Yes, that was the agreed-upon value of an auction item in March 2021. Was it a house? A historical artifact? Some antique collectible? Or a valuable piece of classical art?
Actually, that amount was paid for a digital image, the very thing you are seeing right now as the featured image of this article. This… is the image collage “Everydays“: The First 5000 Days by digital artist Beeple. It was sold at the auction as an NFT, taken as both proof and property of its new owner, Vignesh Sundaresan.
Wait… NFT cryptos? Welcome to the rapidly burgeoning realm of reputable digital ownership, just one of the many facets of the decentralized data processing freedoms the blockchain has to offer.
The Concept of Value
In the most fundamental sense, objective value is typically determined when two or more parties agree on the perceived importance of an item. Paper money, for example, is universally seen as having value, because the fiat currency system dictates so.
As such, while market forces could provide somewhat reliable calculations and estimates for goods and commodities, giving value to non-essential items that are not manufactured depends on whoever is doing the deal. If both of you agree that it is trash, then it’s trash. If a fiberboard with some random splashes of paint could be worth $140 million, then everyone interested would have to agree so.
Do note the difference in the perceived value of the item and the actual amount paid for its ownership. A Black Lotus artifact card from Magic: The Gathering may have sold for more than $500,000, but not a single unit of currency would physically represent it until the final bid is placed.
Understanding value before we even explain NFTs is important because NFTs exist based on the fundamental ideas of what it means to own something. As you shall see quite often, many more questions pop out of seemingly practical answers that it tries to provide.
So, What are NFT Cryptos?
NFT, or non-fungible token, is a virtual item and proof of transaction that is bound to the blockchain. It is basically a piece of data, stored on some decentralized digital ledger that certifies:
- The item’s existence
- The authenticity of the item
- The exclusivity of the item
- The (current) owner of the item
To a layman, NFTs may not seem different from virtually traded stuff, like let’s say, Steam emotes, or MMORPG items that are traded with real money. But, the distinction lies in that weird word: non-fungible. If something is fungible, it can be exchanged for something of equal value.
For example, American dollars are worth their value in British pounds. It’s mutually interchangeable. Another example is exchanging a $1 bill for 4 quarters or 10 dimes.
So in effect, non-fungible means an item is one-of-a-kind. In this case, the non-fungible token carries a signature piece of data that cannot be replicated (even if the item itself can be copied), and is duly authorized by the blockchain network that “witnessed” and processed the item’s transaction and ownership.
For those unfamiliar with blockchain, think of it as this large, data processing system where bits and pieces of it exist everywhere. For example, one PC connected to the blockchain performs a calculation, while another does a different related calculation. Each action is “reported” to the entire blockchain, ensuring everything happening on it is transparent. However, because processing data is decentralized, it means that no single unit ever does everything, making the system inherently anonymous.
Now, let’s return to that $69 million JPEG image earlier. Being the official owner of Everydays: The First 5000 Days, Vignesh Sundaresan has bits and pieces of the transaction and proof of ownership scattered throughout the blockchain. It can’t be tampered with, everyone has a part in processing the agreement, and the entire blockchain has “witnessed” and “agreed” that, indeed, the ownership of this digital image is worth that much.
NFT Cryptos: Value on Demand
NFTs stretch our ideas of ownership in a way that seems very familiar to your classic World of Warcraft account, yet it plays with completely different rules to our criteria of things worth owning.
On the one hand, if we simply focus on the agreed value side of things, NFTs are not really that different from things like works of art and rare collectibles. They’re proofs of purchase of otherwise just superficial things to regular folk. In this sense, you don’t even have to think about the technological ramifications of its rules.
Turning things over, if we look at how NFT cryptos work internally, we realize that this is far different than the rare weapon for sale on your game account. For one thing, the calculations, the very processes that allowed the deal to happen in the first place, are scattered all throughout the blockchain. The proof of purchase is both held and approved by all the computers connected to the blockchain. No single server possesses all the data, and the certifying information (NOT the data bought!) is so unique that it has no copy anywhere else.
- A digital asset that can be proven to have exclusive ownership
- A virtual, intangible transaction record that is more or less publicly exposed
- Countless machines all around the world processing tiny bits of the proof of purchase
And last but not least, an agreed-upon amount that represents the purchased or traded item’s worth in cryptocurrency, typically Ethereum (that is often ready to be traded in fiat money as needed).
High Dealership with 1s and 0s
To give you an even better idea of what kinds of things are usually sold as NFT cryptos, here are a few more examples:
- $6.6 million – Beeple’s Crossroads, a short and bizarre 10-second digital clip, featuring a park, randomly walking people, and a giant Donald Trump slumped in the background.
- $2.9 million – Twitter CEO Jack Dorsey’s first-ever tweet, which technically is also the first tweet on Twitter when it was initially launched in 2007.
- $580,000 – Nyan-cat. Yes, the original meme created by Chris Torres himself was sold as an NFT.
- $208,000 – paid for NBA Top-shots, which are very short clips of the game’s top highlights and moments from its entire history. This one included at least one historical shot by Lebron James.
Even what can be seen as more mundane digital stuff, like CryptoPunks, can still sell at exorbitantly high prices as long as the buyer agrees to the amount.
Should I be Excited about NFT Cryptos?
In the grand scheme of things, absolutely not.
If you aren’t using any blockchain-based technologies today, then NFTs will remain as those weird talking points in headlines. Any new NFT purchase will be as boring as news involving super expensive paintings being sold to some random business magnate.
That said, we highly suggest at least checking out the potential of its technology in the next few years. Trading millions of dollars to otherwise “worthless” digital copyrightable assets is one thing, but there are many new ideas bound for NFT cryptos as they get cheaper and more common.
Oh yes, and for the third and final time, random internet denizens are perfectly allowed to copy the data of the item sold. It is the transaction, proof of purchase, ownership, and possibly copyright, that you can’t simply do a “Copy + Paste” with when dealing with NFTs.