Join me now for another trip into the beyond, to the world of international mystery, art, crime, computers and (probably) robots. Did I mention crime?
The latest head scratcher has come in the form of Non-Fungible Tokens (NFTs). Out of nowhere come reports of individuals (Elon Musk’s girlfriend Grimes for instance), who are using NFTs to sell digital art. Though new, the value of these “tokens” is jaw-dropping. The record at the moment is $69 million, the amount brought in for a digital work created by an artist named Beeple at a Christie’s auction. No one would consider that amount a trifle.
Before jumping into NFTs you might want to look up this column’s take on blockchain, or just keep in mind that blockchain is the underlying ledger technology that makes bitcoin, and now NFTs, possible.
Did I mention crime? We’ll get to that.
NFTs may be confusing because they are almost too easy to understand on the surface. Currency is interchangeable, or fungible. A person is an example of something that is non-fungible. There is now, and forever will be, only one true you.
The NFTs you are beginning to hear about give the purchaser the ability to own an individual copy of a digital item, something that we have traditionally understood as extremely fungible. Is there not an infinite opportunity to make an exact copy of something digital? This doesn’t change once a digital item is assigned an NFT and added to a blockchain ledger; the NFT does allow for a unique, signed digital copy to be owned by an individual or entity, however. The reason you’re hearing about them now is they have broken through in the art world in such a big way.
I believe the improbable value of a few early offerings are the main reason NFTs are confusing. We are not used to digital items having any value, much less having a value in the millions of dollars. It’s shocking. The last 20 years online has trained us to think all things digital are free.
This too is changing rapidly.
But people are still having a hard time believing something as ethereal as a digital signature can be worth $69 million. And yet, it was once impossible to imagine Duchamp’s “Fountain” becoming priceless. This means NFTs are a new form of serious, albeit volatile, investment.
An NFT’s value depends on good old supply and demand. Art is a great testing ground for this sort of new market, since the value of fine art is grounded in the law of supply and demand.
NFTs conceptually are not as complex as the blockchain that ensures their non-fungibility. There are a number of companies hosting blockchains that support NFTs and there is nothing stopping you from registering at one of these sites, taking a digital image of, say, your bank’s logo, which the bank owns, and creating an NFT. Surely your customers are ecstatic enough with their bank that someone will want to own this NFT! You could put it up for sale on any number of emerging marketplaces for these tokens. You may even maintain the copyright while the purchaser owns the digitally-signed copy of the image. Or you could sell the rights too.
So what did your customer buy when they paid a record breaking price for your bank logo’s NFT? Because people can still view the logo, copy it, or print it, what a buyer really owns is the unique, non-fungible digital signature you associated with it — the NFT, which lives in a blockchain. The certification papers of the NFT are real. And the only reason any of this has value is fundamental: Because someone wants it.
I almost forgot about crime. Blockchain isn’t going anywhere, but its legal future is unclear. It leads to exciting things like NFTs and a new, genuine marketplace. It also faces increasing scrutiny from governments. The massive (allegedly) Russian hack from last year underlined what can happen with cryptocurrencies able to move money around anonymously, including for use as ransom to reverse a hack. It will be very interesting to see how the technology evolves as criminals also learn to maximize its potential.
All of this, just as we were getting our minds around buying a Tesla with bitcoin. May you live in interesting times.