If you do not work in (or adjacent to) art and auctioning, you could be forgiven for never having heard of nonfungible tokens (NFTs) … at least until the past few weeks. However, a recent boom in their sale means NFTs have shattered auction records and amassed some major headlines. But what the Fabergé are they?
First, some definitions: economists should be au fait with the notion of fungibility. Money is fundamentally fungible in that it can be swapped out and chopped up in a bunch of ways while retaining value. Two R10 notes are interchangeable. Two R5 coins are interchangeable for a R10 note. And an ounce of gold in nugget or necklace is still, largely, an ounce of gold.
As the name implies then, a nonfungible good is unique — like each diamond is utterly unique. A particular design, however, can also lay claim to uniqueness, as each Fabergé egg does. And generally we accept that value is about more than the sum of an item’s parts, as a one-off Cartier watch is worth more than just the weight of the gold used to craft it.
Then we bring cryptocurrency and blockchain technology into the mix: one bitcoin (or other cryptocurrency) is interchangeable for any other, but the distributed ledger function of blockchain means we can track that particular instance from wallet to wallet, and we all have the same information about where that token has been. If we’re using blockchain to authenticate a unique token, then it functions like a certificate of ownership underpinned by the authentication power of blockchain technology.
Back in the context of the news, a well-known example of an NFT up for grabs was the sale of a digital artwork called Crossroads — a 10-second digital video clip created by digital artist Beeple (real name Mike Winkelmann). As ArtNews.com explains, the artwork itself “consists of an encrypted image or video file” and is accompanied by the NFT, “a digital signature that cannot be duplicated, giving buyers the assurance that their purchase is an authentic copy”. In October 2020, this video was bought by Pablo Rodriguez-Fraile, a collector based in Miami, Florida, for $67,000. In February, that collector sold the artwork for $6.6m.
If we take away the distractingly rapid rise in valuation, this idea — of buying and selling a piece of art — is nothing new. If I told you Vincent van Gogh’s The Starry Night was bought and sold for X amount, we all have a mental map for what this transaction looks like, but what does it mean to own a digital video that can be viewed online for free? Hell, I can right-click and download an indistinguishable copy of that video on to my own computer right now, for free — which is why an NFT, as both a stamp of authentication as original and a record of ownership, really comes into its own in the realm of digital art and similar “goods”.
Grimes is another artist cashing in on the NFT boom. The Canadian musician, who also happens to be Elon Musk’s partner, sold a collection of 10 digital audiovisual artworks on auction for about $6m through NFT platform Nifty Gateway.
But it’s not just art. NFTs have also been applied to collectibles, and for making collectibles out of digital items such as GIFs. You can use NFTs to stamp and trade “moments”, characters and experiences. Earlier in March, Twitter CEO Jack Dorsey auctioned an NFT for a screenshot of his first-ever tweet — and brought in millions!
Honestly, in even broaching this subject I feel like I’ve waded way out of my depth. I promise I’m not a total troglodyte, but there is much in the sphere of art that is outside my comfort zone. A classic example would be Damien Hirst enclosing a bunch of medical waste in Plexiglas for a piece produced in 2004 called Urinal. I just don’t get it. Owning a screenshot of a tweet would fall into the same category for me. That’s not to say there isn’t money to be made; it’s just not an asset class that clicks for everyone.
NFTs aren’t about “getting the art” as much as they are about proving ownership of the digital art or intellectual property in question, and even laying claim to proximity to personality. Adweek does a pretty good job of arguing that in NFTs there is a value system built on factors such as “fandom, royalty economics and the laws of scarcity”, but I think The Verge’s Mitchell Clark sums it up best as being really about “the flex”.
• Thompson Davy, a freelance journalist, is an impactAFRICA fellow and WanaData member.