The Rise of NFT’s

How much would you pay to be the only owner of this unique digital piece of art? As the title of the blog suggests someone did in fact pay $69 million for this piece. It’s a collage of nearly every piece of individual art created by the digital artist, known as Beeple. You may not have heard of Beeple but check out his work, it’s haunting and incredible.

Okay art is one thing, so how about this? Would you pay $2.9 million to own the first tweet posted on Twitter. Yes, that happened too.

Or how about this hypnotized pigeon video for $35,257.58?

In todays edition of The Tulip Teacher: How is it possible to buy these… things and why is anyone willing to pay thousands and (in some cases) millions for them?

If these questions have crossed your mind then congratulations are in order, you are in fact a rational human being for thinking of such logical questions. But don’t feel so smug just yet, the concept of selling a tweet might sound insane to most people at first, but there might be something big happening here.

What you have more than likely recognised is that anything digital is by definition not tangible and is definitely not sacred. Even though there are copyright laws to provide protection it is straight forward to copy anything digital. Someone’s hard work can be quite easily pinched or copied (especially if it is digital) say for example…Beeple’s artwork. Which is why your first reaction is probably to scoff and shrug this off as another over-hyped fad, and yes there is definitely some truth to that, but maybe not as much as you’d expect.

So why would anyone in their right mind pay millions to own something as easily replicable as a tweet, image, or video?

Let’s use physical art as an example. An artist creates a physical piece of art (the original) and then there are the gift shop copies that follow. The original is the most valuable because it is the artists true work and there is only one.

But what if you make digital art? Print screen, copy and paste, duplicate file and the snipping tool are the nemesis of all digital artists. The concept of “the original” just does not hold up for anything made and sold digitally. That is… until NFT’s showed up.

NFT stands for Non-Fungible Token. Okay, it does sounds like some kind of foot cream, but it actually describes a way of making any item unique, and identifiable as the original.

If an item is perfectly fungible it means that all identical items are interchangeable and hold the same value. Modern money is an example of a very fungible item. Any standard £10 note is near identical to all other £10 notes, if we each had one in our pockets, we could swap them without any fuss. But money is not perfectly fungible, despite having the same monetary value swapping £10 note for 10,000 pennies isn’t going to win you any friends. Just check on YouTube you’ll find plenty videos of people paying debts in pennies.

If an item is perfectly non-fungible, it is ‘one of a kind’. You wouldn’t swap it for any replica because they’re simply not comparable i.e. the original Mona Lisa, Michelangelo’s David, Venus de Milo etc, a first edition Harry Potter book, my first car (Vauxhall Corsa, a one litre beauty). You get the idea.

So Non-Fungible Tokens are simply a way of converting an easily replicated item such as digital art (or yes, even a tweet) into a ‘one of a kind’ item. But we’ve only just tapped the surface of what NFT’s could potential do.

An NFT is like a digital certificate of ownership that accompanies the purchase of any item (physical or digital). It is this certificate that holds significant value because it cannot be forged, duplicated or lost.

Take a Rolex watch for example, each watch comes with a unique card to confirm its authenticity. Without it the watch is worth much less. An NFT is like the Rolex card in many ways, but technically better. NFT’s are purchased using cryptocurrency, which acts like a public ledger by keeping an encrypted record of everyone who has ever purchased or sold that specific item. In other words, a secure, accessible, digital paper trail. NFT’s could help all creators and any business by giving unchallengeable authenticity to their products. This authenticity translates into added value, leading to the one thing nearly all businesses desire…more profit.

NFT’s and cryptocurrencies ultimately go hand in hand. Very few firms accept cryptocurrencies (and with good reasons) but NFT’s provide a strong argument for businesses to at least consider the possibility. In the short-term, it seems far more likely that NFT’s will appear first with high-end products where authenticity is vital, before eventually disseminating to all other products and services as more begin to see the benefits of NFT’s.

But and it’s a big but… the success of NFT’s depends on whether cryptocurrencies will ever become widely accepted by businesses and consumers.

The final question to address is why are NFT’s selling for so much money? Well, here’s beloved The Nyan Cat to help explain.

On the 19th February The Nyan Cat meme NFT sold for over $549,438 or 300 Ethereum (cryptocurrency). The original creator agreed to sell it and in return, the owner of the NFT received twelve digital frames that form this GIF and digital certification that they are the only owner of the ‘original’ version of these twelve frames. On completion of the sale, the owner’s details and proof of ownership are engraved into a cyberspace ledger.

Does this give you ownership rights, copyrights or any legal status at all? Sadly no. That’s not why these NFT’s have such high price tags. Anyone can continue to download the Nyan Cat GIF, like I have. But there is only one Nyan Cat NFT. You have bought the privilege to claim this digital pop-tart cat as yours. This could be a symbol of wealth and status, a speculative investment or maybe you’re the ultimate fan of Nyan Cat. In other words, it’s like buying a Rolex watch… without ever physically owning the Rolex watch.

The popularity of this sweet-treat feline really does explain why it (and other internet items) may have sold for so much money. Greater popularity, status and influence means higher value, and therefore… a higher price tag. Especially when these digital items can be sold via auction on sites such as Foundation where all the bids are visible to everyone.

The price may also be pushed up due to some speculative decisioning making, but we’ve all been there in some form… No really we have.

If you have ever bought a beanie baby, vinyl record, a Pokémon card, a fancy watch, a classic car, a rare coin, a stamp, it is the same as purchasing an NFT. You are buying a desirable and collectable item because they are rare and maybe even irreplaceable. Yes, not all of these will turn out to be worth extraordinarily large amounts of money,. In fact, some may even fall in value, but isn’t that the point? We buy and collect items because we want to and with the slightest sliver of hope that they will be worth more in the future. NFT’s are no different, some items will fall out of fashion and become worth significantly less, but others may become iconic.

Internet pop culture might be exactly why these items are selling for high prices. Yes buying the a tweet might not appeal to you (neither might stamp collecting) but that doesn’t mean it isn’t popular. The internet is a modern phenomenon full of iconic images, videos, social media posts that deserve their place in the history books. So just imagine the significance of owning the first ever tweet, Donald Trumps last tweet, the white and gold dress photo, the first ever YouTube video, or even the video of the baby yelling ‘my poop is coming’. Iconic.

Thankyou for reading, if you enjoyed this blog you might like:

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Published by James Oliver

The Tulip Teacher Discussing all things business, economics and education

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