Artists are selling limited edition digital art with NFTs. Here's how it works
Non-fungible tokens took the internet by storm this week, with everyone from Grimes to Christie's getting in
If you've spent any amount of time on the internet this week, you've probably seen a Facebook post or a tweet or a news headline about "NFTs."
The term stands for non-fungible token, and while you'd be correct to assume it has to do with cryptocurrencies and blockchain technology, NFTs aren't actually a new type of currency. Instead, they're a kind of a proof of transaction — almost like a receipt — denoting acquisition of a rare or unique digital asset.
Grimes reportedly made $6 million US off of NFT transactions. The NBA's Top Shots digital collectible are netting upwards of hundreds of thousands of dollars. Even the Associated Press is jumping onboard.
Confused? Don't worry. Day 6 spoke with three blockchain experts to try to make heads or tails of the not-so-new phrase in technology.
What is an NFT?
Understanding non-fungible tokens requires a bit of an understanding of fungibility. In economics, fungible assets are things like Canadian dollars, gold and even the cryptocurrency bitcoin.
If two people have two different $10 bills, both of those bills are still only worth $10. So, even if one of those bills is crisp and clean, while the other has a moustache drawn on first prime minister John A. MacDonald, the value of the individual bills doesn't change.
In comparison, non-fungible tokens are a form of cryptographic token which represents something unique or rare.
An NFT representing a piece of digital artwork sold by Canadian musician Grimes, for instance, isn't worth the same as an NFT representing an album sold by American rock band Kings of Leon.
"They get their value because of their unique properties and the fact that they represent something unique," said Jelena Djuric, operations manager at Informal Systems, a Toronto-based cryptocompany.
So what am I buying? Exclusivity?
In a way, exclusivity is precisely what you're paying for, according to Moon Jerin, founder and CEO of Doctrina and an industry analyst at the University College London's Centre for Blockchain Technologies.
On Friday, Kings of Leon released three types of NFTs. One is a new album, another offers special concert perks like front-row tickets, and a third provides access to special digital artwork.
Purchasing any of these NFTs not only provides a unique cryptographic token representing proof of purchase, but fans can also listen to music, view the art and own the tickets.
"Some people like to purchase a $20,000 limited edition bag. Some people like to buy a private jet. But all of these ways that we do things is a way to make ourselves feel exclusive. So NFTs are no different," said Jerin.
Even if an artist sells multiple copies of a song or an album, each token associated with the transaction will be unique.
Can't I just save an image or MP3 to my computer?
This is where the blockchain comes in.
Right now, Christie's auction house in Britain has opened bidding on its first-ever piece of digital artwork. Everydays: The First 5,000 Days, was created by artist Mike Winkleman, also known as Beeple, and you can view the piece right on Christie's website.
While you can save the image of Beeple's artwork, it isn't going to contain the precise cryptographic data representing the specific NFT on sale — including who created the NFT and when.
And we're off! This morning marks a historic moment in the history of digital art and NFTs. Bidding started on <a href="https://twitter.com/beeple?ref_src=twsrc%5Etfw">@beeple</a>'s 'Last 5000 Days' at $100 and shot up to $1million in less than 10 minutes. Stay tuned over the next 14 days at <a href="https://t.co/JkB8eTNdqW">https://t.co/JkB8eTNdqW</a>. <a href="https://twitter.com/makersplaceco?ref_src=twsrc%5Etfw">@makersplaceco</a> <a href="https://t.co/N3Obks8qNn">https://t.co/N3Obks8qNn</a>—@ChristiesInc
All of that information is stored on a blockchain, which means anyone who claims to have an original copy of Beeple's Everydays can immediately be challenged by looking up the purchase details of the NFT on the blockchain.
Likewise, Jerin says, if someone tries to sell you a copy of Everydays, you'll be able to instantly verify their claims.
"If somebody else is claiming, 'I have this [copy] and this is real' … We are actually able to compare these two pieces of [data] and say which is real and which is not within the blockchain," she said.
How do I know this isn't just another bitcoin boom all over again?
For starters, NFTs have been around since 2017, though Jerin said they reached maturity in 2020 during the ongoing COVID-19 pandemic.
According to NonFungible.com, a website that tracks NFT transactions, the internet witnessed approximately $250 million US worth of NFT transactions last year. And people like Arianne Flemming, COO of Informal Systems are aware that "we've sen this bubble and we've seen this excitement before in 2017."
We're learning from it and we're perfecting it.- Moon Jerin
But cryptocurrency experts aren't necessarily excited about NFTs because of the money they represent. Instead, people like Djuric say they care about NFTs because of the power they provide to artists and content creators.
"When you have an NFT, you have a right to ownership of that work, but you don't own the work itself," Djuric said. "I think a lot of people, when they look at digital art and they grew up with the internet and know how to copy-and-paste and know how to screenshot, I think that kind of gets missed."
In a way, NFTs allow artists to skip the industry middlemen and sell art directly to consumers.
Jerin says that NFT platforms like OpenSea and SuperRare still sometimes require artists to pay fees to upload and host their artwork, but the costs of doing business are still cheaper than traditional industry methods.
And even if the owner of an NFT chooses to sell their purchases to others, Flemming notes that some platforms allow the original artist to get a cut of the transaction.
"Just like anything else, nothing is ever really perfect in the beginning," said Jerin. "We're learning from it and we're perfecting it. And now all of a sudden everybody is going to look at it, they're like, 'Wow, this is really possible.'
"And the only question left for them, especially for artists, is why not?"
Written and produced by Sameer Chhabra.
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