On Thursday March 10th, Christies held an online auction for a piece of digital art — the piece, a digital collage of images by an artist known as Beeple (Mike Winkelmann) sold for $69.3 million after bidding opened at just $100. The price paid was the third highest ever to be achieved by a living artist, behind David Hockney and Jeff Koons.

The artwork was the most recent example of an NFT (a Non-Fungible Token) to be sold in recent days, achieving an inexplicable price for something that seems at first glance to be a simple digital file that could be recreated by anyone at will.

There’s a sense of incredulity across the world of art but also amongst the most hardened of blockchain-believers at the prices that are being paid for what are essentially one-off digital collectibles. It begs the question as to what exactly is making such things so desirable and worthy of such ridiculous sums of money.

Has the world simply gone mad?

Non-Fungible Tokens

While NFTs are associated with blockchain technology — the computer infrastructure that underpins cryptocurrencies like Bitcoin, Ethereum and even the lesser meme-coin Dogecoin, it’s easier to consider NFTs in their own right

Bitcoins or US Dollars are fungible tokens: one dollar represents the same as another one. They are interchangeable.

Non-fungible means that something is unique, a one-of-a-kind and cannot be replicated. When someone buys an NFT they are buying the original and one-off representation of the digital artefact, signed and encrypted by the creator and with the ownership stored immutably within blockchain technology forever.

When someone owns the token, they are able to prove ownership of the digital asset irrefutably. While a digital image (in this case the JPG file named ‘Everyday — The First 5000 days’ sold by Beeple) can in theory be copied and duplicated an infinite number of times, the ownership of the original is associated with the token.

Think of it like the Mona Lisa. We know and accept that there’s only one genuine painting of the Mona Lisa, hanging in the Louvre gallery in Paris. It lives there, and is unarguably the original, owned by whoever owns it. You can buy a poster of it in the Louvre giftshop or online, but you know that you don’t own the original.

Not Just Images

NFTs are about more than mere images though. Recently, Twitter founder and CEO Jack Dorsey auctioned his first Tweet — bidding exceeded $2m and once completed the NFT representing that Tweet will be stored in the blockchain, with the appropriate encrypted information to guarantee ownership of the original. It doesn’t mean that nobody else can ever view the tweet again, or reproduce it. In fact, here it is:

Sharing that tweet here doesn’t mean I own the NFT, nor have I committed forgery by reproducing it. I don’t have the ownership of that (somewhat significant) tweet — that has been irrefutably claimed and logged in the blockchain by whoever paid over $2m for it.

NFTs can also be associated with music. In addition to standard formats, the Kings of Leon have released a series of NFTs associated with their new album that will give those who purchase them, the bragging rights associated with one-offs (along with other unique privileges including future concert tickets and limited edition vinyl albums).

One of the earliest examples of NFTs was the offering of NBA Top Shots, one-off digital video clips of action sequences from NBA basketball games. These can be bought, and ownership locked in the blockchain forevermore giving the owners the ability to buy and sell the unique one-off digital tokens representing these moments. Top Shots has already been lucrative for many.

Wall Street analyst Michael Levy invested $175,000 in Top Shot moments starting in September last year, and the tradeable value of the NFTs he now owns is today in excess of $20 million. Over 100,000 people have bought Top Shots in the last month alone — the NBA venture has netted sales of $250 million to this point.

Value Is In The Eye Of The Beholder

It seems like the biggest and most obvious question about NFTs relates to the potential they have as a longer term store of value. Will those who’ve paid substantial sums of money for the privilege and bragging rights of ownership, ultimately lose money or see their investments appreciate (as they presumably hope)?

Art has had a long and dubious association with money laundering by organised crime groups. Auction houses are accommodating of anonymity amongst bidders and buyers, and once purchased a valuable work of art can be stored securely in a safe haven country, and sold on again without issue or complication. In 2013 the Economist estimated that in excess of $100 billion of US owned art was held in storage in Geneva. Concerns have been voiced over the possibility that NFTs could enable similar behavior.

What holds true for valuable paintings and sculptures though, may well not translate so well to NFTs. Can there really be so much cache and value associated with a digital token that says you own the ‘original’ JPG of Beeple’s photo-collage as there is to own an original painting by Van Gogh?

There’s an aspect of NFTs that relies on collective agreement and acceptance of the concept as art, just as Bitcoin demands acceptance of certain aspects of what makes it what it is and what gives it value.

There’s a real sense that many of those who are rushing to buy NFTs at this early stage have been swept along by the recent history of those who got in early as investors in cryptocurrency. There are many well-known examples of those who bought a few Bitcoin for a few dollars and are now multi-millionaires through fortunate timing.

Are early adopters of NFT hoping for history to repeat itself?

Environmental Concerns Of NFT

NFTs reside on the same kind of blockchain technology as underpins Bitcoin and Ethereum. Much of the negative sentiment associated with blockchain aside from those who view the technology as frivolous and potentially the basis of a massive financial scam, stems from the energy used to sustain the network. I’ve explored this separately and while blockchain is an undeniably significant user of energy, whether this is worthy or necessary comes down to individual belief over the utility and the necessity of its use.

Some may feel that the energy is worthwhile in propping up an alternative system for global finance that is represented by Bitcoin — sentiments may be less favourable towards blockchain as an elaborate digital vault for registering the ownership of prized artwork.

This tweet says it all:

All Art Is Subjective

What makes a piece of art worthy, credible and worth any sum of money is entirely in the eye (or ear) of the beholder. The value of any piece is set by what someone is willing to pay to claim ownership of the original item. Something has worth as a piece of art simply because we collectively agree that it does — that collective also only needs to involve the creator and the buyer.

Mark Rothko paintings to me, are simply blocks of color on a canvas but it hasn’t stopped collectors paying millions of dollars for them. I don’t have to like it to accept that it’s art — the monetary value is between Rothko and the person who pays for his work.

An NFT that’s cryptographically locked into the blockchain to irrefutably record ownership doesn’t stop me from looking at a digital artwork, any more than it prevents me from listening to or watching the Kings of Leon perform if I don’t own their NFT. I can find action clips from the NBA on YouTube and marvel at the prowess of the athletes without notionally ‘owning’ the moment.

It’s exactly the same as being able to look at and enjoy the Mona Lisa — I can go to the Louvre and admire it in person, I can look at a digital image of it online or I can buy a poster and put it on my wall — it doesn’t change that I don’t own the original.

But these moments, the tunes, the words and images are all undeniably art in the collective minds of a great many people or so it would seem. An NFT merely gives the opportunity for the highest bidder to stake their ownership of the original item — the real deal as it were.

Whether this eventually offers the equivalent value and status as is enjoyed by those who’ve invested in conventional works of art over time, remains to be seen.