Your Quick Guide to NFTs
NFTs, a new(ish) technology, initiated a polarizing collision of the art and finance worlds in recent weeks. Here’s a brief guide to what you need to know about the ostentatious newcomer to the art scene.
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What exactly is an NFT?
NFTs, or non-fungible tokens, are “crypto-currency adjacent virtual collectibles” that certify ownership of an (often digital) asset.
Not quite. Bitcoins are fungible, meaning that one Bitcoin is equivalent to a different Bitcoin–each could be switched out with another and you’d be none the wiser. NFTs, on the other hand, are unique virtual items inextricably associated with a specific product or object. Think of an NFT as a “one-of-a-kind trading card.”
Nyan Cat, Chris Torres, © Christ Torres
So, how does an NFT work?
First off, a creator has to mint an object into an NFT. The object in question could be anything (one artist minted audio recordings of their farts into an NFT). For reasons explained later, the most important–and most confusing–power of NFTs lies in the minting of virtual media.
What happens once someone has minted an NFT?
Using blockchain technology, an NFT creates a virtual, unalterable provenance record, allowing for the designation of an official “owner” of an “authentic” media.
Why the quotation marks?
It’s important to clarify that ownership is not equivalent to copyright or trademark. This is where the significance of minted digital media comes in. An NFT purchase entitles someone to say that their copy of virtual media is the real thing, even if countless other identical copies of said artwork or song or meme or [insert minted digital media here] might live on the internet. Crucially, the ability of NFTs to make a digitally replicable item unique through certification also makes it sellable.
Jack Dorsey's First Tweet, 2006, © Jack Dorsey
Then, what are you buying when you buy an NFT?
Some say you’re “buying bragging rights,” others say you’re getting “ownership as a feeling.” You’re purchasing the knowledge that you own the real version of something. That’s it.
Are people actually paying for this?
Yes, and they’re paying a lot. NFTs enabled the sale of Christie’s first exclusively virtual work of art for $69.3 million, the auction of the first ever tweet by the founder of Twitter for $2.9 million, and the video sale of LeBron James dunking for $213,000. And, it must be noted, that dunk is from a game that he lost.
Lebron James Dunking NFT, 2021, © Top Shop
Why are NFTs so valuable?
While the logistical details of NFTs might be novel, their worth depends on the age-old value of scarcity. NFTs introduce an artificial paucity to internet media. “The token is rare, not the artwork itself.” And there’s value in rarity. What’s more, NFTs are seen as a speculative investment that might accrue interest overtime.
What are the pros to NFTs?
NFTs present a huge financial opportunity to artists working in the digital field, like musicians who stream their music or creatives who make virtual visual graphics. If an artist mints their digital work as an NFT, they can sell it and directly profit while maintaining the accessibility of their creation on the internet at large. On top of that, if the purchaser of an NFT decides to resell it, a percentage of that sale will go into the pocket of the original creator, guaranteeing that artists will profit from any transaction involving their NFT.
Mining Rigs at the Evobits Crypto Farm, 2021
And the cons?
For starters, NFTs in their current technological form are terrible for the environment. To oversimplify, they use up a lot of energy due to their dependence on cryptocurrencies like Ethereum, which is built on a system that requires a lot of electricity. However, there are alternatives to this energy-expensive structure which offer a potential future for NFTs that is less environmentally destructive. You can learn more here.
NFTs also cost money to mint, making them instantly prohibitive to parts of the public. Add on to that the need to understand the dynamics of both the art and tech worlds in order to engage with NFTs, and you’ve excluded a lot of people. Not to mention the excessive cost of purchasing NFTs. Most people don’t have the capacity to spend hundreds of thousands of dollars (let alone millions) on an entirely abstract product.
Okay, but what does this all mean?
In the briefest of summaries, NFTs are a relatively new medium through which the oldest laws of the art and finance worlds can operate–those being the appreciation of scarcity and the (ethically ambiguous) value of art as a financial investment and commodity. NFTs radically democratize the art world by sustaining the availability of digital media while still supporting creators financially. Yet, NFTs simultaneously maintain exclusivity due to their financial and conceptual barriers-to-entry, along with their lack of sustainability. Where does that leave us? It leaves us with the hope that NFTs will develop in an environmentally friendly, financially and socially inclusive direction. Is that too tall of a task? We shall see.