What is an NFT? And why are people suddenly spending millions on them?
At first glance, Sheldon Corey’s Twitter avatar, pictured above, isn’t the kind of thing you think is worth US $ 20,000. But for the Montreal investor, every penny is worth it, if not more.
The image is part of a collection of digital files called CryptoPunks, first created over three years ago.
Created by a computer algorithm by software developer Larva Labs, there are around 10,000 of them. They were given away almost for free when they were first created, but over time they have become very valuable to a certain subculture of people. because they are among the earliest examples of an emerging type of digital investing known as non-fungible tokens or NFTs. .
While the image itself can be easily duplicated, what gives Corey’s NFT its value is that its digital property is flawless. Connected to a digital ledger known as a blockchain that cannot be tampered with, ownership can be publicly verified by anyone who cares to watch, and Corey is its undisputed owner in perpetuity, or at least until he is. decides to sell it.
But he does not intend to sell.
“It’s something I’m going to hang on to,” he said in an interview. “He’s already doubled in value.”
The “non-fungible” part of NFTs simply means that they cannot be exchanged for another asset of the same type, and can only be transferred in exchange for some sort of money, usually Ethereum or Gold. bitcoin. (Conventional money is perhaps the best example of a “fungible” asset since it can be exchanged for others of the same type. Canadian dollars for a certain amount of US dollars, for example. Or two cents and one nickel for a quarter.)
NFTs are exploding in popularity right now, drawn into the mania for digital assets such as bitcoin. The most expensive CryptoPunk is currently valued at around $ 2 million. And about half of the world’s 50 most valuable have changed hands in the last month alone.
CryptoPunks may be among the oldest, but they are far from the only ones.
Digital artist Mike Winkelmann – better known by his online alias, Beeple – recently made headlines for selling the NFT of the 10-second video he created, pictured below, to an investor for US $ 67,000 last fall.
Beeple’s first NG drop # 1/1 has just resold on the aftermarket for $ 6.6 million.
History has just been made.
The buyer, Miami-based art collector Pablo Rodriguez-Fraile, sold this NFT this week for almost 100 times what he paid, setting what is believed to be a new record for NFTs at 6.6 million US dollars. For him, he was buying a precious work of art similar to all the other works of the great masters of their time, worthy of hanging in any museum you could name.
“You can go to the Louvre and take a picture of the Mona Lisa and you can have it there, but it has no value because it has neither the provenance nor the history of the work”, a- he said this week. . “The reality here is that this is very, very valuable because of who is behind it.”
New NFTs are starting to run up against thorny issues such as royalties. But most, like Corey’s CryptoPunk, don’t.
He says he’s also invested in a few new types of NFTs called Hashmasks – one of which is pictured below – that sell the naming rights.
“There is a secondary market to name them so that they generate their own source of income,” he said.
OpenSea, NFT’s largest buy and sell marketplace, recorded nearly US $ 90 million in transactions last month. This represents an increase of US $ 8 million from the previous month and only US $ 1.5 million this time last year.
Maria Paula Fernandez is a consultant for the Golem Network, a peer-to-peer marketplace for computing power running on the Ethereum network. While NFTs have been around for a few years, she said in an interview that they are currently hypnotized due to a “very large influx of new users entering Ethereum through very crazy incentives in space.”
Translation? There is a lot of new money pouring in.
Much like conventional art, the beauty of digital art can be in the eye of the beholder, but for Fernandez the real value of NFTs lies in how they can certify ownership.
“They’re super versatile,” she says. “But the main advantage is the certificate of provenance and authenticity of a work of art.”
She says it’s no surprise the art community has jumped on board, as the conventional business model for artists and art lovers has its own issues. She cites the example of a New York art gallery that discovered previously unknown works by Mark Rothko, Jackson Pollock and others, and sold them to dozens of investors for over $ 80 million. of dollars.
“The ink was right, the paper was right, people who know Rothko have testified to that,” she said.
Despite the way the gallery owner got them being “a little shady” and verifying their “super opaque” status, clients were eager to get their hands on rare gems from such revered artists.
There was only one problem: they were all fake, forged by a talented Chinese artist. “All these millionaires, including the owner of [auction company] Sotheby’s got ripped off because in the art world provenance is created by consensus, ”she said.
“With NFTs, there is no question whether it’s there or not. Full stop.”
It’s not just the amateurs with more cryptodollars than the senses of throwing money into space, either. The Canada Grimes and Tennessee Kings of Leon both made millions this week selling artwork and music respectively through NFT.
One of the main supporters is billionaire tech investor Mark Cuban, and auction house Christie’s is currently selling another piece of Beeple until March 11, calling it the first “purely digital” work of art it has ever sold. Based on demand, the current record selling price of a Beeple mentioned above may be short lived.
The NBA jumped into space with both feet, establishing something called the NBA Top Shot, which is probably best described as sports cards for the digital age.
Instead of purchasing a physical card pack, fans and investors can purchase NFTs of on court memorable moments videos. Since its launch five months ago, the service has attracted 100,000 buyers and achieved more than $ 250 million in sales.
The most valuable so far is a dunk’s NFT of superstar LeBron James. It recently sold for over $ 208,000. (The Mona Lisa may belong to the Louvre, but the NFT in question is owned by a Twitter user with the appropriate name of YoDough. You can watch it yourself for free, here.)
Speaking as an art lover, Fernandez says she wouldn’t personally post her wall with the LeBron dunk, but she still calls Top Shot a “great use case” to show the value of NFTs.
“Of course, it’s not as special as a [sports card] you can hold and love and feel all that beauty, but it lives on forever, “she said.” You don’t have to protect it or put it in a safe, [but] you can have a very expensive collector’s item for your life. “
Emelia Thiara is the Managing Director of Kingswap, a Singapore-based decentralized marketplace that trades cryptocurrencies and NFTs. While the technology has been around for some time, she says the COVID-19 pandemic has led to renewed interest in NFTs, as digital assets become more and more mainstream.
She says it’s easy to think some of the assets are insignificant, but so are many physical collectibles. People collect high-end watches like Rolex and keep them for decades. “All of this is of no value to anyone who is not in the subculture, but for anyone who is in the subculture, it is extremely valuable,” she said.
“It might sound silly … and doesn’t make sense, but at least [an NFT] is recorded on a blockchain, ”she said.
Fernandez admits that the feverish activity and skyrocketing prices of some NFTs could be evidence of a bubble, but she is convinced that the underlying technology will have real value even if the current frenzy dies down.
“The only way to prove it’s not a bubble is if there are still creators willing to keep working and technologists willing to keep investing in the platforms,” she said.
“Never in the history of art has it been so easy to sell your work for millions.”