A month or so back, we at MacguyverTech wrote an article about explaining cryptocurrency to your family during the holidays. We used a fictional “Uncle Fred” as an antagonist, who was adamant that Bitcoin was worthless. This imaginary scenario culminated in Aunt Marge’s Jell-O salad being ruined due to a gold standard argument. Well, if Uncle Fred hated Bitcoin, he’s really not going to like NFTs.
So what are NFTs, anyway?
NFT stands for Non-Fungible Token, which, of course, leads to the question, “What the heck does fungible mean?” When an item is fungible, it basically means that said item can be exchanged for another item of the same type. So when an item is non-fungible, particularly for the purposes of this article, it cannot be exchanged for another item of the same type…because it’s unique.
According to Merriam-Webster, Non-Fungible Tokens (NFTs) are defined as “a unique digital identifier that cannot be copied, substituted, or subdivided, that is recorded in a blockchain, and that is used to certify authenticity and ownership (as of a specific digital asset and specific rights relating to it).”
In other words, an NFT is a digital original. And in the digital world of blockchain, these digital originals currently are most often digital art.
Wait. So they own the original of this, and nobody else can ever look at it?
Well, not exactly. They own the original, or at least a limited run of the original, but others can usually look at it online, or in a screen grab. But, yes, the original of that item or the limited run of that item belongs to them, and can’t be duplicated.
So why would someone want the original of something that someone else can basically replicate and look at?
This is an excellent question, and here’s where this gets interesting. It seems crazy, right? I mean, why would someone do that? It’s almost as silly as someone paying $450mm for an original Leonardo da Vinci painting. Why would someone do that when they could buy a print for literally one-millionth of the price?
The point is, original art will always have a market, whether it’s on canvas, in sculpture, or on blockchain. Think I’m wrong? According to Artnet.com, there were $300 million in art sales in the first two months of 2021 alone. In March, a digital artist named Beeple sold an original NFT for 69 million dollars.
So is this exclusively a rich person’s game, just like physical art collecting?
Again, not exactly. The market is still finding its foothold, and plenty of people are scrambling to be the next Beeple. As the market saturates, the demand will drop. Highly-coveted artists will sell their works for more, and there will be plenty of galleries for artists who are trying to become coveted.
In other words, NFTs aren’t a revolution.
Okay, got it. So this is just a fad or a trend?
It’s definitely not a fad. Pet rocks were a fad. One could argue that this is a trend, and there are plenty of entities exploring the trend. Remember, anything can be digitized and sold as an NFT. Mattel, Taco Bell, Twitter, Campbell’s and Funko are now producing NFTs for sale. McDonald’s even created a McRib NFT. We’re not kidding.
If anything, NFTs are presently best-defined as an evolution of art. And that market, while vast, is incredibly volatile. Unlike a lot of cryptocurrencies, this market’s future is a bit more uncertain. While we might recommend that Uncle Fred invest some spare income in Bitcoin, NFTs are a little more unstable for the immediate future.
In the end, the art market is possibly the most pure example of supply and demand in capitalism. It is quite literally worth exactly as much as someone is willing to pay for it, and nothing more.
The same can be said for NFTs. So as always, use your head, don’t invest anything more than you can afford to lose, and be careful out there.