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NFTs are Non-Fungible Tokens. So what the heck does that mean? Well, first of all NFTs are a digital thing. This is not something you can hold in your hand, per se. Second, NFTs are built with a blockchain such as Ethereum (here). You’ve probably heard of Ethereum because they have a cryptocurrency too, called Ether (aka ETH, like USD). Simply put, they use their blockchain code/tech to make a currency. And they use their blockchain code to make, well, tons of things you can make with code – like computer apps! A dope thing about it all though is these apps are decentralized – more on that in another article!) A blockchain (here) is a digital technology that creates a public record. That public record is designed to be immutable (unchangeable) and secure. Additionally, security of the blockchain is ensured by making the blockchain public. This is contrary to the way humans have kept things safe in the past. Previously, if we had something we wanted secure we hid it. And you had to have trust the one hiding your item. Perhaps you hide your money under your mattress, perhaps you hide it in a bank. But what if you woke up, checked your bank account, and it was empty? What would you do? How would you prove you had money in the account? Let’s say $1-million disappeared. You could take your paper statements in. And what if they said, “Anyone could print a phony paper statement. Get lost.” Do you feel confident you could convince the world you had money in that account and compel the bank to restore it? It is a scary thought, and it has actually happened in various ways here, here, here, and here. Each of these is a bit of a different twist on money disappearing, but they all rely on the bank to sort it out.
On the blockchain though things are different. Since the blockchain is public record it is very easy to point out “Hey, look everyone, I own that and you can see the record, the proof of the transaction, right here, in plain view.” The blockchain is not the first to do this. The deed to your house is recorded at the county in a book so that it is public record. That publicness is a safeguard.
Blockchain also uses cryptography to protect itself. This gets technical, but each record (let’s say a financial transaction) is a block and each block gets linked via cryptography (read more here and learn more here). Linked block after linked block makes a chain, ala “blockchain.” It is important to note that each block is also timestamped and “hashed” with the previous block. Both of these details increase integrity.
NFTs are not the only things being built with blockchains. Cryptocurrencies (learn more here), smart contracts (learn more here and vet the people that build them, like here), domain names (here), games (here), and so on and so on. The entire next evolution of the internet is called Web3 and is built with blockchain (read more here).
So I think we’ve established the basics of the blockchain technology and the multitude of uses already in use and coming soon to a digital world near you. But let’s get back to NFTs.
Bitcoin (BTC) and Ether and countless other cryptocurrencies are fungible. Fungible is not a new techy term. In fact, it is a key element of the definition of money. Investopedia defines fungible this way:
“Fungibility is the ability of a good or asset to be interchanged with other individual goods or assets of the same type. Fungible assets simplify the exchange and trade processes, as fungibility implies equal value between the assets.”
With money we like fungibility. We like that a $1 bill in my pocket is like the $1 bill in your pocket. We like it because when we trade it, we feel like we know what we got exactly. The bills are a like kind. That is one of the things that gives money its value.
With art, however, we do not like fungibility. Posters of great artwork are fungible. You can trade a poster of the Mona Lisa for another poster of the Mona Lisa. But why? It’s a poster! Why trade them? Fungibility in the case of art isn’t useful. In the case of art being non-fungible is of great value. What is fascinating, and gives it its power, is its uniqueness. I don’t care if you’re YouTube artist The Kinjaz (here) or a digital painter Tyler Hobbs and his Fidenza work (here), what speaks to people artistically is uniqueness. Maybe it’s an uncanny ability to paint or sculpt humans accurately like Michelangelo – that’s unique. Or maybe it’s a provocative take on painting like Jackson Pollock – that’s unique. Or maybe you form a new sound that speaks to people like Chuck Berry – that’s unique too. But these are all unique in their idea. Another uniqueness in art is the one-of-one piece – an original. Some of the aforementioned artists touch both types of unique. There is only one David. But there are countless Chuck Berry albums. So Michelangelo’s David is both original and unique/one-of-one, while Chuck Berry’s recordings are only original. Perhaps you find an autographed Chuck Berry vinyl record though! Now, you have a one-of-one, unique piece. There are no others quite like it. So we see that with art we can like the originality of it, the uniqueness of it, or both! NFTs grab that and pull it into the digital realm. When we see a Grimes video (here, here, and here) there’s just nothing like that. This is a matter of opinion of course, but so is the David. Art is subjective. That Grimes video (art) is an NFT. It is digital art, that is written/coded with Ethereum. So it now has the originality art lovers crave plus the one-of-one/limited edition art lovers crave. Due to the immutability of the blockchain the authenticity of her piece is verifiable. Another neat thing about NFTs is that an artist could simple digitally sign one of his/her pieces, like when Chuck Berry signed that vinyl record for you. That now makes something perhaps widespread (like a record) one-of-one! Art NFTs have gone from CryptoPunks (here) to CryptoKitties (here) to Jay Z’s new “recontextualized” album art of his debut album “Reasonable Doubt,” auctioned off by Sotheby’s (here). The list is already long and exploding up and outwards. Nike just partnered with Roblox to create NIKELAND (here) and is hiring digital designers they call Virtual Material Designers (here). Expect Nike to design NFTs too (here). So what does that mean? Well, you take your Jordan 1 Low Gold Toe’s with you when you travel, no? Soon you can buy digital Nikes and digitally take them from place to place too. Want your Minecraft avatar looking fresh? Drop the Nike NFT shoes on him/her. The list goes on and on. Imagine this: Augmented Reality glasses that display your actual shoes as digital shoes – your favorite NFT shoes. When you or someone else looks at your shoes through the glasses, there are your NFT kicks. Now you can wear those knock-off Shaq-versions in your analog life and the Jordan-versions in your digital life! Just kidding, I love Shaq… and Jordan.
