Fun With Non-Fungibles
Fun With Non-Fungibles
An intro to NFT insanity
The future of investing, egregious art scam, or bizarre fad — whatever you call them, NFTs, or non-fungible tokens, have made their way into the cultural zeitgeist.
Unlike cryptocurrencies (bitcoin, Ethereum, etc.) and traditional currencies, NFTs aren’t fungible. If you have a dollar and you trade it for another dollar, there’s been no change in value. This is fungibility. Each NFT, though, is unique and possesses unique value. There are no perfect one-to-one trades in the NFT world.
On June 10, 2021, CryptoPunk #7523 (pictured right) was entered and sold through a Sotheby’s auction. Of its ten thousand CryptoPunk brothers and sisters, this beanie and mask wearing extraterrestrial is the rarest. A total of nine CryptoPunk aliens exist, differentiated from the rest of the programmatically generated punks by their blue skin tone. Of those nine aliens, #7523 alone bears the coveted surgical mask accessory. The NFT’s eventual sale price? $11,745,000. If, in this moment, you feel an incontrovertible, gut-wobbling certainty that the world has gone mad, you’re not alone, but you may not be quite right either.
The CryptoPunks are just one example of the booming NFT market. From video clips to gifs to single-serve video games and albums, the definition of an NFT seems as arcane as the technology itself. NFTs, or non-fungible tokens, spawned from the same technology that brought us Bitcoin and Ethereum: blockchain. For those not in the know, blockchain technology is a distributed security technology that allows a ledger of transactions to be spread and verified across multiple networks at once.
Part One: Why is this picture of a blue man worth $11.75 million?
To illustrate: imagine you’ve just bought a new car. Your ownership of that new car now needs to be registered with the state. If someone walks up to the car and says, “Hey, this is my car now,” you’re covered. No one can take your car without it being described as theft. But what if the state implodes? What if the record of your registration is lost? What if you never registered the car at all? Do you really own the car?
Blockchain technology aims to solve these issues of shakable ownership. Imagine now that your car is on the blockchain, maybe your car is even an NFT. Once you pay for that car, the record of your transaction is registered not just with the state, but with every single user on that blockchain. If one of the systems holding the record of that transaction is lost, no big deal. That same record is duplicated on a hundred other systems. Now, your ownership is immutable.
NFT ownership works the same way. An image, like our masked E.T. friend #7523, has no inherent value. You didn’t become a multi-millionaire by opening this article and saving the above image. At the end of the day, it’s just image file, and not even a particularly impressive one. What does have value is the ownership of that image. Incontrovertible proof that you and you alone have the original, genuine article. $11.75 was not spent on a .jpeg. It was spent on a blockchain-tracked, infinitely verifiable, digital certificate of authenticity.
Part Two: I’m sold. Now how do I buy? … Or sell.
Compared to some traditional assets, getting into NFT trading is dead simple. To start, you’ll need to own some Ethereum. There are a lot of resources out there detailing how to get into various cryptocurrencies, but to simplify, you’ll need to use a crypto exchange to trade fiat currency (like the U.S. dollar) for coins. Popular exchanges like Coinbase, Kraken, or Gemini typically have the fewest barriers to entry. Once you’ve established yourself in the rough-and-tumble cryptospace, you’re well on your way.
NFTs are typically housed and traded on a few different marketplaces. The largest and most varied of these marketplaces is Opensea.io, home to some of the most popular NFT collections. Other sites like Axie Infinity and Larva Labs are home to more specialized collections. In any case, you’ll need to link your wallet to your chosen site. Once that done, it just becomes a matter of bidding. Many NFT collections are up for open bidding, and new collections are released every day. Unlike the somewhat impenetrable conventional art world, you don’t need to be anyone special to bid on NFT art. Winning that bid, though, may be a different case.
Pictured: Beeple’s “Everydays,” which sold at auction for $69.3 millionIf you’re a content creator, the process for minting and selling NFTs isn’t much more complicated. Bespoke sites like Mintable.app provide tools for artists looking to join the NFT world. As for the soaring prices and million-dollar price tags, those don’t come included.
Part Three: Are you sure this whole thing isn’t just a scam?
It’s no secret that the greater cryptospace is rife with scammery and a rapscallionous tinge, and that same tinge darkens the NFT world too. Bad actors have stolen millions in Ethereum from various projects. So called “rug pulls,” where a developer takes early investors’ money and vanishes without a trace, are a known and unfortunately common phenomenon.
As with any investment class, due diligence and scrutiny always pay the highest dividends. But even still, there will always be some faith required. But are all NFTs a scam? Is the very concept of paying millions of dollars to own a piece of art anyone can download a scam?
NFTs, at their core, are a microcosm of the evolving nature of capitalism. In today’s world, the concept of ownership, especially of art, has become murky. Any painting can be photographed and perfectly recreated in high definition, printed out, and hung on a dorm room wall. Any movie can be ripped and pirated by millions for ten cents worth of data. A piece of music can be streamed a billion times on a billion phones all at once. Technology has made uniquity obsolete and has made ownership a thing of the past. NFTs are a natural reaction to that, a regrasping of the concept of provable, tangible possession. But only if you believe in that sort of thing.
Are NFTs a scam? That is entirely up to you.
