The Quagmire that is NFTs

You’ve likely heard them talked about as the next new thing in art collecting and investment. But the acronym gives nothing away.

NFT.

Sounds…meaningless. So, you decide to unpack it, roll it out and get the full name. That’s got to be better, right?

Non-fungible token.

Well…that didn’t help.

A token, like the kind you get at a carnival? Put in an NYC subway? And what is fungible? Fungus? I thought we were talking about art and technology, not mushrooms!

Down the Rabbit Hole

Please, don’t follow me down this hole. I’ve spent hours learning about this, talked to experts in the field of blockchain technology, art collectors and crypto…other people.

Still here?

Alright. I’ll try my best to answer any questions you have. But I warned you.

Let’s begin.

What is an NFT?

A non-fungible token.

You already said that.

Yeah. Right. Sorry about that. Okay, something that is “non-fungible” means it cannot be replaced. It's one-of-a-kind. A ten dollar bill is fungible; you can replace it with another ten dollar bill. It is the exact same as the bill you had before, and more can be made—no more, no less. But if you had a 1979 O-Pee-Chee #18 Wayne Gretzky hockey card, the most expensive hockey card ever sold, that’s non-fungible. It is unique because you can’t exchange it for a different hockey card, even another hockey card that is the same. Maybe yours is in better condition or has a bent corner. That changes the value and makes it one-of-a-kind.

Okay, so NFTs are unique. But what can actually BE an NFT?

Well…sort of anything. So long as you can digitize it. An NFT can be a song, a video, the collected works of William Shakespeare, this article, you name it. So long as you can make it a digital file, it could potentially be an NFT. However, the hype over the last few years has been on art.

So…the “art” my kid did on some program on my computer? That could be an NFT?

Sure. Why not? But you have to find a buyer or buyers that see the same value you do in it. I’m sure your kid can paint an amazing…dog? Cat?...Blob?...Sunset! You’re sure? Wow…

But just because something unique exists in a digital form doesn’t mean someone else wants it. That’s why the buzz around NFTs has been mainly within the domain of fine art collecting.

So no one’s going to buy my amazing Tweet that has three retweets.

Well, Jack Dorsey, the founder of Twitter, did sell one for just under $3 million USD. So…

Are you serious?! I thought I was being facetious!

Yeah, I know, right? And that’s not even in the top 10 of most expensive NFTs! A digital artist named Pak currently holds the record for the most expensive NFT ever sold. They got a whopping $91.8 million for The Merge on December 6th, 2021. They took their artwork, broke it into 312,686 pieces, which were then bought by 28,983 buyers. That means, in order to own the entire singular piece of artwork, buyers will have to negotiate with other collectors for their unique piece.

The Merge, Pak

Everydays: The First 5000 Days, Beeple, 2021

Another artist, Beeple, had an auction for Everydays: The First 5000 Days. It started with an

initial bid of only $100. But that didn’t last. Within an hour of bidding, the price was over a million. It ended up selling for $69 million US on February 21, 2021.

Beeple also has the third highest selling NF—

Yeah, so I just downloaded that Pak picture. And I didn’t pay $90-odd million for it! I didn’t pay a cent!

Okaaayyy… Congratulations?

So, can I sell this to some chump now?

Nope. Nuh uh. No way. Not how it works.

Why not?

Because that’s not how it works. Because of the technology behind blockchain.

Yeah, you mentioned that block-thingy earlier. I was wondering when you were going to get to it.

Well, how about right now? Blockchain is the technology that underlines cryptocurrencies. Without getting into the minutia, blockchain technology is a record—a database of information—in a digital format. However, this is different from, say, a file you saved on your computer. Blocks can only hold so much information. But part of their data is a link to the previous block. Several blocks linked together form the block…chain. A blockchain.

With me so far?

Whereas that random file you save on your computer is typically structured into a table, a blockchain is chronological in its ordering. When one block is filled, it’s time stamped and becomes part of a line of blocks, linked together.

The other thing blockchain technology has going for it is that it’s decentralized. The blocks are permanent records where no one person has control over them. Therefore, all users have control. This is why they have been used by cryptocurrencies. They act as a ledger of all transactions that cannot be altered, because no one person has the control to do that.

This is also beneficial for NFTs. Some blockchains are able to record additional information, the kind that is able to make an NFT unique. Other blockchains are popping up as well to facilitate NFTs, so it’s a rapidly growing marketplace.

I got kind of bogged down there with the technology. Did that make sense?

Kind of…?

Yeah, sorry about that. It’s a tricky one. Okay, let’s go back to the ledger example. A ledger is a record of all transactions for a business, a bank, a…whatever. When you record a transaction, that doesn’t remove the record of previous transactions; it simply adds a new line of information. Think about your bank statement or your credit card bill. You can see the end balance, but you can also see how you got there, what you purchased or when you paid it off.

Yeah…paid it off…right…

You get what I mean though. The record is there no matter what you do to it later. Blockchain is the same. The important difference is who holds the control of that ledger. In our traditional example, there’s always a centralized institution. A bank manages the records of its customers. A business manages their books. And so on.

But blockchain, there’s nothing centralized. No one holding the secret key. Everyone has access to add a new line to the ledger, and everyone within the blockchain can see who did it and for how much. It’s completely decentralized, which guarantees its security. A person is not able to do something nefarious because there’s nothing central to hack.

Okay, I’m with you…I think. But I still downloaded that Pak picture. And I didn’t pay for it.

Well, shame on you. But also, you didn’t. Not really.

But it’s there! On my monitor!

Vase with Fifteen Sunflowers, Vincent van Gogh, 1888, oil on canvas

But it’s not an NFT. Look, I can go and find a print of Vincent van Gogh’s Vase with Fifteen Sunflowers. But I don’t own the actual painting.

A digital file can be copied as many times as someone can click a mouse. But it’s not the original.

Sure, but Pak isn’t van Gogh.

Well…Vase with Fifteen Sunflowers last sold for $90.4 million US, and Pak’s The Merge went for $91.8 million US. So maybe we should say van Gogh isn’t Pak?

Really?

Okay, now I’m being facetious. Besides, ole’ Vincent’s got paintings that have sold in the hundreds of millions. I think his legacy is secured.

Right, but a print of famous art is something I can hang on my wall. I can’t do that with an NFT.

So?

So…I don’t know…

Okay.

I’m still having trouble figuring out what the point of it all is.

People have been saying that about art in general since time immemorial. You can’t eat a painting. You can’t house yourself in a movie. A song won’t keep you warm at night. Okay, well…maybe it will figuratively, but you get my meaning.

An NFT is like any other piece of artwork. Its value is speculative. It has value because we say it has value.

But every D-list celebrity and their dog have an NFT now.

Yep.

So, what do I care if an actor or singer or…I don’t know…some social media influencer puts out something and calls it an NFT?

You may not. It’s not your market and not the commodity of your choice. Don’t buy it. But that won’t stop someone else.

Okay. I get it now.

Good.

…

…

My head hurts.

Yep. Don’t say I didn’t warn you.

My work here is done.

By Nathan Durec