There’s a pretty good chance you hadn’t heard the words “NFT”, “Beeple” and “Crypto Art” before 2021 began. I hadn’t. So when a digital artwork by the artist Beeple sold for the equivalent of $69 million about a month ago, it really set off my bullshit alarm bells and I couldn’t help but go down the rabbit hole of NFTs to try and understand what they were. Here’s what I found.
Many of you may be familiar with cryptocurrency but, for those who aren’t, it’s a form of digital currency where, among other things, everyone’s holdings and transactions are logged on a distributed digital ledger known as the blockchain.
Think of a traditional ledger or account book, or even an excel sheet, where accounts and transactions are entered in a single place. A blockchain is a distributed version of it, where the whole ledger is hosted across a vast network of systems and everyone can see and verify the transactions being recorded in the ledger. To give a crude analogy, think of it as what Wikipedia is to traditional encyclopedias.
NFTs, or non-fungible tokens, use this same blockchain technology to sell “tokens” of ownership to buyers, over digital artworks. To draw a personal analogy here, I’m a photographer and sell prints of my photos. Usually I do a limited run of prints, for each image, and I sign and number each of these prints, so that the person buying the print knows that they are buying one of a scarce number of printed manifestations of the artwork that I have created.
Now, of course, I could simply claim to be printing only a limited number while actually printing as many as I want and my buyers would be none the wiser. They have to trust me, my numbering and my signature. An NFT is a digital version of the print that I create, except that its uniqueness and scarcity are verified by the fact that it is logged on a blockchain. So they don’t have to trust the artist, the system itself verifies this aspect.
People who buy my prints, however, do get a nice physical copy of the photo that they can hold in their hands, and put in a frame and show off on their wall, if they so wish. So what do people who buy NFTs get? This is where things get murky. Apart from this token, and a digital copy of the artwork (in jpeg, or whatever format it’s created in), the buyer really gets nothing much. What they mainly get is the fact that they are its owner. This fact is unique, it’s verifiable, it’s show-off-able, it can be sold to someone else, but that’s really about the size of it.
Many wrongly assume that buying the NFT gets the buyer some rights to the artwork, but this is false. Much like the people who buy prints of my photographs, all they get is ownership of that specific manifestation of the artwork – the token and not any further rights to it. The creator of the artwork can still sell other manifestations of that artwork, or adapt the artwork and so on. The buyer’s right is limited to displaying and further selling that particular manifestation, whether it is a photo print, or an NFT.
So why did Beeple’s artwork sell for $69 million? The answer goes to the heart of the crypto revolution. While cryptocurrencies came about with many ostensibly noble objectives, including freeing currency from state control and making it accessible to everyone, and protecting people’s privacy, what has primarily driven the craze for cryptocurrency is the potential for speculative gains.
While you can use cryptocurrency to buy drugs on the dark web, or pay for a still minuscule selection of goods and services (including most recently a Tesla car), if you ask someone who’s “into crypto” they’re mostly in it for the potential appreciation of the value of the currency they hold.
Like real estate sharks who buy houses not to live in but to flip for higher prices later, many crypto traders are holding crypto not to pay for things but to gamble on its price appreciating, with a confidence that, much like real estate in India, it will keep going up indefinitely, and that the bubble will not burst.
Unlike real estate, however, the intrinsic value of crypto is more dubious. What attracts hordes to “invest” in it is precisely what goes against one of the fundamental attributes of a currency, which is that it is a store of value.
The value of crypto is so volatile and so dependent on speculation that it is always unclear how much it will be worth a few days from now. On March 13, Bitcoin, the most famous cryptocurrency around, was worth $61,000, on March 25, it was worth $51,000, today it is worth $58,000.
If you bought a car from me and paid me using Bitcoin on March 13, I’d feel like a fool on March 25, but cheer up a little by today. If you paid using rupees on March 13, my emotions would be largely unaffected over the ensuing weeks, because the value of the money you paid hasn’t swung up and down anywhere near as dramatically.
But if you were holding cryptocurrencies to speculate, then it makes perfect sense to ride out these ups and downs in the hope of a long-term payout. This is the same philosophy that governs the buying and selling of NFTs. The intrinsic value of the token is non-existent or notional, depending on how you look at it, but the potential speculative value is what is driving the craze.
Just the same way you buy an ugly painting from a famous artist as an investment, you buy an NFT, not because it arouses any feelings of love or wonder or beauty, but because it gives you a certain pride of ownership, and the potential that the ownership can be sold for a premium later.
The actual image or tweet or video that you own the token for is equally accessible to anyone else, so you don’t really get special access to whatever love or wonder or beauty the work evokes, all you really get is bragging rights and the prospect of future profit – as far removed from the essence of art as you can possibly get.
As a crypto-sceptic I fully expect the crypto bubble to burst some time sooner or later, and whether consequently or independently, I also expect this NFT bubble to burst as well, revealing it to be not more than a lot of hot air and hype. But in the meantime if you want to gamble a little bit and book some profit while also telling yourself you’re supporting “art”, knock yourself out.
Contact the author on Twitter @vinayaravind.