On Thursday, March 11, a piece of digital art – a JPG file – sold for $69 million. Why would a purely digital work of art ever sell for that much? Scarcity and proof of ownership. That’s right, the underpinning of popular cryptocurrencies – blockchain – is being used to create NFTs (nonfungible tokens) to mint unique pieces of art and other digital collectibles.
The piece, titled “Everydays – The First 5000 Days” was created by Mike Winkelmann, who goes by the name Beeple. Minted as NFT last month, it consists of a collage of all of the artwork Beeple has posted online every day since 2007. You can view the work here.
Twitter co-founder and CEO Jack Dorsey also announced he is selling his very first tweet as an NFT, with the highest bid currently at $2.5 million. Not to be left out, Elon Musk recently tweeted he is selling a song about NFTs as an NFT, with bids surpassing $1 million at the time of writing.
But what is an NFT, and what is behind the sudden explosion in interest?
An NFT, or nonfungible token, is simply proof of ownership achieved through a blockchain, allowing the purchase and sale of unique assets. A blockchain, consisting of a network of computers, records the transaction on a publicly viewable, digital ledger. The owner of the address (or wallet) holding the NFT is the indisputable owner of it contents – like a digital deed that can’t be forged or counterfeited. While Beeple’s artwork, Musk’s song, or Dorsey’s first tweet can be viewed by anyone, the NFTs themselves cannot be duplicated, making them completely unique and nonfungible. Unlike bitcoin (or U.S. dollar bills), which can be swapped for other bitcoin (or other U.S. dollar bills), NFTs have no equivalent asset. NFTs can be applied to all manner of collectibles, including in-game characters (remember CryptoKitties?), videos, digital trading cards, and even sports highlights.
Enthusiasm for NFTs may have been spurred by surging activity and interest in crytpocurrency, which saw values pass all-time highs in late 2020 with the current bull run continuing well into 2021. Last month, Elon Musk announced that Tesla made a $1.5 billion investment in Bitcoin with plans to accept the cryptocurrency as payment. With the explosion in NFTs, some see parallels to the ICO bubble of 2017. This leads us to ask the question, will this enthusiasm – and these record prices – last? Only time will tell.