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A non-fungible token (NFT) is a digital file whose unique identity and ownership are verified on a blockchain. NFTs are not mutually interchangeable and are commonly created by uploading files, such as digital artwork, to an auction market. This creates copies of the files, which are logged as NFTs on the blockchain, the same technology that underpins cryptocurrencies including Bitcoin. The tokens can then be bought with cryptocurrency and resold.
Confused? It’s hard to grasp what’s going on right now. You can buy an NFT file of Cryptographic flowers on the blockchain to send to a loved one. The recipient will be recorded on the blockchain as the new owner and they can open the file and admire the flowers in a digital context to their heart’s content. Cynics may say that flowers are more about the appreciation of physical beauty and wonderful scents but maybe that’s just an old school view?
Let’s look at what’s happening in the big league - collectors will pay serious money for a slice of blockchain basketball action. Digital clips have changed hands for six-figure sums on the NBA Top Shot app, a venture marketed as sports memorabilia for the digital age. The NFT in this case is best described as a digital certificate of authenticity, and for some it's become a desirable collectible. The recipient doesn’t own the rights to the footage, it just means that they own the NFT file, but anybody can access the clip on YouTube for free. Last month an NFT of the 10-year-old meme Nyan Cat sold for $580,000, and a video clip of basketball player Lebron Jones went for $100,000! Is this lunacy or the most insightful investment ever?
Tweets have also been turned into digital assets to be monetised through NFTs. Twitter co-founder Jack Dorsey recently listed his first ever tweet for sale. The buyer receives a certificate, digitally signed and verified by Mr Dorsey, as well as the metadata of the original tweet, but the post will remain publicly available on Twitter even after it has been auctioned off. With bids reaching $2.5m, it’s a concept that can leave people scratching their heads!
Valuables, the platform marketing Mr Dorsey's tweet, seems to recognise the potential bemusement and addresses the notion in its FAQ: ‘Owning any digital content can be a financial investment, hold sentimental value, and create a relationship between collector and creator. Like an autograph on a baseball card, the NFT itself is the creator’s autograph on the content, making it scarce, unique, and valuable.’
Artists are using NFT technology to sell their art but the art in question doesn’t have a physical presence in the same way a painting or sculpture does; the token represents ownership but not the work itself. The artwork can go up or down in value, but the owner of the token never possesses the original digital file. Last month the 254-year-old auction house Christie's opened its first auction of purely digital work by Mike Winkelmann, a contemporary artist also known as Beeple. A single jpeg file of digital sketches taken each day over more than 13 years was offered as a single lot. Bidding opened at $100 and the hammer went down at an eye-popping $69 million!
Max Haarich, a conceptual artist, ran an experiment to see just how far people were willing to go in the seemingly hysterical world of NFT art. He created a piece of art that consisted of a single, transparent pixel. The starting value was one coin on the Ethereum blockchain, worth around $1400, and someone bought it!
While the idea that digital artists can earn an income by offering buyers some sense of ownership has its attractions, the sale of tweets will leave many perplexed. Is it worth investing in an NFT? Some people see them as a genuine investment. By getting in early before a potential frenzy, they hope to buy while prices are relatively low and sell at a much higher price in the future. It’s a self-fulfilling prophecy like Bitcoin; people buy into the concept, it gets attention and is legitimised, then more people become interested and bid up the price.
The cryptocurrency related market is often feverish and can be irrational, a buyer might be betting there'll be someone along to take the digital asset off their hands at an even higher price, but what if the frenzy subsides, people move onto the next big thing and your NFT is worth nothing? The world of NFT investing is not for the faint-hearted!
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