If you had a million dollars, would you spend it on digital art?
NFTs have been in the headlines recently after a piece of digital art sold for over $69 million, and Twitter CEO Jack Dorsey sold an NFT of the first-ever tweet for $2.9 million.
NFTs have excited the art world and crypto enthusiasts alike. They offer a new solution to an old problem: How do you prove ownership and provenance of a piece of art that’s easy to copy and replicate?
A big issue for many artists in the digital age is that they don’t make money from their creations, even ones that are extremely popular and get shared many times. NFTs could change that.
What is an NFT?
NFTs — non-fungible tokens — are unique cryptographic tokens stored on a blockchain. If that explanation asks more questions than it answers, let’s break down some of those ideas.
Blockchain: You’ve likely heard of blockchain, the technology behind Bitcoin and other cryptocurrencies. It is a bit like a huge, encrypted ledger or database that can’t be corrupted or tampered with. Digital currencies are one application of blockchain technology, but they’re not the only one.
You can also record agreements in the ledger — called smart contracts — which cement a sale. These contracts let the creator show they have the right to sell the material and potentially claim royalties if the item is resold. And all that information is stored in one token, or entry in the blockchain ledger.
Non-fungible assets: A fungible asset is something that’s interchangeable. For example, one dollar bill is worth exactly the same as another dollar bill. In contrast, a non-fungible asset is unique — for example an original painting by Van Gogh. Or, let’s say Frank Sinatra had signed your dollar bill and so made it into something unique. Frank made that dollar into a non-fungible asset.
Perhaps you create a cartoon cat which proves enormously popular and is shared by millions of people. An NFT would let you claim authorship and sell the original cartoon cat. The NFT would make that original unique — like that signed dollar bill — even though there are copies on millions of hard drives. Think of it as the difference between owning an original Van Gogh and a print of the same painting.
And it’s taking off. According to a study by NonFungible.com, the NFT market was worth over $250 million in 2020 — triple what it was in 2019.
Are NFTs really selling for $1,000,000?
Yes. But so far only a few pieces of NFT art have gone for over a million. If you’re trying to understand why NFT art is selling for such high prices, think of it as the unpredictable value of art multiplied by the unpredictable value of crypto.
Art is historically hard to put a value on. And we’re in the midst of blockchain mania as people speculate on the potential value of anything connected to blockchain.
Here are some of the top NFT art sales:
- Mike Winkelmann, a digital artist known as Beeple, sold “Everydays: The First 5000 Days” at Christie’s for over $69 million
- The mysterious Pak (nobody knows who Pak is) sold “The Pixel” for $1,355,555
- Digital artist, Fewocious, sold “The Everlasting Beautiful” for $555,000
- Another crypto art leader, Trevor Jones sold “The Bitcoin Angel” for $188,888
It’s not only art. Some of the first NFTs were CryptoKitties. CryptoKitties are part of a simple game in which users buy, sell, and breed digital cats with varying levels of rarity. And, since each cat is unique, those cats can be bought and sold — the most expensive so far went for over $100,000.
Musicians are also exploring the potential of NFTs. Kings of Leon made nearly $2 million by selling a collection of NFTs called “NFT Yourself.” The collection included artwork and came with a limited-edition vinyl of Kings of Leon’s latest album.
And if you’re a trading cards collector, you can buy unique clips of your favorite basketball moments on NBA’s Top Shot platform. These upgraded cards can cost as little as $9, but the most expensive moment went for over $200.
Where can I buy NFTs?
You don’t have to go to Christie’s auction house if you want to buy an NFT. But, just as it’s good to buy crypto from reputable cryptocurrency exchanges, only buy from a source you trust. Among the most popular sources of NFTs are Opensea, SuperRare, Nifty Gateway, and Foundation.
Bear in mind that, like cryptocurrencies, many things about NFTs are still evolving. For example, some artists have complained their work has been made into NFTs without their permission. It isn’t yet clear how the NFT market might eventually be regulated, and there could be unforeseen copyright issues, since buyers may not understand that the artist retains copyright.
Whether you’re an art buyer or seller, you’ll find a lot of the NFT exchanges require Ethereum, the world’s second-biggest cryptocurrency. You might have to buy Ethereum before you can take your first steps into the world of NFTs.
Like many aspects of the crypto market, NFTs offer a lot of potential, but also a lot of risks — make sure you understand them before you spend your hard-earned cash.
RELATED: Check out The Ascent’s guide to the best NFT wallets.
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