A Token for Your Thoughts
Non-fungible tokens (NFTs) are digital blockchain-linked assets whose entity, including
identification and ownership, are verified within the distributed digital ledger that characterises blockchain technology. The premise of such items makes them unique and
impossible to replicate due to the Proof-of-Work consensus algorithm used to confirm
transactions and produce new blocks in the chain. In Layman’s terms, a bitcoin is a fungible
token as you can trade it for another bitcoin, giving you the same thing worth the same amount in return. An NFT is more like a rare trading card, like a Pokémon or Baseball card that has previously gone for tens of thousands due to their highly subjective secondary value attached.
Computer gamers have been collecting virtual items, spending virtual money or using virtual
XP (experience points) to better their in-game experience for years. For example, the popular
game GTA V, by Rockstar Games, includes numerous in-game purchasable features that
enhance the playing experience, such as clothing, tattoos, houses, cars, bunkers etc. Whilst
you can spend real money to purchase these items within the digital world that exists through
the confines of the game, this, however, does not mean that you own them. The centralised
servers that run, develop and make these computer games constantly update the existing
features, removing old and uploading new items. Therefore, there is no real equity gained
from time spent playing many of these games. On the other hand, in the case of blockchain games, NFTs enable in-game assets to be owned and used by players.
The aforementioned characteristics of blockchain make it feasible to assign property rights
to digital items, mainly due to the distributed nature of blockchain, meaning there is no
centralisation. Fundamentally, these unique NFTs validate the ownership of digital assets as a
crypto identifier. This era of tokenisation, born out of NFTs, has already seen digital art, music, sports memorabilia, ‘CryptoPunk’ and much more, being minted and saved on to a blockchain; they are then frequently exchanged on secondary markets for vast amounts, some of which have been making headlines within their respective fields. Blockchain provides unlimited potential in that one could create tokens for just about anything. A blockchain company, MintMe.com, even offers the scope for one to “fund (themselves) for free” by turning themselves into a digital coin, “because you have developed a reputation for yourself that certainly has value”. This bizarre concept is positioned towards ‘crypto influencers’, but, in theory, can be applied to all 7.8 billion of us. In a world with innumerate tokens, it rather detracts from the relative simplicity of using fiat currencies.
CryptoPunk, first released in June 2017, was one of the first NFTs developed on the Ethereum blockchain by John Watkinson, a Canadian software developer. They are merely simplistic pixilated faces written in code; however, the value comes from the fact that they are inimitable. Each of the 10,000 CryptoPunk in existence has inimitable cryptographic tokens. This began a new wave of digital consumer collectables that has revolutionised numerous sectors, namely the art industry.
Just last week, on the 11 th of March, a collage of digital images sold by the contemporary
artist Beeple for an astonishing $69.3million, according to Christie’s auction house. This was
the first-ever auction of its kind by Christie’s – a world-leading auction house with global
sales of $5.8billion in 2019 – who began the bidding for the single jpeg file, titled “Everydays: The First 5000 Days”, at $100 on the 25 th of February. The eye-watering price paid for the item makes the artist, Mike Winklemann, the third most valuable living artist globally. Further, the item itself eclipsed the price paid for some of the most prestigious paintings in the world, including Van Gogh’s L’Allee des Alyscamps which sold for $66million.
(“Everydays: The First 5,000 Days” - https://www.beeple-crap.com/everydays)
To this day, the collection includes over 5,000 consecutive days of individual images with the
artist currently in the 14 th year of creating. You can see each individual, daily upload on Mr
Winklemann’s Instagram feed ‘beeple_crap’, which has gained a strong following of 2million
people to this day.
Mr Winklemann began the project seeking to express his artistic ability through the production of these comic-like images. They often addressed contemporary news stories,
trending pop culture, or were seemingly completely random. As his skills within the software
he used became more refined, his images became “weirder” and “grosser” (according to Mr
Winklemann). Upon exploration of the blockchain, cryptocurrency and NFT realm, Mr Winklemann began to realise to the significant value associated with digital art through NFTs
authentication. As a result, the idea to produce this digital collage, and the development of the artist Beeple, became a central focus.
(“ENDGAME” - https://www.beeple-crap.com/everydays)
This unprecedented price for a jpeg is not just seen in art, however, with astronomically
expensive NFTs spreading to sports memorabilia. Recently, an individual purchased a 13-second video highlight of LeBron James for over $200,000. This is part of a crypto-collectable initiative led by the National Basketball Association (NBA), launching ‘NBA Top
Shot’ – an NFT based system that works like the hugely popular trading cards – that has seen
gross sales of over $230million.
The hype surrounding NFTs comes amid pressures of inflation whereby investors will put
their money into almost anything to avoid holding cash. Some investors believe that those
holding NFTs could create material earnings in the future. What is worth a seemingly
ludicrous $69million now could be a drop in the ocean within a billion-dollar industry in the
near future. However, other critics acclaim that NFTs inflated valuations are a part of a
bubble, with many not seeing sense in purchasing something that isn’t there. Such critics also
highlight the significant environmental implications of creating NFTs due to the amount of
computer processing required. One ecological report highlighted that one in every five NFTs
have a footprint of over 10 tonnes of CO2, equating to twelve transatlantic flights.