NFTs are taking the art world by the storm. But what are they, and why are they selling for millions?
Most people know what cryptos are – they are digital tokens stored on the blockchain. NFTs are tokens as well. In fact, NFT stands for “non-fungible token.”
“Fungible” simply means interchangeable. Bitcoins, for example, are fungible. Each Bitcoin is the same as any other Bitcoin. Currencies, crypto, gold and silver are all fungible.
NFTs, like the same suggests, are not – they are unique digital tokens, and they have a wide variety of uses. Critically, they help users prove ownership of an asset.
So far, they mostly found their use in the art world. NFTs can link to a piece of digital art, and attach information about ownership about it. They store this information on Ethereum or one of the other blockchain networks. This is critically important, as blockchain ledgers are virtually unchangeable, and therefore unforgeable.
Owners of NFTs can trade them. In fact, NFTs could have remained a niche topic, if it wasn’t for the staggering prices some of them get.
For example, Digital artist Mike Winkelmann, known as Beeple, sold one for $69 million. The piece in question is Everydays: The First 5000 Days. It is a collage of 5000 images by the same author.
Christie's is proud to offer "Everydays – The First 5000 Days" by @beeple as the first purely digital work of art ever offered by a major auction house. Bidding will be open from Feb 25-Mar 11.
— Christie's (@ChristiesInc) February 16, 2021
Due to their potential uses and the craze surrounding them, corporations have jumped on the trend. Both tech companies and retail giants saw the enormous potential in NFTs. And so have celebrities, including Paris Hilton and Snoop Dogg.
Punks, Apes and ‘Degenerates’
If you know anything about NFTs, you have probably seen that they tend to have something to do with apes. There’s a reason for that.
Any unique token on the blockchain can be an NFT. However, “avatar NFTs” have received the most attention. These are the NFTs that users can put on their social media pages, like profile pictures.
Most are procedurally generated, in series of about 10,000. Some of the most popular ones are CryptoPunks and Bored Apes – and they sell for millions.
For example, the average CryptoPunk will go for about $300,000. Rare ones sell for millions.
y'all said return to monke and look where the hell that got us pic.twitter.com/1jCydcsxbd
— Charlie (@Charlie_Eevee) November 28, 2021
Crypto collectibles tend to have a particular aesthetic. Some even describe them as ugly. They definitely don’t appeal to everyone, and they shouldn’t.
However, they do appeal to the rebellious types that made their money in crypto or meme stocks. These “degenerates” or “apes” (both terms of endearment in r/WallStreetBets) are now buying NFTs.
That is why it’s not surprising that projects named “Bored Apes” or the “Degenerate Ape Academy” did very well.
CryptoPunks are a set of 10,000 pixel art characters created by @larvalabs in 2017.The sale of a non-fungible token from the famous collection caused surprises for its exorbitant valuation.
— Mucho Pixels (@muchopixels) November 23, 2021
Celebrities Jump On NFTs
Even celebrities have jumped on the trend. Many bought their own CryptoPunks – either as investment or for bragging rights.
For example, rapper Jay-Z bought his first CryptoPunk NFT in April, for $120,000. Tennis player Serena Williams and NFT player Odell Beckham have their own punks as well.
Some were more involved than others. Notable celebrities even started businesses around NFTs.
For example, influencer Logan Paul invests heavily in NFTs and has even launched projects of his own.
An unlikely NFT celebrity endorsement came from Paris Hilton. The hotel heiress and businesswoman launched her own NFT collection, featuring her dog Tinkerbell.
I love that the OG legend Tinkerbell Hilton will be forever memorialized in my first ever #NFT collection. 💕✨💓👸 🐕 I know she’s so excited to be in the metaverse! Art is forever & the piece that I got to create with @BlakeKathryn carries Tinkerbell’s #ICONIC legacy perfectly pic.twitter.com/DeYsx3jN3E
— Paris Hilton (@ParisHilton) April 19, 2021
However, probably the most surprising NFT celebrity NFT enthusiast is rapper Snoop Dog. He owns a huge collection of NFTs, including 9 CryptoPunks.
He recently launched a project with NFT artist Coldie titled Decentral Eyes Dogg. Even his new album, Algorithm, plays into the trend.
— Tommy Wilson (@tommy_wilson_) December 5, 2021
What is more, Snoop Dogg was an incognito NFT influencer. His alt-account, @CozomoMedici, managed to get a sizeable following even before he revealed it was his.
— Cozomo de’ Medici (@CozomoMedici) November 11, 2021
The enormous success of these projects invited thousands of copycats that tried to cash in on the trend.
