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You might have noticed this year that NFTs have blown up, and prices gone through the roof. The big stories are well documented: the most expensive piece going for $69.3 million. 8-bit art regularly changing hands for life-changing sums in ETH. Auctions at Christie’s and Sotheby’s, and big names from Banksy to, most recently, Jimmy Kimmel, jumping on board.
And yet, as all this goes on, there’s a lot of head-scratching in general about what exactly an NFT is, with some people drawing the conclusion that a conspicuous number of crypto-rich eccentrics have suddenly gone mad and started throwing millions of dollars at JPEGs.
This is only partly true: they’re actually throwing millions of dollars at a digital token that links to a JPEG, and they’re not just crypto rich, they’re real life rich now too.
But that’s not the whole picture either. Because while it’s correct that most of the NFTs you’ve read about do connect you to a hosted JPEG over which you have proof of ownership–and admittedly, that sounds a little strange–there is far more to NFTs than just that, as a whole new online/offline integrated reality might be about to open up (call it the metaverse, if you like), with NFTs as an integral component.
Before we tackle any dazzling new frontiers, though, let’s get to grips with the JPEGs. For accuracy, it should be noted that while many NFTs are tokens proving ownership of a piece of work stored off-chain, most likely on the IPFS, that’s not always the case, and some have their content stored on-chain, that is, actually coded on to the blockchain itself.
But anyway, to get to the point, the worlds of art and design, and also of programming and computer science, are and always have been a little out-there, doing things that don’t immediately resonate with the unimpressed masses, but which catch on later. And if you really stop and think about it, those JPEGs start to make sense.
After all, art is collectible, some are expensive, and there are pieces that are so reliably sought after that they can be used as stores of value. But that desirability and value rely on authenticity and scarcity; your item must be the real thing, and its supply must be limited, often to just one.
But in that case, then digital artists get a raw deal, since anything that is digital can be copied endlessly and with effectively zero effort or expense, and with no variation from the original. And to make matters worse, the digital arena is constantly expanding, and increasing amounts of creative effort are primarily expressed digitally and online, where it can be freely copied.
Too bad, then, for digital artists? Yes, maybe. Or at least, it was until NFTs came along.
An NFT identifies precisely and without doubt that there is one verified original piece of work–a genesis item–while any copies are, well, copies. What the NFT has created, essentially, is scarcity in a medium–online digital art–where previously, scarcity couldn’t easily exist.
With digital art and NFTs there can be infinite flawless copies, but there can be zero plausible fakes.
Basically, you can’t make a saleable knock-off because you can’t beat the blockchain, which stores provenance immutably. Saying you can right-click and save an NFT makes about as much sense as me saying I can right-click and save your bitcoin, in terms of the value and plausibility our facsimiles will retain.
The NFT is your receipt and a token of ownership, and, through being these things, it’s a creator of value.
But anyway, if, rather than a curator, you happen to be a diamond-handed investor or a trader flipping NFTs for quick gains, then none of this matters. All that’s important to you, in that case, is that you can buy these blockchain-based receipts, and that there’s a frothy, turbulent market doing a good trade in blockchain-based receipts. And, of course, that you have the ability to read the dynamics of that market and know when to get in and out.
You might then want to take into consideration the macro view of where the world is heading. You can’t avoid talk of the metaverse right now, and that a significant number of people with crypto to throw around are spending a lot of time online, flexing their digital assets.
And what’s more, generations growing up now see digital trade, transactions and ownership as entirely natural, and have no great love for traditional financial institutions and means of funding, in which they have little stake and no say over the rules.
By contrast, in the world of NFTs, DeFi, and crypto in general, these people can, if they choose to get involved, play a role in shaping the rules because very few rules currently exist.
And keep in mind also that JPEGs and digital art are just the opening salvo. NFTs bring to the table secure, digital ownership, at a time when the whole world is hurtling, like it or not, towards new means of transacting and a blurring of the lines between digital and physical wealth.
This is not to say that there are no bubbles, bulls and bears, and that some, perhaps much, of the exuberance we’re currently witnessing will not evaporate when a heavy correction comes along.
But consider that many of the key players driving what’s happening now were doing this for fun when there was no hype at all, understand the tech better than anyone else, and have built ambitious communities who are richer now than they were a few months ago. The carousel will slow down at some point, but zoom out, and it’s in motion for the long term.