You may have noticed a rather odd term being bandied about recently, as people have started speaking about Non-Fungible Tokens. The concept behind them is rather confusing, but that hasn’t stopped investors from splashing out millions on these digital items that could be the gold of tomorrow.
So, what are NFTs and should you care?
What is fungible?
While it might sound like the latest cute toy from Japan, a fungible is actually an old term that is described by the Cambridge English Dictionary as something that it ‘easy to exchange or trade for something else of the same type and value’.
For instance, if you buy a can of coke but for some reason want to swap it for your friend’s can of coke, you can do so and still end up with essentially the same item. But, if your friend has a one-off, hand-painted can decorated by Mr Coke himself, then the exchange wouldn’t be of equal value or the same type, so it would be a lot harder to acquire the item.
In order to do so, you would most likely need to add considerable cash sums, as well as your can of coke. This would make the one-off can a non-fungible item, as it is unique and can only be traded with things of different types and values.
So far, so normal capitalistic behaviour. You buy stuff using other stuff.
What is a Non-Fungible Token?
NFTs are weird. Very weird. They are, in essence, a combination of the Ethereum blockchain technology, plus a form of digital 'art'.
The principle is that someone creates a video, image or other artifact online and then wants to sell the ownership of that creation to another party. They can now do so using NFTs, with the blockchain providing a registry-entry of the sale and transfer of ownership.
In fact, many are seeing NFTs as an ultra-modern form of art collecting, with the buyers wishing to acquire creations in the hope that they may grow in value over time, thus proving a sound investment. Others, of course, may just want the privilege of owning the ‘art’ itself.
You may have noticed that we keep putting art in quote marks, that’s because some of the initial items that have been sold as NFTs really do stretch the definition of that term.
For instance, Jack Dorsey, the CEO of Twitter, recently sold his first tweet (yes, you read that correctly) for…$2.9million. For a bloody tweet! Now, some may point out that it marked the beginning of a service that would change the world, and there is some argument to be made there, but come on.
It’s true that the person who successfully bid that stupid amount of money now ‘owns’ the tweet, but unlike an actual piece of physical art, we can still use and represent the tweet just as we could for the previous decade and a half that it was online. In fact, here it is, free of charge!
just setting up my twttr— jack (@jack) March 21, 2006
Of course, throughout the history of art collecting, there has been the original painting, sculpture or other physical item somewhere in the world – often loaned to a gallery. From this, lowly people like ourselves are able to buy facsimiles in the form of prints, posters and other variants so we can have the art in our own homes. But, of course, they were copies of the original, so you couldn’t see the original brush strokes or marble that the artist used to create their masterpiece.
With a tweet, as you can see above, it’s very easy to have a version that is indistinguishable from the original, because, well, it practically is the original. Only now, it’s owned by Bridge Oracle CEO, Sina Estavi.
In the case of the Tweet, the obscene money paid is actually not as bad as it seems. Jack Dorsey has already announced that all proceeds from the sale will be going to the Give Directly charity which helps those in poverty around the world. So, that’s a happy ending. Well done, Jack.
It’s not just Tweets though. Controversial YouTuber Logan Paul has sold clips from an existing YouTube video (which you can still watch for free), gaining around $20,000 in the process. Other artists have sold Digital Stickers, such as Trevor Andrew’s Gucci Ghost that fetched $3,600, plus there an in-game unique items that have been bought, music, and videos. But the most notable of all these was a composite of thousands of images by digital creator Beeple.
At a recent auction at Christie’s, not some online parody, but the actual auction house, Beeple’s work ‘Everydays: The First 5000 Days’ sold for an eye-watering $69 million (which is just shy of £50 million). This makes it the third highest figure ever paid for a creation by a living artist. This is all the more incredible, when you consider that all of the images in the composite have been free to view on Beeple’s site for years.
Perhaps the most fitting sale we’ve witnessed so far involved a group buying a Bansky original called Morons for $95,000 (around £67,000), which depicted an auctioneer at Christie’s selling art to the bidders, with the caption ‘I can’t believe you morons actually buy this.’
They then burned the art on a YouTube livestream and sold the video as an NFT for $380,000 (or £274,000). It pretty much sums up the whole idea of NFTs in one, dare we say artistic, moment.
So, should I start buying NFTs?
Well, we’d say you might want to avoid anything by Beeple, as it could get quite expensive. NFTs are very new, so as an investment it’s hard to know how this craze will pan out. Unlike a physical item, digital file formats change over time, so who knows if the state-of-the-art video of badgers dancing to Billie Eilish songs that you invest in today will even be compatible with devices twenty years from now.
Investing is always risky, so as a rule of thumb, never spend more than you can afford to lose. You never know though, it might turn out that NFTs are the new Bitcoin, and if you invested in those about ten years ago, you’re sitting pretty at the moment.
One serious thing to bear in mind, is that NFTs work with blockchain technology and cryptocurrencies, and they are directly linked to huge energy use. So, while NFTs might prove a sound investment financially, the cost to the environment and climate could be catastrophic if the idea really becomes popular.
How do I buy NFTs?
You’ll probably need some cryptopcurrency to make a purchase and you can read the articles below to find out more.