Non-fungible tokens (NFTs) have been around for several years, but they have only recently hit the headlines with a surge of popularity. The famous ‘Charlie Bit My Finger’ video recently sold for more than half a million dollars, while a fifty second video by the artist Grimes sold for $390,000. Both of these prices pale into insignificance when you compare them to the record NFT sale for a piece of digital art. The NFT for ‘EVERYDAYS: The first 5000 days’ by Mike Winklemann, better known as Beeple, changed hands at Christies auction house for a mind-boggling $69million.
But what exactly is an NFT, why are people paying so much, and are they really worth anything at all?
What is an NFT?
A non-fungible token is like a certificate of ownership, usually of a digital or intangible asset. It is nun-fungible because it is unique and cannot be exchanged or swapped for an equal item. A $100 bill can be exchanged for two $50 bills and still have the same worth, but a non-fungible item is one of a kind, which is unique and original.
Some would argue that digital assets are not unique, as exact copies can be made of them. A print of the Mona Lisa is not the same as the original, but a copy of a digital artwork is indistinguishable from source. In some ways this is why NFTs were created in the first place – to give the creators of digital assets proof of their ownership, even if the work has been copied countless times.
What kind of assets have been sold?
As NFTs have gathered momentum, all kinds of digital assets have been claimed, many for incredible sums of money. Jack Dorsey, the founder of Twitter, sold an NFT of the first ever tweet for over $2.5m, the infamous meme of the Nyan Cat became a half-million-dollar NFT and even basketball highlights have been sold as NFTs, with NBA Topshot raising a cool $230m.
What do you get for your money?
Essentially nothing. The whole point is that digital artwork and other assets do not physically exist. NFT owners don’t even get a physical token. Their ownership is recorded on blockchain computers, usually Ethereum, and stored in a digital wallet, much like cryptocurrencies. Paying $69 million for the Beeple NFT doesn’t stop anyone else from finding a copy online, downloading it and having exactly the same piece of art as you have.
One auctioneer who used to work at Christies told the BBC that “the idea of buying something that isn’t there is just strange.” David Gerard, an outspoken critic of NFTs and cryptocurrencies, goes even further, describing them as “worthless magic beans.” Even Beeple himself described NFTs as “an irrational exuberance bubble.”
Why are people buying them?
For some, the current boom in NFT sales is a taste of the future and they believe that the early adopters will reap the benefits in the same way that they did with BitCoin. Many are betting on NFTs in the same way they would bet with Unibet on sports, hoping to use their knowledge and understanding of a subject to try to outsmart the market and make a profit. For others, it is simply a case of bragging rights; the ultra-rich enjoying having exclusive ownership of a famous digital asset in the same way they buy football teams on the other side of the planet from where they live.
Are NFTs the future or a fad?
Some commentators have compared the eye-watering prices to the dotcom bubble, which made a few people very rich but left a lot more licking their wounds when the bubble burst.
Some even think that NFTs have already passed their peak, with prices dropping significantly since the flurry of purchases at the start of 2021. Whether they turn out to be the ultimate ‘emperor’s new clothes’ or a genuine investment opportunity, only time will tell.