You might have heard the baffling phrase “non-fungible tokens” back in March, when an “NFT” corresponding to a digital artwork sold at Christie’s for an eye-watering $69.3m. Or perhaps you caught the August tale about a fake NFT paired to Banksy being sold for £244,000, before the artist denied any connection to it, and the hacker who had pulled the stunt returned the cash. Or maybe you caught the Economist auctioning an NFT to one of its recent covers in October.
To the uninitiated, such stories convey nothing more than head-spinning sums changing hands for something unfathomable, somehow connected to computers and the art world. So before we go further, let’s explain what an NFT is. The token is basically a string of letters and numbers that correspond to an object that is usually digital. “Non-fungible” means that each token is different and paired to a single item. To make an NFT, the creator “mints” one on a specialised website, which then links to the artwork and all the information about it—date, size, medium, author. The token is registered on the “blockchain,” a database locked into a network of computers so large that it is virtually impossible to corrupt the information it holds.
There have been plenty of other high prices, including $11m for ownership of a “CryptoPunk” (a sort of computer-generated cartoon head), $2.9m for the first tweet by Twitter CEO Jack Dorsey, and $5.4m for Tim Berners-Lee’s source code for the world wide web—or rather, a picture he made of the code. There is nothing truly unique about any of the underlying “artefacts” here. All are retrievable and reproducible on the internet for free, but until now you couldn’t prove you owned one and resell it. Thanks to NFTs, you can.
In the Christie’s case, the NFT was attached to a collage of images by an artist called Beeple, who made one per day over 5,000 days: at a distance, it looks like a micro-mosaic. Anyone could see and share it, or download it onto their computer. The buyer paid not only to obtain a work of art, but to be able to say it was theirs.
This is more explicable if you reflect that, for some, the art market has been as much about possession as experience ever since we gained the ability to produce mass print copies of original works. As the world increasingly moves into the digital sphere, NFTs guarantee authenticity and provide the title deeds on everything—from art to tweets—that does not exist in the physical world. Just as in “real” art, part of the appeal is as an investment, with artists luring buyers with the promise they will be able to resell if they choose. Conditions can be baked into NFTs, giving the creator royalties if such a resale takes place. The way NFTs are presented and transacted online, often without the traditional intermediaries as gatekeepers, is arguably a disruptive democratisation of the art market.
The final piece in the NFT jigsaw is cryptocurrencies such as Bitcoin, in which payment is generally made. The crypto market is now worth $2.5 trillion, but most shops don’t yet take it. So holders may use NFTs as a way to spend their gains. Indeed, the $70m Beeple was bought by a couple of crypto entrepreneurs. They subsequently tried to monetise it by selling a different token—“B20”—representing a fraction of the work. An individual B20 hit a peak of £21.38, but as I write that price has collapsed to £0.58.
The crypto-crowd is young: when Christie’s auctioned the Beeple, only three of the 33 bidders were known to the auction house, and the majority were millennials. Many buyers are Asian, all are digital natives and quite ready to spend big bucks online. For them, the difference between one CryptoPunk NFT and another might be the equivalent, for a traditional collector, of the difference between owning a Picasso Marie-Thérèse or a Dora Maar.
So are NFTs here to stay? Their performance has been volatile, but prices at the top end have soared, for various reasons. The entry price is low and the possibility of huge gains attracts punters. There is always a buzz about a new technology and NFTs have brought in a new breed of buyer. But today’s prices are, in my opinion, a triumph of optimism. I believe that NFTs will endure, but also that the current wave of frenzy will pass. I would be surprised if Beeple ever achieves $70m again.
