What are NFTs? Why was a digital piece of art sold for $ 69 million?

NFTs have broken in in recent months. Tokens to identify the authenticity of digital files that have fueled an unprecedented collecting economy. But that may just be the beginning.

Everydays: The First 5,000 Days

A Digital Artwork by artist Beeple just sold at auction at Christie’s for $ 69 million, making it the third most expensive work ever sold at the well-known auction house of an artist still alive. The work in question, entitled, Everydays - The First 5000 Days, is 5,000 digital images created by this artist in the last 13 years. But its price is not only worth it for its creativity. Also because it is an NFT.

Non-fungible or NFT tokens are blockchain-based cryptographic assets with unique identification codes and metadata that distinguish them from each other. Each NFT, in short, is unique, what it grants to each file, which can be a digital work like this, but also a meme, a gif, an audio or video clip, or even a tweet, the collectible attribute.

The NFT boom cannot be understood without blockchain, the technology on which cryptocurrencies are already based and which adds the confidence and traceability that this work is unique. But neither without the same ingredient that has made humanity throughout history have given value to gold, collector's stamps, or trading cards: the social agreement that this is a piece, an object or a good -now not necessarily tangible - having a certain value.

Unlike cryptocurrencies, NFTs cannot be traded or exchanged for equivalency. Nor divide. This differs from fungible tokens such as cryptocurrencies, which are identical to each other and can therefore be used as a medium for business transactions.

Here, we are talking, in short, and it should be noted, of collector's items. And the disruptive thing is that they are now digital files.

Explaining the NFTs

His irruption in the last two months has gone far beyond eccentricities with brands and companies like the NBA that have already begun to exploit him by selling small clips of his games. But it also promises to be able to change the scope of content creation on the internet, until now surrogated to platforms.

If your head hasn't warmed up yet, wait a bit, because NFTs may be the next digital revolution, or maybe just the bubble of the moment. Of course, they did not come out of nowhere.

In practice, NFT tokens are metadata embedded in the digital file in question that has as many specifications as you can imagine. If I acquire a Gif, for example, the creator's signature, its design date, when I acquired it will appear ... which has made them compare with digital passports because each 'digital good' contains a unique and non-transferable identity to distinguish it from others. They are also extensible, which means that one NFT can be combined with another to generate a unique third NFT. 

In the technical profile, the NFTs work and are transferred taking advantage of the Smart Contract technology of Ethereum, the well-known cryptocurrency. They evolved from the ERC-721 standard, which unlike the usual protocol of Smart Contracts that allows them to be divisible and interchangeable (what is necessary to create useful cryptocurrencies), encourages what is called 'digital scarcity'. It is not very different from the concept of economic scarcity. Each NFT should be unique or have a limited number, so its value tends to rise.

Therefore, on the basis, buying and selling NFTs can only be done with Ethereum, although intermediate solutions have already been found, such as the one applied by the NBA itself, which accepts credit cards. In this context, NFT's own marketplaces such as Niftygateway or Valuable have also emerged for the sale of tweets.

From cats and memes to works of net-art and NBA clips

Nyan Cat, the meme sold under NFT

But as we said, the NFTs have not emerged overnight. Its origin must be sought in some kittens. Launched in November 2017, the cryptokitties are digital representations of cats only. As if they were a mix between tamagotchis and digital Pokémon. Developed by Dieter Shirley, the creator of the ERC-721 standard, each kitten is unique and priced from $ 12 to $ 95,000.

These kittens breed with each other and produce new offspring, which have different attributes and valuations compared to their parents. Within weeks of their launch, the cryptokitties amassed a fanbase who spent $ 20 million to buy, feed, and care for them.

A change for the creation of content on the internet

But what makes someone deposit this money for a digital cat, as cute as it may seem to us? Mark Cuban, technology investor and owner of the Mavericks, has been one of the most talked about the rise of the NFT. For him, it is "a generational change that now gives value to a digital asset just as we have up to now given it to any physical value that we consider to be unique or different."

Analyst Chris Dixon has also written on investor Andreessen Horowitz's blog that NFTs have the potential to "change the relationship of digital content creators to their own creations. " Dixon refers to the fact that until now all content creation had to be linked to a platform, such as YouTube, which interposes an algorithm and monetization on that creation and the public itself. And now, a YouTuber, but also a digital artist or designer can sell their work directly to their audience in a much more exclusive way thanks to this new concept.

In recent weeks there have already been some important turning points that mark what could happen in the future.

  • The creator of the Nyan Cat meme sold an NFT of this work for 300 Ethereum. The meme can continue to be shared, but the original (with the same confidence that it is what we now give to the artist as we give it to a seller of old stickers), referenced by the blockchain, is now in the hands of someone.
  • Jack Dorsey put the first tweet in history up for sale at an auction that exceeded $ 2.5 million.
  • And, finally, the case of Beeple's work that we mentioned at the beginning of this text.

Bubble or utility for also physical goods?

NBA Top Shot, the marketplace of plays registered under NFT that promotes the NBA

But we're not just talking about memes. An NFT for a bottle of wine would facilitate interaction from producer to buyer. It would thus help to follow its origin, production and sale throughout the entire process. The consulting firm Ernst & Young has already developed such a solution for one of its clients.

Non-fungible tokens can also be applied for identity management. Consider the case of physical passports that must be produced at each point of entry and exit. By converting individual passports into NFTs, each with its own identification characteristics, it is possible to streamline the entry and exit processes of the different countries.

Therefore, the usefulness that it may have for pieces of digital collectibles must be separated from unique goods that may have their physical reflection. The first option, as in the case of Beeple, solves the problem of 'signature' and authenticity that sectors such as net-art or digital designs have had until now. The second can be one more application of the blockchain in terms of traceability, where the real revolution may be found when this wave of million-dollar sales of tweets, memes and cryptokittens passes (or not).

Post a Comment