeBron James dunking on rival Nemanja Bjelica recently changed hands for a whopping $208k.
NBA Top Shots, the brand under which the league sells such ‘moments’ through NFTs, is a bit like that oldschool hobby for collecting sports cards. But with video. Investors are already splurging over $100 million dollars a week on these moments. Jesse Schwartz, the high-roller behind that $208k LeBron clip purchase, makes a point of mentioning this lavish buy in his Twitter bio, suggesting he did it at least partly for the ‘flex’, or show-off value.
We really can’t emphasise enough that these clips are widely available, completely for free, on YouTube. So the growing popularity of NFTs — remember, that’s the database entry on the blockchain proving the buyer ‘owns’ this given dunk, or that particular cat meme — is arguably a kind of conspicuous consumption, akin to Lamborghinis and Hennessy, Only without any Lamborghinis. Or Hennessy.
Still, there are positives. NBA Top Shot was created by forward-thinking software house Dapper Labs. It works on a revenue sharing basis with the NBA and the Players association. This blueprint is seen as a guide to the future, with fans — essentially ‘investors’ now — taking on the role of oldschool patrons, supporting their heroes directly. Dallas Mavericks owner and celebrity billionaire Mark Cuban reckons Top Shot could be one of the NBA’s chief revenue sources over the next few years.
And by the way, it isn’t just spectacular dunks and deft layups doing a roaring trade on NBA Top Shots. One excitable fan just paid $100k for a clip of New Orleans Pelicans’ power forward Zion Williamson merely blocking a rival players’ shot.
Let’s take a moment ourselves to tackle the terminology.
To truly understand non-fungible tokens, we probably need to explain what fungibility is. So here goes…
Fungible goods are made up of discrete, individual units, each of which are interchangeable, and functionally indistinguishable from one other. Gold is a great example, sweet crude oil is another. Perhaps the most instructive fungible commodity we all know and love is cash. If I give you a twenty dollar bill, and you hand me back a ten and two fives, we’re even. Always. Those particular bills have no history, so even if one of the fives you slipped me was once involved in a shady secondhand car deal, or the ten was suggestively fondled by Timothée Chalamet, they hold exactly the same value. They possess fungibility, and fungibility is the basis of their versatility.
A non-fungible token is quite different. It can’t be broken down. It’s unique, and that uniqueness is the basis of its value. It can’t straightforwardly be swapped, or broken down, or at least not without diminishing its value. Like a racehorse, say, or a Michelangelo nude. It has scarcity, and provenance, and these qualities add value. Sometimes, a hell of a lot of value indeed.
That bored-looking pixelated ape who’s almost certainly worth more than your house was created, more-or-less, as an experimental wheeze in Non Fungible Tokens, by American design studio Lava Lab. In 2017, 10,000 of these angular faces, so-called ‘Crypto Punks’, were designed by a Lava Labs algorithm. Each was assigned a discrete NFT address on the Ethereum blockchain. They were then given away, for free, to Ethereum wallet holders.
Flash forward to today, and Cryptopunks’ in-built scarcity, limited to a strict run of 10,000, plus their iconic status as early-adopter Crypto icons, somehow makes them valuable. Add to that the nifty detail that within their ranks are still rarer ‘classes’ of Crypto Punk (including ape, zombie, and rarest-of-all alien), and hey presto, you get a mad secondary marketplace where faces never sell for less than $18k apiece nowadays. The total value of all Cryptopunk sales since the project began is already reportedly north of $100million.
You’re probably wondering what’s the point of forking over such vast fortunes for a third-rate monkey mugshot. Fair enough. It is insane.
At the time of writing, serious old-school auction house Christies is selling the NFT for a work by digital artist Beeple, which is expected to bring in far more than it’s current listed top bid of $4.25 million.
The rise of NFTs could well represent a positive paradigm shift for artists, who, like lucky old Beeple, will earn royalties from all future re-sales of their work thanks to clever coding embedded in the very NFT itself. Creating fake scarcity in a world of infinite, cost-free copying and pasting is a nightmare to get your head around. But if it catches on as an idea we may enter a golden age where creators — be they digital doodlers, or kings of the basketball court — get to see their great works appropriately remunerated.
For instance Grimes, Elon Musk’s ladyfriend, just made $6 million auctioning artwork set to music. And that’s nothing. EDM producer 3LAU just earnt more than $11 million flogging music and merch using NFTs in one late-February weekend alone.
And sure, the ape example is ridiculous. That’s almost the point of it. It’s a great work of art partly because it’s so dumb. But when artists start, as many already have, crafting elaborate 4d creations in the coming madness of the metaverse, things will get properly interesting. In alt-world Decentraland, for instance, one player recently bought up 64 lots of virtual property, bundled them up, and sold them on for $80,000 because of prosaic considerations like location and road access. Again, all in a virtual space, through the mechanism of NFTs.
Another cashed-up speculator reportedly shelled out $222,000 to buy a section of Monaco Racetrack on an Ethereum-based Formula One racing game. He or she will henceforth receive 5% dividends from all future races and ticket fees.
So NFTs are a way of generating scarcity and proving ownership and history of digital assets on the blockchain. Some people think they’re wise investments. Others, quite fairly, say it’s just a load of monkey business.
