Crypto has come to Christie’s, or at least a new twist on digital assets has. The internationally known auction house is in the process of auctioning a work called “Everydays: The First 5000 Days.” Unlike most other things sold by Christie’s, this piece cannot be held or touched. It is art that lives only in the digital world.
The work was created by artist Mike Winkelmann, also known as Beeple, as an “NFT,” or non-fungible token. If you’ve kept a casual eye on business news over the past few weeks, you may have noticed this term suddenly invading the lexicon. You may be wondering what these things are, why they matter, are they here to stay, and if they can really be worth as much money as people claim — all fair questions.
Katie Haun, a former federal prosecutor who created the government’s first cryptocurrency task force, spoke favorably about NFT’s in a recent interview with Tim Ferriss. Now a general partner at Silicon Valley venture capital firm Andreessen Horowitz, Haun said that NFTs could have big implications for the future of art and collectibles, as well as other unknown possibilities down the road.
“Digital scarcity” is “a big idea to get your head around,” Haun told Ferriss. “We have no idea what the use cases are going to be tomorrow.”
For the time being, it appears lots of boosters are trying to bring NFTs into the mainstream. Billionaire entrepreneur and Shark Tank star Mark Cuban, for instance, has invested in a startup trading platform for NFTS called Mintable. Twitter CEO Jack Dorsey, meanwhile, is selling the first-ever Tweet, his 2006 message “just setting up my twttr,” as an NFT. So far, the highest bid is $2.5 million.
It might be sort of bewildering how a thing that is purely bits and bytes, that has no nexus with the physical world, and is vaguely related to cryptocurrency could become the next “hot” asset class. Here are some key facts to orient you in this emerging space.
What Exactly is an NFT?
By now, you’re probably familiar with cryptocurrencies, like bitcoin and ethereum. Like crypto, NFTs are recorded on a ledger known as blockchain, which exists only in cyberspace. Unlike crypto, they are not “fungible.” Each NFT is, for all intents and purposes, one-of-a-kind. An NFT can be an image, video, or musical work — essentially, anything unique that can be stored as data.
However, owning an NFT does not mean you own a legal copyright to a work, but rather only a singular digital stamp, not unlike holding an official barcode to something. That means an art of music sold as an NFT could still be reproduced elsewhere on the Internet, but you would have bragging rights as the owner of the “original” digital thing. Confusingly, some NFTs are actually copies of other works, essentially being sort of like prints.
How Do People Buy and Sell NFTs?
Generally speaking, the buying and selling of NFTs relies on cryptocurrency, such as ethereum. So you have to buy cryptocurrency first to start bidding on NFTs. Once you have your crypto war chest, however, you can visit one of a number of online auction platforms such as Known Origin, Rarible, and OpenSea and place bids. You can also use tools on these sites to upload files and create NFTs to sell. Of course, if you are a famous artist, you may be able to sell your work to a broader spectrum of buyers through an auction house like Christie’s.
What Can You Do With NFTs?
With the right equipment, you can theoretically display, watch or listen to your NFT anywhere and anytime you like. Much like in the traditional art market, there is also hope that NFTs could become collateral for loans, or used in other financial transactions. A growing number of startups are gearing up to offer services in these spaces.
What Are the Benefits of NFTs?
NFTs have one clear advantage over traditional or physical art: By design, content creators can always get compensated when the works are bought or sold, no matter how many resales there are. This dynamic potentially offers creators superior economic incentives to the way things work normally. The notion of the starving artist who never benefits from dramatic surges of interest in their work might become a thing of the past. In an NFT paradigm, if the value of their pieces rises, so too does the artist’s fortunes. Middlemen would be significantly reduced.
What Happens if the NFT Market Goes Bust?
Unfortunately, just like with regular art, there is no guarantee that an NFT will maintain its value, or that its value will rise. If the current buzz surrounding this new asset starts to wane, you could see prices plummet. That said, investors such as Mark Cuban have touted the long-term potential of NFTs. Cuban has said he expects prices to eventually “settle down,” with the market eventually adjusting and growing at a more sustained pace in the future.