NFTs are like physical art, but the form changes because they are digital collectibles. When people buy an NFT, instead of getting a real oil painting to hang on the wall, they get a digital file and exclusive property rights.
Just as the cryptocurrency Bitcoin was hailed as the digital answer to currencies, NFTs are currently considered the digital answer to collectibles.
How do NFTs work and why are some of them worth millions?
NFTs are tokenized versions of assets that can be traded on a blockchain, the digital ledger technology behind cryptocurrencies like Bitcoin and Ethereum. One Bitcoin is tradable with another, which means that it is fungible. But NFTs are the opposite because the underlying assets are unique and cannot be traded with each other.
This uniqueness has allowed NFTs to be sold for millions of dollars. For example, the NFT “Everydays – The First 5000 Days” was sold for US $ 69.3 million. This piece of digital art was created by the american artist Mike Winkelmann, known as Beeple, and is the most expensive NFT artwork ever sold. Its buyer received neither a sculpture nor a painting, because the piece does not exist in the physical world, it is a combination of 5000 individual digital artworks created over 5000 days (13 years) by the artist.
Not everyone can cover the costs of some NFTs, but not all are so expensive. There are NFTs used to exchange other types of collectibles such as baseball cards and/or computer game items such as swords and avatar masks, between others.
What is so special about NFTs?
The NFTs cannot be falsified:
Traditional pieces of art such as paintings are very valuable because they are unique. They can be imitated, copied exactly, but they will never be the original and therefore they will never have the same value. If we think about what happens to digital files, they can be easily duplicated over and over again, but thanks to NFTs pieces of art can be tokenized to create a digital certificate of ownership that can be bought and sold. Records are generated in the blockchain that cannot be falsified because the information is maintained by miles of computers around the world.
NFTs Are trendy
For many, the excitement around NFTs has to do with speculative bubbles. There are celebrities all around the world who are launching their own flagship NFTs to ride the wave. For example, canadian singer Grimes sold a collection of digital works for more than $6 million. And there are many millionaires, especially the youngest under 40, who are buying digital art. Such is the example of businessman Vignesh Sundaresan, who bought Beeple’s work for 69 million and considers this investment in NFT as a “great risk” and “even crazier than investing in crypto”.
Based on what has already happened with other technologies, we should be careful before discarding NFTs, as the importance of technological innovations often becomes clearer once the initial hype wears off. Many commentators dismissed the first wave of massive enthusiasm for cryptocurrencies in 2017, only to be proven wrong.
While the NFTs themselves have suffered big drops this year, perhaps this is because that initial hype has started to fade. This phenomenon is to be expected in the typical progression of a new technology. With NFTs, we have probably been moving from a “peak of inflated expectations” to a “productivity plateau.”
NFTs decentralizes art
NFTs are a historic challenge for those who have traditionally determined the price and cultural value of art, such as collectors, museums, and auction houses. NFT tokens – not duplicatable and secured with blockchain technology – are generating a new market for art among younger buyers, and this generates some controversy. NFTs are challenging the way we perceive and record asset ownership and this creates a tension between innovation and established ways of doing things which contributes to the skepticism that always surrounds these new technologies.
NFTs can provide the artist with lifetime passive incomes
NFTs create opportunities for new business models that did not exist before. Artists can attach stipulations to an NFT that guarantee that they make a portion of the profit each time it is resold, meaning that they benefit if their work increases in value. NFTs eliminate the need to track the progress of an asset and enforce those rights on every sale.
NFTs completely change the rules of ownership. Transactions in which ownership of something changes hands have generally relied on layers of intermediaries to establish trust in the transaction, exchange contracts, and ensure that money changes hands. But thanks to this innovative technology, none of this will be necessary for the future. Transactions recorded in blockchains are reliable because the information cannot be changed. Smart contracts decentralize and automatically guarantee that money and assets change hands and that both parties honor their agreements.
We can’t say which form of art is better, but so far what we can say is that this kind of technology allows a much more transparent and direct type of market than we are used to.