After taking the art world by storm in multiple million pound auctions, NFTs have now hit the mainstream with celebrities and some of the biggest brands in the world, all of a sudden getting involved. Adidas teamed up with Bored Ape Yacht Club who are also being championed by celebs like Jimmy Fallon and Snoop Dogg (See tweet below....) Even McDonald's and Coca-Cola have added NFTs to their marketing mix!
Now the first place to start is what does NFT stand for? Non-fungible token. Next question...
What is an NFT?!
NFTs are digital assets which are bought and sold online, frequently with cryptocurrency. Hidden in those artworks there's a unique and non-interchangeable unit of data stored on a digital ledger using blockchain technology to establish proof of ownership. It's similar technology to what is used in Bitcoin but unlike Bitcoin each NFT is completely unique so it can't be exchanged like for like, hence the name Non-fungible, if it could be it would be fungible!
Still with us? No?! Ok let’s break this down further on how this actually works. An NFT relies on two pieces of technology to work – blockchain and cryptocurrency. Blockchains are a term you may have heard of before as they’re now a popular concept in the digital age. It is a digital ledger, or in other words a shared electronic database, not too dissimilar to Dropbox/Google Drive with the exception that whilst you can add to it, you can’t remove or edit anything, there isn’t just one singular blockchain. There are quite a few of them and they all work slightly differently.
What can be an NFT?
Any kind of easily reproduced digital file can be stored as an NFT in order to identify the original copy. The NFTs you're most likely to have seen or read about tend be futuristic motion artworks like GIFs (see below) and apes with funny hats (see above). So they can be made from any kind of photography, art, music or video file. Even tweets and memes have been made into NFTs. Essentially, you can make NFTs from almost anything unique that can be stored digitally and holds value. They're like any other collector's item, like a painting or a vintage action figure, but instead of buying a physical item, you're instead paying for a file and proof that you own the original copy.
How Do NFTs Work?
To buy NFTS, you need a cryptocurrency. This is usually one called Ether which uses the Ethereum blockchain. However, there are other digital currencies on different blockchains that can be used, depending on where you purchase your NFT. By spending your Ether on an NFT, your purchase is added to the blockchain. Because no one else can change this, there is a clear piece of proof that you own the NFT in what is known as a ‘smart contract’ – a piece of data that shows ownership as mentioned above, how it’s been transferred, licence fees and other key pieces of information. So anyone can view the individual images—or even the entire collage of images online for free. So why are people willing to spend millions on something they could easily screenshot or download?!! Because an NFT allows the buyer to own the original item. Not only that, it contains built-in authentication, which serves as proof of ownership. Collectors value those “digital bragging rights” almost more than the item itself.
EVERYDAYS: The First 5000 Days, by Beeple
To give you an example of the kind of money that is being made from these NFTs the artist known as “Beeple” created one the most famous NFT of the moment, “EVERYDAYS: The First 5000 Days,” which sold at Christie’s for nearly £50 million.... Musician Grimes has sold over $6 million worth of her unique digital artworks. Grimes was one the first famous celebrities to have caught on to cash in on the nonfungible tokens making millions from collections of their own digital art.
Does an NFT purchase give you copyright ownership?
So when you purchase an NFT, you're not purchasing the complete ownership of that product. Yes, you do become the owner in the sense that it is now your property, and the ownership is traceable on the blockchain, but that isn’t always accompanied by the laws of copyright. This means you might not have permission to reproduce it however you wish. It doesn’t mean you can’t then make a profit from your NFT, even if you didn’t create it or own the full copyright. “If I own it, then I can sell it. Again, like a painting, once you’ve bought it you can then sell it on as it is yours to sell.”
Why are NFTs Controversial?
The large majority of NFTS and cryptocurrencies in general are weighed down by a extremely large carbon footprint. To give you an example Ethereum uses more energy than the Netherlands! Over 100TWh per year. The blockchain has a carbon footprint larger than Singapore’s, around 50-60 million tonnes of CO2 per year, nearly twice as polluting as Europe’s biggest coal-fired power plant (Belcatow, Poland),” Says Dr Pete Howsen, a senior lecturer from Northumbria University Newcastle. However, this isn’t to mean that NFTs can’t become more environmentally-friendly but right now they are harmful to our environment.
Many voices in the art and design community are also rightly angry that NFTs are changing hands for such insane sums of money, and it's often not going to the artist. Especially given that NFTs were originally created as a way of giving more control by asserting digital ownership, the idea that they are elitist is causing legimite tension. Even the buy-in fees are prohibitive for many, and the cost to actually buy one means the marketplace is becoming something of a playground for the super-rich. As mentioned earlier in this article with Ape Yacht Club which is being promoted by the like of Gwynath Paltrow and Steph Curry
With the incredible rapid rise of NFTs over the last year it's worth remembering that the law has not yet fully caught up, and any investors, collectors or artists are strongly advised to conduct rigorous due diligence when considering purchasing or even making NFTs. It remains to be seen whether the NFT market will become established as a legitimate form of collecting and trading works of art or whether it's a bubble waiting to burst. Either way, you are advised to know the many complex legal issues and potential risks that NFT investments pose.
Still not sure what NFTs are? Don't blame you....!