Beeple (b. 1981) “Everydays: The First 5000 Days” now ranks third among the most valuable artworks ever sold by a living artist. — Image: Christie’s Auction House / © AFP / File
In terms of items of digital value, while forms of crypto art have been around for several years, the rise of digital assets, known as non-fungible tokens, have seemingly come out of nowhere. While the buying (and selling) of NFTs is popular with elements of the wealthy, the activity is fraught with uncertainty.
A non-fungible token (NFT) is a unit of data stored on a digital ledger, called a blockchain, that certifies a digital asset to be unique and therefore not interchangeable. The value arises because the token cannot be duplicated, it can be easily authenticated, and it is immutable. In contrast, a fungible asset is, in economics, something with units that can be readily interchanged, such as money.
As an illustration, with money, it is possible, and common, to exchange a $10 note for two $5 notes. The people swapping end up with something (money) of the same value. However, if something is non-fungible, this exchange is impossible, the NFT cannot be interchanged with something else.
To take another example, if an original piece of digital art is created someone could take a copy but it would only ever be a copy. The original artwork would be authenticated on a digital ledger and there can only be one owner. Another way to think about it is obtaining an autograph. The autograph can be copied and printed and shared, but there will only be the one original autograph.
While NFTs can be bought and sold like any other asset (as you might sell a car), they have no tangible form since they only exist in the digital world. Why do rich people spend millions of dollars on digital tokens to obtain the ownership of digital images, sounds or videos?
According to Business Insider, the drive to invest in NFTs is driven by factors like the surging price of Bitcoin, impact of the pandemic, and distrust in the U.S. dollar.
According to Ethereum, the rise of the NFT is a natural progression of commerce in the digital world: “As everything becomes more digital, there’s a need to replicate the properties of physical items like scarcity, uniqueness, and proof of ownership.”
In theory, any person can produce an NFT. This could be of a digital painting, a text, a piece of music, a video and so on. Each is reproduced as a multimedia file. The focus is with producing a “unique” piece, something that stands in contrast to the age of infinite reproduction.
The price paid for some NFTs is very high. Mike Winkelmann (the artist ‘Beeple’) sold a crypto art piece for nearly $70 million, which currently stands as the most valuable digital artwork to be sold.
In the sports market NFT’s are growing in popularity in term of those seeking a slice of digital sport memorabilia. The value of some products is also very high. For example, a digital card of Mickey Mantle (a baseball player) reproduced from a 1952 card has been valued at $5,200,000. This is followed by a card depicting Lebron James. In a different type of sport – American football – NFL player Tom Brady has the highest valued card in his sport. In 2000 his playing card sold for $2,252,854.
The idea of buying something which is not there is strange to many people. To many the idea is non-sensical. For those with money to invest, the idea makes sense, at least while value increases.
The question is whether NFTs will maintain their value and whether they will have any staying power? Many analysts regard NFTs are over-inflated. Yet even when a crash happens, the concept may well last, given the longevity shown by Bitcoins and the appetite for digital currency and exchange.