Consider this too. In the “detached” NFT-less world how do Creatives get paid? Often, they get paid once. They get paid at the original sale of their piece. Jackson Pollock may have been paid $50,000 for a piece that is now valued at $5-million! He took a fraction of what eventually came to be known as extraordinary. And it’s his piece! Look, think of that what you will. But with NFTs Creatives have more power. How so? Because with the blockchain a smart contract can be embedded that enables the artist to take 10% (or whatever %) of each transaction. Remember, it’s code. You can write what you want and attach/embed it with the art. The digital reach alone that Creatives can have far outstretches their analog reach! This is a game changer. And I guarantee there are more game changing aspects of this too that are to come.
As an investment, since there is so little data surrounding art NFTs, I would still classify them as speculative. This is not an investing kiss of death though. Frankly, I think 5% of someone’s wealth should be in speculative investments. Or at least 5% of one’s investable money. But since we cannot analyze years of performance, like we can with art paintings or stocks, how do we make intelligent investing decisions on the pieces? It’s tough. Perhaps it’s impossible. I will say this though: at certain prices, with certain artists, I would personally pull the trigger. Why? Because I think you can calculate the risk-reward of $3500 for a Grimes NFT video, when you couple her as an artist and the trajectory of the blockchain at large. It’s similar to growth investing in that way. You see that the work being done at the company-level (at the artist level) is good, and even industry leading, and you see that the runway for that type of work is long (NFTs). So you’re buying a best of class (Grimes) sprinting down a highway you know connects to the future (blockchain). I’m not spending $1-million+ though! To me that departs from what I can calculate. And it far exceeds how much I want invested in a single place that I am still learning about and is still taking shape.
So why crypto and art NFTs as frontrunners for blockchain? Because they are sexy. As Elon has shown us, as a public we generally don’t have enough interest in advancing technology until it’s cool. Elon could have made anything electric, but he picked cars. Cars are cool. People want cool cars. Therefore, people buy electric cars. Therefore, people are adopting new technologies. Heck, a lot of opposition to electric cars is deeply rooted in gassy muscle cars being cool. That vroom, vroom is cool. But ridiculously fast, cheap, and smart cars is hard to ignore – and it is being adopted. That adoption paves the way for those new technologies to imbue our lives when we would have otherwise rejected it, or put it into a tight corner (solar panels are not new technology). Until we see it as cool, it is a massive uphill climb for technologists and governments. Cool moves things and gets them adopted. Cars are cool; money is cool; art is cool. Blockchain is being adopted.
I love both worlds. I love the vroom, vroom of a classic sports car convertible, Virgil Abloh’s art (RIP), and cash! That doesn’t mean I don’t (or can’t) love 0-60 in a silent 3 seconds with a Model 3, art NFTs, and crypto! They are not mutually exclusive, and that will become more obvious as VR and AR are integrated into our lives.
At the end of the day, yes inherent goodness or inherent problems exist within cash or crypto, exist within NFTs or art dealers, et cetera. We get to choose how we participate though. And the coming onslaught of digital technology and capability is yet another opportunity to choose well. Frankly, I am extremely excited about the continued development of the Information Age. The digitization of the Industrial Age plus the new frontiers we never imagined, such as blockchain, are upon us. Let’s get it.
P.S. There’s a great long-form podcast about NFTs (and Web3) here. And others have described NFTs here, here, and here. A currently-reputable NFT broker is here, but like all investing beware and do your due diligence. And another is here. And the Grimes piece/s as they move hands here.
(Grimes image from Niftygateway.com)
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