In an earlier article we outlined the potential of non-fungible tokens (NFT) for commercial activity, and today (some three years later) the New York Times and even the Wall Street Journal are catching up to the topic. Albeit, the authors still seem to struggle with the terminology - i.e. separating blockchains and cryptocurrencies. - We time-stamped our own blockchain fund's early NFT experiments, and you can find the first Sustany NFT created on April 8th, 2018 here.
It is therefore unsurprising that it is yet again not the technology that is making the headlines, but the value ascribed to buyers of blockchain-derived assets.
In this case the widely reported multi-million dollar sale of an NFT by an artist going by the moniker Beeple.
Bidding for the digital art started at just $100, however, in the final sixty minutes, more than 180 bids flowed into Christie’s online auction driving the price up to $69.3 million. The price was a new high for an artwork that exists only digitally, beating auction records for physical paintings by J.M.W. Turner, Georges Seurat, or even Francisco Goya.
Auction House Christie's said 33 participated in the bidding, and that 64% of them were either Millennials or Gen Z.
Yes, Beeple's reaction (see video below) is indeed priceless, but the buyer has it right: "the only thing you can't hack digitally is time" - referring to the years of diligent labor it took Mike Winklemann - Beeple's name IRL - to assemble the piece.
Something which cannot be said for CryptoPunk 7804, a computer-generated avatar of a teal-colored, pipe-smoking alien wearing a hat and sunglasses, which was recently sold for 4,200 ETH (ether), which equates to approximately US$7.5 million, setting a record for the highest amount paid for a pixelated punk.
If you want to try buying a NFT yourself cheaper, you may buy one of my Crypto Kitties for only $60 here ;-)
It is important to understand the state of NFT technology. In its current form, Ethereum based NFT standards (I think of those mostly as 'APIs'), carry and convey only a small amount of data. While the underlying blockchain may have achieved a state of decentralization, standards for the expression of function not already encoded in accepted data formats (i,e. PNG, JPG etc.) are largely absent. In-game goods based on Ethereum's ERC-721 and ERC-1155 might allow those ins possession of the private keys to list these on online market places, or send them directly to other users of digital wallets accepting these formats. However, their utility is still mostly tied to centralized organizations maintaining processing intensive game environments, which may cease to exist if the entity behind the effort decides to discontinue the service, or the technology becomes obsolete.
As for digital art, there are no effective enforcement mechanisms to-date which would prevent others from copying these PNGs, or JPGs, enjoying the same visualization as the rightful owner (mins the bragging rights, of having spend elaborate sums on the data, of course). However, this holds mostly true for physical manifestations of art as well. Setting the utility as kindling aside, any pricing ascribed to the Mona Lisa's painting is derived from a a shared believe system or social contract.
Fundamental tools for the development of NFTs and NFT stores (i.e. Mintbase) are in the early stages of development, but their real utility will be shown when non-technical users can derive value from them in the real world.
Speaking at a recent conference, the U.S. Securities and Exchange Commission (SEC) commissioner, Hester Peirce, the so-called “Crypto Mom,” warned that issuing fractionalized NFTs might be considered an investment contract under U.S. federal securities laws. According to Peirce, when selling fractions of individual NFTs, or NFT baskets, “you better be careful that you’re not creating something that’s an investment product, that’s a security.” She advised investors that the “definition of security can be pretty broad,” and to ask questions and be careful (more a about 'security tokens' here).
At the core, non-fungible tokens are unique addresses on a public blockchain. As such, the concept is also utilized for building blocks to a new Web-3 architecture, and are of particular interest for the design of domains and other web addresses such as emails. However, as with other forms of blockchain-derived tokens, domain and mail addresses can be perform a number of other functions - i.e. serve as unique payment addresses which can be linked to an address on a public blockchain, similar to domains resolving on the internet to specific IP addresses. Already, early adopters are buying up addresses on new networks such as the FIO protocol which provides unique human readable payment addresses.
Non-fungible tokens make for interesting experiments in the world of gaming and digital art. However, practical real world use cases are abound, and cover anything from titles to supply chains (I am particularly fond of the latter implementations - see ).
In the future, not only will visual art be digitally native, but every physical thing will have a digital twin - often one that was 'born' before the physical instantiation of the item in the real world (see my NFT Supply Chain Article). This makes the adaption of this technology paradigm virtually endless. That's why this technology paradigm is still vastly undervalued.