Why NFTs Are the Real Thing
A terrific Thursday to you!
This week has been filled with meetings, assignments, and errands away from teaching. But it’s been busy as all hell.
Last night I was privileged to join a Clubhouse room with my friend Eamonn and his crypto buddies. While I can’t mention everything we talked about, I’d like to chat about NFTs.
The Joy of Learning
This old dog loves new tricks but is afraid of them.
One of the things I’ve learned about myself, which isn’t the most pleasant thing, is that I hesitate too much.
I hesitated with buying a house in London and buying Bitcoin. I call them my million-dollar mistake and my billion-dollar mistake, respectively.
Nevertheless, when something clicks, it’s a joy for me, and I go all in.
My friend and teaching mentor Simon always said that the one thing he looks for in every class is a student having an “a-ha moment.”
That’s when a kid “gets it.” It’s evidenced by a gasp and a widening of the eyes. It’s a joy for all teachers.
I can’t tell you what joy it is for me to have those moments as a student. As I’m teaching most of the time, those moments are few and far between for me.
But last night, I had about five of them.
The General Conversation
Eamonn invited me along with his fellow fund managers for a chinwag about all things crypto.
He and his friends certainly talk about the coins, but they’ve already moved on to other hot areas of crypto, most of which even bitcoin holders don’t know anything about.
I certainly didn’t.
While I can’t detail the entire conversation – I’m still trying to get my head around it – let me talk about one thing that surprised me: NFTs.
I made fun of NFTs, or non-fungible tokens, in my Rude’s Guide to the Crazy New World of Acronyms.
I defined them as “authenticity certificates for assets – their word, not mine – created out of thin air.”
I also wrote in this edition of the Rude:
A single-pixel NFT (non-fungible token) just sold for $1.7 million. And the hope is the value only goes up. For one pixel.
Beeple sold this at Christie’s for $69 million this past March. Really.
I don’t pretend to be an expert on NFTs, but I do know this was fueled with a truckload of leverage. The question is this: Who buys this stuff next? It all relies on The Greater Fool. And that Greater Fool has to be a lot richer than he used to be.
Granted, this is the most outrageous example of money going into digital assets, but it’s far from the only example. NFTs have taken the world by storm. Or at least the crypto world.
Well, I still don’t pretend to be an expert on NFTs. But I daresay I understand them far better after last night’s call.
Back to the Drawing Board
Ok, let me reiterate that NFT stands for non-fungible token.
Let’s define part of that by its opposite. Bitcoin is fungible. US dollars are fungible. When you exchange one dollar for another dollar, nothing has happened. They represent the exact same value.
When something’s non-fungible, it’s unique. Nothing else can replace it.
A token is a unit of data.
This unique unit of data is stored on a decentralized ledger called a blockchain. This certifies the unique unit of data as a digital asset that is unique and therefore not interchangeable.
Ay, Here’s the Rub
If you still don’t know why they’re so valuable, that’s totally fine!
Let me explain it to you like my new friends explained it to me. I’ll paraphrase and replicate the conversation for you.
“Sean, see that print of Vetruvian Man behind you in your office.”
“Ok, you obviously know there’s an original.”
“Of course. Leonardo da Vinci drew it, and it’s currently in the Gallerie dell’Accademia, in Venice, Italy.”
“Right. So the one in Venice is worth more than yours, right?”
“But they’re the same thing.”
“Well, mine’s a print of the original, not the original itself.”
“Right. So there can be many copies of something, but the original is always worth the most.”
That conversation led me to the conclusion that in the digital world, NFTs are the original.
The nearly limitless copies you can make from that NFT are worthless jpg files. JPG files are essentially the prints of the digital art world.
Suddenly, I understood how NFTs could be considered scarce, or even better, unique.
As the conversation went on, a few more things became apparent.
Potential Uses of NFTs
Digital Art is just one use of NFTs. There are many others. These are just the ones listed in Wikipedia:
- Generative Art
- Virtual Worlds
What’s more is that the originals are the NFTs, but others can still use the technology. Similar to buying the prints instead of the originals.
This is because of how ownership of NFTs does not confer copyright on the owner.
From the BBC:
But the art in question does not have a physical presence the same way a painting or sculpture does.
Instead, the token represents ownership – but not the work itself.
The token is recorded on a digital ledger, and can be re-sold. The artwork can go up or down in value, but the owner of the token never possesses the original digital file.
The next obvious question you have may be, “Well, if I don’t own the artwork itself, why would I want this type of NFT?”
That’s where generative art comes in.
According to NFT Evening, “Generative art is developed through creative coding. Essentially, the work’s elements are created by the artist, and their code allows them to be generated with completely unique traits.
Art Blocks is a first of its kind platform focused on genuinely programmable on demand generative content that is stored immutably on the Ethereum Blockchain. You pick a style that you like, pay for the work, and a randomly generated version of the content is created by an algorithm and sent to your Ethereum account. The resulting piece might be a static image, 3D model, or an interactive experience. Each output is different and there are endless possibilities for the types of content that can be created on the platform.
The difference is that while an NFT’s original work isn’t on the Ethereum blockchain, generative art is.
And this market is set to explode.
What To Do Next
Keep exploring. If you’ve just got your head around Bitcoin, now it’s time to look at Ethereum and its smart contracts.
That way lies the future. I don’t think Bitcoin will ever go away. I just think there are better uses of your time than being a Bitcoin maximalist.
The banks I train are all looking at Ethereum for creating smart contracts. So it’s not just the sometimes loopy art and collectibles world that’s in on this.
Many rich enterprises with much to lose are looking at Ethereum. It’s the next step.
Then NFTs. Have a look around Open Sea to start. It’s the largest NFT marketplace.
And be patient with yourself. This stuff takes time to understand.
But you can do it!
Until next time.
All the best,