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In just the past few months, an entirely new art market has emerged for a type of digital asset known as a Non-Fungible Token (NFT). In some cases, these NFTs are selling for tens of thousands of dollars, and in other cases, they are quite literally selling for millions of dollars. People are paying crazy, insane amounts of money for LeBron James NBA dunk videos, brief 10-second video clips, digital avatar images from YouTube creators, and other digital content that exists only online. So what in the world is going on here?
What is an NFT?
Clearly, there’s a lot to unpack here. The biggest question, of course, is what exactly an NFT is. The basic premise of an NFT is that it is a unique, one-of-a-kind digital item that nobody else in the world can own. Sure, other people might be able to view the LeBron James dunk video online, but you would be the exclusive owner of the original video. The provenance and authenticity of the video is verified by blockchain technology. Each artwork or digital artifact has the equivalent of a “digital signature” that certifies ownership and authenticates it.
The thing that’s hardest to understand is why these NFTs have any value at all. The biggest proponents of NFTs like to invoke the Mona Lisa example. Sure, you might be able to view an image of the Mona Lisa online or in an art history textbook, and sure you might be able to visit the Louvre in Paris and view it close-up, but there is definite value in being able to own and possess the original Mona Lisa. If you’re a museum, for example, ownership of the painting means that you can charge admission to view that painting. And it also confers a certain type of prestige upon you to say that your museum owns the Mona Lisa.
Real-world analogies to explain the NFT boom
Another example that proponents of NFTs like to invoke is the “collectibles” market. Why do people collect vintage baseball cards? Why do people collect sports memorabilia like football jerseys worn by famous athletes? Why are people willing to pay more for an autographed book signed by a famous author than for a “regular” book that you’d find at a Barnes and Noble? Why do some people collect rare, vintage wines and then take tremendous efforts to preserve that wine in elaborate wine cellars? And why do some people collect art, knowing full well that much artwork being created today may be completely worthless in the future?
In such a way, you can think of NFTs as the newest incarnation of a centuries-long trend in which people collect valuable items for posterity. The same person, for example, who might have purchased a rare LeBron James rookie jersey might now be tempted to purchase a unique, one-of-a-kind video of LeBron James from the NBA’s “Top Shot” marketplace.
The crypto/blockchain angle
But even all of these analogies fail to explain some of the crazy, insane prices that people are willing to pay for a digital asset that lives entirely online. If you buy a great painting, at least, you can proudly display it in your living room. But what’s the value of a digital asset? In the digital world, remember, there is no scarcity. And scarcity is the only reason why a vintage wine or a particular artwork has tremendous value – you know that you have one of the few objects of that kind in the world that has ever been produced. That’s not really the case online. For example, the Nayan Cat GIF recently sold for $580,000 online. Yet, you could go to any meme site online and find a GIF of the Nayan Cat. Or what about Twitter’s Jack Dorsey trying to convert his tweets into NFTs? Would you really pay close to $1 million for the bragging rights to say that you “own” a tweet?
And that’s where the crypto/blockchain angle enters into the picture. It could be the case that people are making so much money buying and selling cryptocurrencies that they are literally flush with cash that can be used to finance crazy acquisitions. If you bought Bitcoin at $5,000 and it’s now trading at $55,000, you’d presumably have $50,000 or more to spend on videos, JPEGs and GIFs. Why not? Easy come, easy go. Spend that money on the Nyan Cat.
Clearly, there’s a lot to work out here in terms of intellectual property and digital ownership. For example, if you “own” a LeBron James dunk video, shouldn’t you have the right to alter or change that video as a right of ownership? If you owned the Mona Lisa, for example, wouldn’t you be able to use your own paint to change that enigmatic Mona Lisa smile?
And if you own a Jack Dorsey tweet, what does that really mean? Some people have suggested that NFTs might act as a sort of new patronage model with NFTs acting as a price of admission. If you support a certain creator or influencer online, you would purchase an NFT from that individual as a way of gaining access to a private group or premium content. In the same way that people buy “shares” of companies, they might be able to buy “shares” of creators. And those shares would be NFTs.
It’s an exciting space, and certainly if you have the money to burn from all your crypto sales over the past 24 months, it’s a great way to see first-hand how the blockchain is disrupting the art world.