Last week, on 11 March, a digital image sold at Christie’s for almost 69 million dollars. Not a painting, not a sculpture, but a JPG file: “Everydays: The First 5000 Days”, a collage of 5,000 works that the American artist Beeple posted one a day for more than 13 years. The auction house that has sold Rembrandt and Picasso accepted payment in cryptocurrency and, in effect, sold a digital certificate.
Since then, friends keep asking me two things: “What is an NFT?” and “Should I buy one?”. I can answer the first. I cannot answer the second, and I will explain why. I tried to write down what I see in this whole phenomenon, with the enthusiasm of someone who loves technology and the caution of someone who has lived through a few bubbles.
What an NFT actually is
NFT stands for “non-fungible token”, a token that cannot be swapped for an identical one. A dollar is fungible: if I give you back a different ten-dollar bill from the one you lent me, nobody cares. A concert ticket with a seat and row number on it is not fungible. An NFT is that kind of ticket, only digital.
In practice, an NFT is a record on a blockchain, most often Ethereum, that says: “this unique token, linked to this file, belongs to this address”. The record is public, hard to tamper with and can be transferred from one owner to another. The part few people understand: most of the time the file itself is not on the blockchain. The image, video or song sits on a server or in a separate storage network, and the token simply contains a link to it. So what you buy is proof that you own the “original”, not the file itself, which anyone can still copy with a right-click.
It did not start in March 2021
Many people heard about NFTs for the first time last week, but the idea is a few years old. In 2017 came CryptoPunks, 10,000 pixelated characters originally given away for free, which now change hands for serious money. Also in 2017, CryptoKitties, a game where you buy, “breed” and sell digital cats, became so popular that it clogged the Ethereum network. Back then, plenty of people laughed. I wrote about bitcoin and whether it was a bubble around the same time, and I remember digital cats looking like the best argument that the crypto world had lost its mind.
What has changed since? Crypto prices have climbed a lot, and the pandemic has moved our lives almost entirely onto screens. After a year spent at home, collecting digital objects no longer sounds so strange.
The boom of the last few months
A few examples from recent weeks, to give you a sense of the scale:
- NBA Top Shot, a platform where you buy official video highlights from NBA games like trading cards, took off at the start of the year. Some highlights have sold for tens or even hundreds of thousands of dollars.
- Jack Dorsey, the founder of Twitter, has put his first tweet, from 2006, up for sale as an NFT. The auction is still open, and the bids are already in the millions of dollars.
- Musicians such as Grimes have sold digital works for millions, and the band Kings of Leon released an album as an NFT as well.
- Brands have started experimenting: there are already collections of GIFs and digital items from companies that until yesterday only sold tacos or sneakers.
And, of course, there is Beeple, who just joined the ranks of the most expensive living artists with a work you cannot hang on a wall.
What is genuinely new
Strip away the noise and a few things remain that really matter and that the internet did not have before:
- Provenance. You can see publicly who created a work and whose hands it has passed through. In the traditional art world that takes years of appraisals and paperwork. Here it is a line of code.
- Royalties for creators. Many platforms let the artist automatically receive a percentage on every resale. A painter who sold a canvas cheaply at 25 sees nothing when it resells for a hundred times more at 60. A digital artist does.
- Digital scarcity. For the first time, a digital object can be unique or part of a limited, verifiable edition. The internet was built on infinite copying. NFTs bring the idea of an “original” into a medium where originals did not exist.
For creators, that is very good news. A few months ago I wrote about the creator economy and people who live off their content. NFTs could become a direct source of income, with no gallery, no record label and no middleman taking the lion’s share.
What is pure speculation
Now the less romantic part. Much of what we see today looks like every gold rush before it:
- Hype. Many buyers are not there because they like the work, but because they hope to flip it for more next week. That is not collecting, it is betting.
- Artificially inflated prices. In a new, lightly regulated market, nothing stops you from selling your own work from one wallet to another to make it look valuable. It is called wash trading, and it is a real risk.
- You are not buying the copyright. In most cases you buy the token, not the right to reproduce the work or use it commercially. And if the server hosting the file disappears, you are left with a link to nothing.
- The environmental cost. Ethereum currently runs on “proof of work”, the same energy-hungry mechanism as bitcoin. Several artists have walked away from NFTs precisely because of criticism over energy use. There is talk of moving to a more efficient system, but for now it is only a plan.
What brands and creators can do
I believe the long-term winners will not be the buyers but the makers. Say you run a clothing brand. You could sell a physical limited edition that comes with an NFT proving it is authentic. Or you are a musician and give your first 100 fans a token that gets them into a private gig. Or you run a community and want to reward loyal members with something that cannot be faked.
At that point the NFT is no longer a speculative asset but a marketing and loyalty tool. It reminds me a lot of what happened with influencer marketing: at first it was a celebrity fad, then it became a normal tool for anyone with a community. Brands that experiment now, on small budgets and with a sense of humour, are learning lessons their competitors will pay more for in a few years.
So: art or speculation?
My honest answer: both. The technology is real and solves a real problem, ownership and provenance in the digital world. Today’s prices, on the other hand, are largely driven by euphoria, by money made from the crypto rally and by the fear of missing out. I lived through the dot-com bubble and the 2009 crisis. I know what it looks like when everyone is convinced prices can only go up.
I do not give investment advice, and you should not take it from a blog. But if you are tempted, I would say what I tell my friends: understand exactly what you are buying, buy something you genuinely like even if it were worth zero tomorrow, and only put in money you can afford to lose. The rest is healthy curiosity, and we need that more than we need haste.
What do you think: are NFTs the start of a new art market or a fever that will pass? Would you buy a tweet?