A collaboration between anonymous digital artist Pak and digital currency marketplace Nifty Gateway has led to Sotheby’s adding NFTs (non-fungible tokens) to its portfolio.
In a sale of more than US$17 million (£12 million), the auction house sold The Fungible Collection, an innovative collection of digital art that redefined value.
Bids of well over US$1 million were placed on some works, including the monochrome 3D construction “The Switch”, which will be changed by the artist at some unspecified time.
The NFT industry is all about tokenised assets that traders can trade on a blockchain, the technology behind digital currencies like bitcoin and Ethereum. Unlike cryptocurrencies, NFTs are not fungible, which means they cannot be exchanged like for like with other NFTs.
For those who are not able to afford the US$68 million price tag, NFTs can be used for trading baseball cards as well as computer gaming items such as swords and avatar skin.
Unlike other recent price spikes such as GameStop and Dogecoin, excitement around NFTs feeds a narrative similar to demand for stimulus cheques and lockdown boredom in the US, as well as low interest rates and lockdown boredom.
The NFTs are built by celebrities like music star Grimes and YouTuber Logan Paul. Even Vignesh Sundaresan, the financier who purchased Beeple’s record-breaking artwork, describes the investment as “far riskier than crypto”.
History warns, however, that NFTs can be dismissed as a passing fad, as important technological innovations often emerge once the hype has died down. This attitude was taken during the dotcom bubble of the late 1990s, as well as when bitcoin and Amazon returned to prominence.
In fact, prices for NFTs are well below their highs, where they have dropped 70% since February. This may not be a burst bubble, but a “weeding out” of gimmick tokens after the initial hype has worn off.
During the hype cycle of a new technology, which was developed by Gartner, we may be emerging from the “peak of inflated expectations” to a “plateau of productivity” like that reached by Amazon.
Schumpeter viewed capitalism as the continual replacement of old projects with new ones, as the new and innovative replace the old ones – he described this as “creative destruction”.
Therefore, NFTs are the newcomers that are challenging how we perceive and register ownership of assets, and this tension between innovation and familiarity contributes to the skepticism surrounding such new technologies.
Artists can use NFTs to make sure any proceeds increase in value, so that they can benefit if their work increases in value. Football teams have used similar clauses for years, but NFTs remove the need to track an asset’s progress and enforce such entitlements on individual sales.
When working with new art platforms like Niio Art, customers can prove that they own digital art very easily. When borrowing or purchasing art, they can display the original piece with confidence because of the NFT and blockchain, which guarantee ownership authenticity.
The possibility of providing special benefits to fans with NFTs is also exciting for musicians. Half to 80% of sports memorabilia is believed to be fake, and putting these items into NFTs with a fully traceable transaction history could solve this issue.
NFTs, however, go far beyond these fields by completely redefining what ownership means. Normally, transactions where ownership changes hands rely on a system of middlemen to establish trust, exchange contracts, and make sure money moves hands.
Future transactions will not require lawyers and escrow accounts as blockchain records are secure and information cannot be changed. Smart contracts can replace lawyers and escrow accounts and automatically ensure money transfers and agreements are understood. NFTs translate assets into tokens so they can be tracked within this system.
Among other areas, NFTs have the potential to significantly change property and vehicle markets. In addition, NFTs could be part of the solution to land ownership issues. Only 30% of the world’s population has legal ownership registered in their names. Financial access is often more difficult for those without clearly defined rights. In addition, if we spend more time in virtual worlds in the future, our purchases there may also be traded as non-financial transfers.
Decentralized economies will bring more than we can imagine and we can expect a more open, transparent, and direct kind of market than we are used to. Those who think that this is only a flash in the pan will not be prepared when it arrives.