60 million euros for a picture collage, 2.5 million for a tweet and 900,000 for an ugly cat. Unimaginable sums of money are currently being paid for so-called non-fungible tokens. But what is actually being sold there?
NFT: What are Non-Fungible Tokens?
Hype, hysteria and art – but what are NFTs? For many, the phenomenon came out of nowhere. Since the end of 2020, NFTs seem to be turning the art, culture and collectors’ market upside down. Musicians like the singer Grimes, Deadmau5 or 3lau suddenly sold and auctioned so-called non-fungible tokens and turned over huge sums of money. Sometimes in the form of short videos, as animation, but also as a classical music album. The basketball association NBA, however, sold digital trading cards and Formula 1 a virtual sports car. The graphic designer and animator Mike ‘Beeple’ Winkelmann even became one of the richest living (digital) artists with the auction of an NFT for a picture collage. For the equivalent of 58.86 million eurosthe “Everydays: The First 5000 Days” work changed hands.
NFTs: Unique, smart contracts on blockchains
But what is really being sold there? The non-fungible tokens are a technology based on modern variants of the blockchain. These are the digital cash books that stand behind cryptocurrencies . While Bitcoin only stores simple currency transactions on the blockchain, programs can also be written into the blockchain from Ethereum, NEO, WAX, TRON, Tezos and others – so-called “smart contracts”. These enable entries on the blockchain that cannot be split up or exchanged like cryptocurrency units, but are unique . NFTs are such entries.
Non-fungible tokens are similar to digital certificates of authenticity
On a platform such as Foundation , OpenSea , Rarible or Super Rare , an artist can upload his work and generate an NFT – for a fee. A unique signature is created for the work of art , which is saved in the blockchain, but not the work of art itself. The signature can only be in the possession of a single person – or their crypto money wallet – and can only be passed on by this person . If an artist sells an NFT, he does not sell the work of art itself, not even the copyright or exploitation rights, but this digital certificate of authenticity that represents the work of art.
This is what I believe. https://t.co/B0ZBEtuHfh
— Mike Novogratz (@novogratz) April 8, 2021
Advantages and other examples of NFTs
According to digital artists like Beeple, an NFT should be understood as “a handshake agreement”. With an NFT, the artist assures the buyer that he is the one who is allowed to show that he owns this special work of art. Even if they are pictures, videos, pieces of music or animations that can already be found on Instagram, YouTube, Spotify or anywhere else and have been copied thousands or millions of times. The best example here are internet memes like the rain cat Nyan Cat , which was auctioned for 522,000 euros but can be found on countless websites.
NFTs are interesting for artists because they give them the opportunity to offer their work directly worldwide. You can do without gallery owners. This is currently helping numerous artists to attract unexpected attention. For this purpose, automatic royalties can be programmed into an NFT . If an NFT is resold, the artist receives a percentage of the resale price – and can thus benefit from it in the long term. But not only that: NFTs can also serve as a “loyalty program”. Because the digital wallet in which an NFT is located can be traced on the blockchain. Musicians can invite NFT owners to exclusive gigs or offer them limited collector’s items.
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However, it’s not just works of art that can be sold. The Twitter founder Jack Dorsey created an NFT for his first tweet and auctioned it for over 2 million euros. The game Cryptokitties is a real NFT pioneer . Players have been collecting digital cartoon cats here since 2017. Each of them is unique. Bringing two cats together can create new, algorithm-generated, and equally unique kittens. One of them was traded for 600 units of the cryptocurrency Ether, i.e. over 900,000 euros.
Some crypto experts predict that real houses, land or company shares will also be traded via NFT in the future . Identity cards and birth certificates can also be implemented as NFTs.
Elon Musk makes fun of NFTs with Song
— Elon Musk (@elonmusk) March 19, 2021
Of course, there is also criticism : art historians say that the digital certificates of authenticity mean that only the potential as an investment counts, not the work behind it. The philosopher Max Haarich compared the hype with the tulip mania of the 17th century, when tulip bulbs were suddenly traded for the price of houses and accumulated by princes as status symbols. Tesla founder Elon Musk made fun of it in March . He has announced that he will be selling a song about NFTs as NFT. In the song, potential buyers are accused of vanity. Even so, Musk were offered over two million euros. The billionaire, however, did the reciprocals. “Honestly, it doesn’t feel right to sell this,” he wrote. “I’ll let it be.”
Another point of criticism is that NFTs use a lot of energy . To verify the NFT creation and sales in the blockchain, thousands upon thousands of computers perform complicated calculations at the same time. This does not only apply to NFTs, but to all transactions that are recorded in the digital cash books. For comparison: The operation of the Ethereum blockchain requires about as much electricity as the country of Panama. Some artists have already turned their backs on the NFTs. However, the developers of Ethereum are already working on a solution that will reduce power consumption by 99 percent. Others could follow suit. This would make NFTs not only a financial but also an ecological future for many artists .