In March 2021, a work of art called Everydays: The First 5000 Days was sold for $69 million. It is a digital work of art which was bought by a well-known cryptocurrency investor who displayed it in a digital museum within “the metaverse”. It’s not the first time that an artwork was sold for a non-insignificant amount of money, but this one caught attention because the piece was sold as a non-fungible token (NFT) – an electronic record corresponding to an image that lives entirely in the digital world.
So yeah, it seems like someone paid almost $70 million for a picture on the internet. In the previous year, NFTs also started to deeply integrate into pop culture. They have been spoken about on Saturday Night Live, together with various shows and podcasts worldwide, and embraced by celebrities like Snoop Dogg and the NBA superstar Steph Curry. Hundreds of millions of dollars of NFT sales happen each week on market places like OpenSea, Nifty Gateway and Foundation, along with custom-built ones like NBA Top Shot. It sounds exciting to some and provokes deep skepticism in others, so what exactly is happening here and how does it work?
The market for digital assets is fundamentally changing. Now there is an actual owner of the asset, rather than just a person who simply used to save a copy on their desktop. Every market needs both clear property rights and an agreement on who has the right to sell digital assets, together with a way to transfer the rights to someone else. This creates the possibility to build markets which sell products that could never have been sold before.
As the name “non-fungible token” suggests, each NFT is a unique, one-of-a-kind digital item. Because of the fact that it can be exchanged, it can also be used as a membership card or a ticket to special events and merchandise. It is a special key to some doors that regular people can’t open, which makes it rather exclusive and interesting. The Bored Ape Yacht Club, for example, embraces a series of NFT ape images as a membership in an online community. The members can access a series of high-end merchandise, social events and even actual yacht parties. NFTs’ are breaking it for their mere use in the digital world, with also few restaurants having adopted their use for special treatments and possibilities.
It goes without saying that this all comes with the risk that, without a strong community of users, NFT projects could fail to get off the ground, or that they could quickly collapse as all the token-holders lose interest. If it fails to recruit a big enough community or even the right community, the projects can devalue themselves. Being that the projects are deeply entangled with crypto also gives their future a note of uncertainty. Market swings can dramatically change the demand for NFTs. Maybe this is actually going to be the future of trading or maybe it’s just going to be another idea that slowly collapses – I guess we’ll just have to wait and see.
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