In 2016, a couple of teenagers, unimpressed by some of the displays at the San Francisco Museum of Modern Art, left a pair of glasses on the floor, stood back, and watched visitors admire the dubious installation. Art is subjective and subjective value, indeed. This reasoning has led to some of the most ridiculous artworks in these postmodern times, such as the $1.85 million urinal, the expensive bins of trash, and all-white canvasses that hang in modern art museums. If absurdities can sell for outrageous sums of cash and be celebrated for their lack of meaning, why not a data unit? That is where non-fungible tokens (NFTs) enter the picture.
Over the last month, there has been talk about how NFTs will revolutionize the art market and business contracts. In this Potemkin Village of irrational exuberance, the NFTs could be the next fashionable trend in the everything rally and bubble, much like tulip bulbs, pet rocks, and .com tickers. So, what are NFTs?
NFT: A Primer
NFTs are unique units of identification code, or cryptographic assets, that are placed on a digital ledger, also known as the blockchain. They function differently from cryptocurrencies, such as bitcoin or ethereum, and cannot be transacted at an equal exchange. The market is still in its infancy stage, so consumers are witnessing the tokenizing of tweets, digital artwork, and audio flatulence. But they have the possibility of possessing tangible assets, like real estate and precious metals. In theory, NFTs can also be used for property rights and personal identification without middlemen and complicated transactions. Is an NFT confined to a niche market, or has it gone mainstream?
The NFT Market Is Exploding
There is a gold rush unfolding in the NFT market. People are trying to get it in on the ground floor and make lots of money. Many prominent names have already gotten involved in these digital assets, sparking headlines and interest from folks who have been enraptured by – and see dollar signs in – the word “crypto.”
On March 21, 2006, Twitter CEO Jack Dorsey sent out his first tweet: “just setting up my twittr.” Who would have known that this would eventually be worth $2.9 million? Recently, Dorsey sold the tweet as an NFT for a whopping $2.9 million in ethereum to Sina Estavi, the CEO of blockchain firm Bridge Oracle. The exchange was made through an auction hosted by Valuables, a platform owned by U.S.-based Cent.
Billionaire Mark Cuban enjoyed a quick payday by auctioning various digital goods online, such as a Mavs Suns Game Day Experience video clip. Paris Hilton, the hotel heiress, was ahead of the game when she auctioned an ethereum-based portrait of her cat for $17,000 last summer. The world-famous Christie’s facilitated an auction for an NFT of 5,000 futuristic images taken from May 1, 2007, to January 7, 2021 – it sold for $69.3 million.
NFT Mania or Tech Innovation?
When the Federal Reserve is flooding the economy with trillions of dollars of freshly created money, the craziest things can arise. We have watched this dog-and-pony show before: from the money-printing of the 1970s to the Keynesian endeavors in the aftermath of the 2008-2009 meltdown.
In 1975, My Pet Rock creator made Gary Dahl $15 million in just six months with his absurd product. In the late 1990s, investors made (and lost) fortunes by selling .com domains. Following the Great Recession, Silicon Valley entrepreneurs raised millions in capital for the simplest of social media apps, such as Yo. But can NFTs be placed into the same category as other get-rich-quick bubbles?
Cuban thinks NFTs will establish a permanent presence for content creators, whether in music or art. In a world where someone’s creation can easily be disseminated across the web – making the artist lose out on revenues – NFTs allow these individuals to be paid as the content is distributed online because the transactions, authenticity, and ownership can be tracked back to the blockchain.
According to the sports and tech mogul, it is the “excitement” that is facilitating this environment, comparing it to the early days of all new technological innovations.
“As more entrants come into the [NFT] market, it will become more efficient and the pricing will settle down,” he told CNBC. “The tech is real. The impact is real, and permanent. [B]lockchain and smart contracts and marketplaces are here to stay.”
The Peaks and Valleys of NFTs
What are the odds that if new folks who invested in a non-fungible token today bought at the top? Like every craze, there will always be buyers who entered toward the peak of the cycle. During the early days of bitcoin, many people lost a great deal of money when they acquired the peer-to-peer decentralized digital currency at $19,000 in 2017, only for it to crash to below $4,000 a year later. Was it the end of the cryptocurrency? Now that prices are hovering near all-time highs of above $50,000, it is evident that bitcoin became more mainstream and accepted by institutions, justifying its valuation. The same trends will likely unfold for NFTs: a high, a low, and ubiquitous acceptance. Thus, a new technology is born.
Read more from Andrew Moran.