On Thursday, a digital collage of hundreds of weird, brightly colored images made by a South Carolina artist known as Beeple sold at the prestigious Christie's auction for $69.3 million. The staggering price is the third highest ever for a work by a living artist, second only to pieces sold by art-world giants Jeff Koons and David Hockney.
But unlike Koons's balloon dog sculptures and Hockney's acrylic paintings, the collage, known as "Everydays: The First 5000 Days," is entirely digital. In effect, what the unnamed buyer bought is not very different from a photo of the work.
What sets it apart, though, is that this specific file is an NFT, or non-fungible token. Using the same principles behind cryptocurrencies such as bitcoin, NFTs allow people to claim ownership over specific digital files, be they songs, videos or static images. Beeple, whose real name is Mike Winkelmann, is the latest beneficiary of a rush into NFTs that's a side effect of the fast-growing interest in digital currencies and the technology behind them.
Q: What is an NFT?
A: An NFT is a type of digital crypto asset. They represent a specific version of any digital file - whether it's a song, a video game or a simple image. Using the same technology that bitcoin uses, people can "mint" NFTs, creating a record of ownership that's spread across thousands of computers around the world that cannot be changed by anyone except the owner. It's a way of turning a digital file into something that can be bought and sold like a physical object.
NFTs are not tangible - you can't hold them or touch them (unless, of course, you decided to print a copy of one, like you might print out an art image). The knowledge in the owner's mind that they own the original or "real" version of the digital file is what makes them valuable.
NFTs are traded on digital marketplaces, but unlike bitcoin or other "fungible" tokens, they are individually all unique. They're not money, but rather unique assets.
Q: Why are people so interested in NFTs now?
A: NFTs have been around for a few years. In 2017, a Canadian company called Dapper Labs released a game called CryptoKitties, in which players could buy and trade one-of-a-kind animated cats on a blockchain ledger. CryptoKitties attracted investment from top venture capital firms like Andreessen Horowitz, and a few of the cats have sold for more than $100,000.
But the party really got started last year, when the huge rally in bitcoin prices grabbed millions of people's attention and spawned a wave of interest in anything to do with the blockchain. The price of a single bitcoin has ballooned from about $7,000 at the beginning of 2020 to nearly $56,000 today. Apps such as Coinbase that make it easier for non-tech-savvy people to buy the asset - along with big institutional investors like Goldman Sachs and companies such as Tesla jumping in, too - have pushed prices higher and higher.
In October, the National Basketball Association partnered with Dapper Labs to start selling clips and images of famous basketball players as NFTs. By the end of February, they had made more than $230 million. Artists also got in on it, with a copy of the famous Internet creature Nyan Cat selling for $600,000 in mid-February. That helped set the stage for the Beeple auction.
NFTs are, for many, just another way to speculate on the rise of digital currencies in general. As their adoption is normalized, others join in and interest increases.
Joe Guagliardo, a technology and blockchain partner at Troutman Pepper law firm, said NFTs increase and decrease in value in much the same way as a physical asset.
"It's no difference in the digital world. I think there's probably a premium because there's a novelty to it. It's new," he said. "But I don't know that you can say that there's any more or less irrationality to it than any collectible."
Q: What do you do with an NFT?
A: Probably the same thing you would do with a beloved collectible baseball card: treasure it. The assets have become a sort of Internet-savvy status symbol and are attracting a certain brand of techie celebrity. Twitter chief executive Jack Dorsey is selling his first-ever tweet as an NFT now on a platform called Valuables.
The tweet, from March 21, 2006, reads: "just setting up my twttr." The bid to own its blockchain-minted copy is up to $2.5 million.
The singer Grimes has also gotten into the NFT game - the artist sold a number of her digital artworks for about $6 million total on Nifty Gateway, a marketplace for NFTs. The rock band Kings of Leon sold their latest album as an NFT, too, netting $2 million.
Q: Is there a downside to this craze?
A: Like everything dealing with the blockchain, there are environmental concerns with the boom in popularity of NFTs because of the amount of computing process involved in the blockchain. Experts told The Washington Post in 2017 that bitcoin used as much as 1 to 4 gigawatts of electricity, or about the same as one to three nuclear reactors.
Wired reported this month that Ethereum's developers are planning to adopt a form of processing transactions that is less carbon intensive, though it is unclear when.
Q: Is this anything other than a speculative craze?
A: It's hard to say. The massive amounts of money going into NFTs right now are surely part of the broader bull market and demand for finding new and weirder assets in which to invest. But proponents say the interest in NFTs shows they have long-term value. They help solve the problem of ownership when it comes to digital artworks and are clearly helping artists who don't work with physical materials to track the sale of their pieces and therefore make more money.
Just like the dizzying rally in bitcoin prices, NFTs show that cryptocurrencies and blockchain technology are more than just nerdy fads.
Q: Should I buy one?
A: Sure, if you have the cash (er, cryptocurrency) and find something meaningful to you. Like any hot trend, NFTs could become a staple of society for years or could slowly be forgotten like that digital photo you took on your trip to San Diego during your senior year in high school that remains stashed in a folder on your dead MacBook.
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