Non-fungible tokens (or NFTs) may be the solution to valuing digital art. Fungibility is the quality of being exchangeable. For example, physical currency or stocks are almost perfectly fungible as they can be exchanged for one another, whereas a piece of art or a house cannot be exchanged for another, as they each have a unique value.
NFTs are virtual certificates of authenticity which are used to track ownership of unique items such as works of art. They are stored in digital ledgers called blockchains, which are verified by a decentralised peer-to-peer system. When something is bought using a digital currency (more often than not a currency called ‘Ethereum’ in the case of NFTs), this is recorded in the ledger, along with data about prior ownership. This makes it extremely difficult to ‘cheat the system’, and so acts as a verification of purchase.
NFTs can be used for physical and digital assets, with paintings by avant-garde painter Baranoff-Rossine being sold on the online marketplace ‘Mintable’. On the other hand, digital art by the artist Beeple has recently been sold at Christie’s for a whopping $69 million, the largest NFT sale to date.
Valuing digital art may seem strange as it seems infinitely replicable and can be shared with the click of a button, but it functions similarly to valuing real-world art; in the same way that buying a poster of the Mona Lisa is different from the real thing, digital art can be sold as unique, original assets when tied to a NFT.
An even newer application of NFTs is their solitary sale without an underlying asset. In a recent auction, a NFT created for the culturally iconic GIF ‘Nyan Cat’ was sold for just under 300 Ethereum, or $590,000. This NFT does not however give the anonymous buyer the rights to distribute, copyright or otherwise monetise the GIF. It simply acts as a unique representation of a piece of internet history, created by the GIF author and validated by the blockchain.
This may seem like an even greater waste of money than digital art, but it also has physical equivalents. For example, a baseball card does not give you licensing rights to an athlete, or any other physical asset, it simply acts as a representation of a player. Playing cards have had a lucrative market for years now, with individual cards selling for millions. The cards only have value because we agree that they do, and NFTs act in a similar manner.
NFTs are simply the natural, digital evolution of physical collectors’ items, except they have even greater scope. First, while there may be a handful of million-dollar baseball cards out in the world, NFTs can be one of a kind. Further, any individual has the capability to create a NFT.
A musician could, for example, create a NFT for their song, and sell that as the original version. This can only have value if there is a market for it. If the same musician created 20 NFTs for the same song, you can be sure that it would not hold the same value. One real example of this would be the sale of the first tweet by Jack Dorsey - the CEO of Twitter – for $2.9 million. Clearly, this could be a lucrative opportunity for celebrities worldwide.
Thus NFTs could serve to transform the world of digital art. They provide a way for artists to monetise their creations by producing verifiable originals, which can be traded and auctioned like physical works. They can also serve as independent representations of pretty much anything, assuming that there is a market for it. Whether there is a viable future for NFTs in the fine-art or collectibles world is hard to say, but in the words of Warren Buffett, ‘Never invest in something you don’t understand’.