That is why any prospective NFT investor needs to be careful. The fact is that most projects will lose money. According to a recent study, 75% of NFTs sell for an average price of $15. Meanwhile, just 1% sell for over $1,594.
Corporations Jump On NFTs
However, volatility isn’t discouraging the big players. The corporate giants are all jumping on the trend, seeing its enormous money-making potential.
Moreover, NBA launched “NBA Top Shot,” a licensed marketplace online On the other hand, Coca-Cola launched a charitable NFT auction. The proceeds all went to the Special Olympics. Even Budweiser released its own NFT collection.
NFT collectibles are still up for grabs on @opensea, and all proceeds benefit our longtime friend and partner @SpecialOlympics. #NFTCommunity #OpenSeaNFThttps://t.co/SIJ0HnNfdu pic.twitter.com/baCuBcnxKh
— Coca-Cola (@CocaCola) August 1, 2021
Not to be outdone, Pepsi released their own NFT collection. Corporations are trying really hard to fit in with the NFT crowd. They are even co-opting the language. Pepsi itself invited ridicule when it called Meta its “fren.”
Verified NFTs – Twitter, Discord
However, social media – including its Web3 versions – is probably the most exciting place for NFTs.
NFTs tap into the human desire for status, recognition and self-expression. That also works in the digital space.
Many companies already cash in on virtual goods. For example, Amazon’s streaming platform Twitch gets its funding exclusively from users supporting their creators.
Why do users give hundreds of dollars to their favorite streamers? Well, that’s simple: they get a badge if they do. This gives them recognition among their online community.
NFTs could do just that, but cross-platform. For example, a person could buy an avatar NFT and use it on Twitch, Youtube and Instagram. As companies start integrating NFTs, this would only add to their value.
Many social media companies are planning to do just that. Specifically, Twitter has unveiled a dev tool that would let users get a verification badge for their NFTs.
— Mada Aflak (@af_mada) September 29, 2021
Discord, a popular messaging and video chat app is planning to do the same. The platform would let users integrate their crypto wallets, and display their NFT as a profile picture. They would also get a badge of ownership.
This is huge. Self-expression is a big business, and it’s getting bigger. Right now, NFTs are just a small fraction of it. For example, NFTs are smaller than the global T-shirt market. The market cap of all NFTs is just $7 billion vs $10 Billion for custom T-shirts alone.
Moreover, T-shirts are just a small fraction of the whole market centered on collectibles and self-expression.
Into The Metaverse
But why should people buy something that they can just screenshot?
Well, for the same reason that people buy original art pieces. Perfectly convincing copies are out there, but people still pay hundreds of times more for originals.
Why buy something that’s just digital, and not even “real”?
For most people today, the digital experience is “real”. People already spend thousands of dollars on cosmetic items in video games. In fact, videogame cosmetic items, or “skins” have a combined value of about $40 billion!
As people spend more time online, they will also care more about how they present themselves online. Not to mention the effect the Metaverse will have on the NFT market.
However, NFT will face some setbacks. One of them is the leftist backlash against them. That backlash apparently made Discord delay its NFT integration.
Political Attacks On NFTs
Politically-speaking, NFTS have run into trouble. One of the reasons is their potential impact on the environment.
Back in March, Bill Gates warned about Bitcoin contributing to global warming. Now, NFTs are getting the same treatment.
I kindly request that you to not engage in the NFT scene. I want an app that does not enable a money laundering scheme that is also proven to contribute to climate change. The last thing that I want as a user of your product is to hurt the enviorment, which I care about deeply.
— ⊗.:𝒟𝐸𝒜𝒟 𝐻𝒜𝒱𝐸𝒩:.⊗ (@Ghost_Manul) November 9, 2021
But how can digital art contribute to global warming? Well, this is because most NFTs work on the Ethereum blockchain, which works on a proof of work blockchain. This makes its energy demands notoriously high, and also bids up costs. Minting just one NFT on Ethereum, for example, will cost an average of $50.
However, that’s not true for all NFTs. Increasingly, artists are moving to networks like Solana and Polygon. As opposed to Ethereum, they work on a proof of stake blockchain, which gets rid of the energy issue entirely.
Meanwhile, energy use is not the only criticism of NFTs. Some see them as a product of capitalistic greed.
In a piece called ‘NFTs are Killing Creativity,’ a critic called NFTs “a bastardized extension of the neoliberal worldview”. They are symptomatic of “increasing the reach of marketization into ever-deeper recesses of everyday life.”
No matter what opinion anyone has on NFTs, it is unlikely that they are going away. NFTs will boom and fizzle out with the trends – but the tech that powers them is here to stay. In fact, it’s just getting started.