Welcome to the world of non-fungible tokens – or NFTs, as they’re more commonly known – where a digital artwork can sell at Christie’s for $69m.
Digital artist Beeple currently holds the record for the highest sale of a unique digital token, selling his artwork via the prestigious auction house earlier this year.
NFTs are now popping up everywhere, leaving bankers and asset managers scratching their heads as to how to appropriately value the tokens.
Here’s all you need to know about NFTs, and what the experts think of them.
What is an NFT?
NFTs are one-of-a-kind digital collectibles that are authenticated using blockchain technology and purchased using cryptocurrencies, with the most popular choice being ether. Products so far have ranged from digital paintings and artworks, to the latest Kings of Leon album and sports merchandise.
The NFT acts as virtual proof of ownership, with the value being placed on the scarcity of that ownership. Some owners can choose to divide up their NFT among others as sub-NFTs, like owning a share of the whole product.
A blockchain-powered digital ledger houses the contract for the NFT, showing who owns it, how much it sold for and when and by whom it was created. Some owners and creators can choose to set terms for the NFT, such as a requirement for them to receive a cut of any resales.
As with all digital art, there’s nothing to stop someone from making replicas of a piece thousands of times. But only one person can own the token that proves they own the original product.
Who’s making them?
Musicians such as Grimes, Kings of Leon, Shawn Mendes, Disclosure and Deadmau5 have all sold off songs and artwork as NFTs in recent months, viewing the tokens as a way to still retain a cut of all sales but make a bigger chunk from selling the original file.
Other NFTs have been more unusual, and native to the digital world. Twitter founder Jack Dorsey sold the first tweet ever published on Twitter for $2.9m, while an animated GIF of the 2011 meme Nyan Cat sold for more than $500,000.
Tesla billionaire Elon Musk created a song and digital artwork about NFTs, which he then considered auctioning off as an NFT. He later reneged on that offer, despite reportedly receiving a bid for over $1m.
Is it all just hype?
Some proponents of NFTs, even Beeple himself, think the craze for digital tokens may be overhyped.
“I actually do think there will be a bubble, to be quite honest,” Beeple, whose real name is Mike Winkelmann, told The BBC a day before his auction.
“And I think we could be in that bubble right now.”
The buyer of Beeple’s $69m NFT, Vignesh Sundaresan, said on 30 March he had no regrets about spending so much money.
“This NFT is a significant piece of art history,” Sundaresan told CNBC. “Sometimes these things take some time for everyone to recognise and realise. I’m OK with that. I had the opportunity to be part of this very important shift in how art has been perceived for centuries.”
Billionaires have been among the first to jump on the bandwagon, with entrepreneur Mark Cuban recently backing an online marketplace dedicated to selling NFTs called Mintable. The owner of the Dallas Mavericks basketball team also plans to build his own online gallery to display NFTs in any form.
“I wanted an easy way to show my NFTs and a way to put them in my social bios, my email signature, and any place I can stick a URL,” Cuban said in a 23 March interview with crypto site The Block. “People are curious about what other people collect. There wasn’t a super easy way to do it.”
It’s also not entirely clear how one sets the value for an NFT, even in an auction.
Zach Burks, Mintable’s founder and chief executive officer, said it’s hard to provide an estimate value for an NFT “because there’s no estimates for any NFTs. That’s just not how NFTs work.”
When choosing the 1.32 ETC (around $2,200) starting value in an auction for an NFT by artist Baranoff-Rossine, Burks told Bloomberg the online marketplace settled on “a purely random number”.
“We don’t want to cut off people who say it’s already above [their] budget, but we also don’t want to start too low,” he said.
“I think Christie’s made a big mistake starting [the Beeple artwork] at $100. That’s what high-value net worth people think about it — they value something based on the starting price.”
Others have voiced concern over the use of ether for buying NFTs, given the price volatility of cryptocurrencies meaning the fiat value of what a token was bought for could easily decline.
“Critics often argue about what is the real-world case for some cryptoassets, but here we see just how easily they can enter huge markets, like the multi-billion dollar music industry, and become mainstream,” said Simon Peters, a cryptoasset analyst at online brokerage eToro.
“This is just the beginning of this NFT explosion.”
To contact the author of this story with feedback or news, email Emily Nicolle