Nathan Knight '22 is a staff writer for The Catalyst.
Are NFTs worth anything?
Everything you wanted to know (or didn't want to know) about non-fungible tokens
March 10, 2022
$69 million for art you can only see through a computer. That’s what Mike Winkelmann, a renowned digital artist known as Beeple, sold recently. His work is titled Everydays: The First 5000 Days, and it is one of many examples of a new phenomenon at the intersection of art and technology: NFTs.
In the past few months, NFTs have entered the RE community just as they’ve become a topic of discussion around the world. Some have started dabbling in them, either by making them or buying them; others struggle to understand them. Some believe NFTs have incredible artistic and investment value, while others believe NFTs are a worthless trend, destined to fizzle out.
Understanding non-fungible tokens (NFTs) requires understanding fungible tokens first. An example of a fungible token is money. Money has a set value in that every $20 bill is worth the same amount. Every $20 bill can buy the same exact things and can be broken up into different amounts, such as two $10 bills. Non-fungible tokens, however, do not have a set worth and cannot be broken up into smaller amounts that have the same lump value.
No one thing can be worth the Mona Lisa to every person the same way a $500 bike is worth 500 $1 bills to everyone. If the Mona Lisa were traded for other goods, one person might trade it for a Lamborghini while another might trade it for a Ransom Everglades T-shirt. Furthermore, there is no way to define the worth of the Mona Lisa by adding together things of less value. Simply put, NFTs are unique, non-reproducible objects.
The key complication, of course, is that they are also digital objects, which many struggle to understand because digital objects tend to be so easily reproducible. But the blockchain is what makes each NFT unique, thereby giving it value. In layman’s terms, the blockchain is like a secure diary of each NFT. When the NFT officially becomes an NFT, in a process known as minting (like coins), it gets its first diary entry. When it’s sold it gets its next diary entry, and so on. Basically, the blockchain has the entire history of the NFT on it, including who made it.
Creating an NFT involves a straightforward yet complex process. First, the artist creates a digital artwork which can be uploaded from a camera, Adobe Animate, etc. Then, they mint the artwork using blockchains such as Ethereum. Finally, they upload the NFT to a marketplace dedicated to NFTs. There are many minute details within and between these processes, but this is the simple outline.
If the process is so simple, why is there so much skepticism around the concept? Where many people see opportunities for progress with NFTs, others see opportunities for disaster. Mr. Matthew Stock, RE’s photography teacher and a professional artist who has started to explore minting his own NFTs, described this discord: “Anything could be an NFT,” he said. “That’s the beauty and challenge of this marketplace.”
The value and danger of the market right now derives from how abstract and new it is. Currently, much of the attention in the market is concentrated around major investors making headlines with eye-popping purchases, which causes others to jump on the bandwagon. Mr. Stock described NFTs as “trading cards and commodities. I think it’s also [about] bragging rights—It’s like, ‘Look at this! Look how much money I spent. Look how cool I am.’”
Nevertheless, some members of the RE community see the potential for strategic investment. Jan Trauer ’22 has just entered into the world of NFTs, and to him they are “a fun and innovative way of investing into the crypto blockchain, introducing a whole new industry that younger people are capitalizing on.”
And to many others, NFTs are more than a vehicle to make money. Mr. Stock believes that through NFTs, digital artists now have a viable marketplace, and small artists can expand outside of their local art scene.
Perhaps the most important impact of NFTs is that they are one of the first examples of blockchain technology being implemented into consumer society. Blockchain has long been the backbone of cryptocurrencies themselves, but with NFTs, it supports and decentralizes the exchange of goods. To Dr. Brandon King, an economics teacher at RE, the benefits are clear. “With the blockchain, we can keep track of who sold what to who, who now possesses what. We can keep track all of that, cutting out the middleman of a bank.”
Of course, with these benefits come several downsides. The NFT world has struggled thus far to answer one basic question: What’s the point of having one?
“What use do the average Joe, Jane or non-binary person have for them right now?” said Dr. King. “I’m not saying they have none, but do they have the kind of use where demand is going to skyrocket amongst them for NFT’s or cryptocurrency? I don’t see that at the moment. You know, once you dip below a certain tax bracket, how many people are actually going to have any sort of practical use for this thing?”
In itself, money doesn’t have any use value either—it’s just paper. The governments of the world decide that money has exchange value, which gives it a purpose. NFTs don’t have this kind of protection from a large entity. They’re only protected by the many people who see their value. So, if NFTs really are just a trend, they are in danger of becoming worthless if many of the participants in the market drop out.
From Mr. Stock’s perspective, however, this lack of an established value is part of what makes NFTs exciting. “Cryptocurrency does not feel like real money,” he explained. “You exchange real money for a token to buy something that doesn’t exist in the real world. I think they’re like game tickets at Chuck E. Cheese. You’ve got these little, fun, colorful things you can just exchange for whatever you want. So, I think that’s part of it too. It doesn’t feel real. It has fun names like Polygon or Dogecoin, and I think people don’t equate that with Euros or Dollars.”
Nevertheless, for the market to be successful, Mr. Stock thinks “there has to be this groundswell of collective cultural understanding of what it means. And we are absolutely not there yet. It’s just this hot trendy thing.”
Currently, Mr. Stock finds it easier and more cost-effective to sell his photos on websites rather than as NFTs. He currently sells his photos as prints online, avoiding the complexities of the minting process. Having had his work reproduced without his permission in the past, he is intrigued by the idea of definitively establishing the ownership of digital images he creates. But he is also concerned about the lack of regulation of any kind governing NFTs. “The legality, copyright, ownership, regulation of the NFT marketplace right now is the Wild West. The laws don’t exist,” he said.
In one possible future, NFTs become everyday commodities as more and more people slip into a half-virtual reality. In a different future, historians look back at NFTs and wonder why so many people decided it would be a good idea. NFTs could be the next big thing or the next market crash. As Sophocles said, “Nothing vast enters the life of mortals without a curse.”