Tuesday, Aug 30, 2022 | Safar 3, 1444
Published: Mon 29 Aug 2022, 8:31 PM
Last updated: Tue 30 Aug 2022, 11:40 AM
Anything from a tweet to viral memes is now being sold as NFTs for jaw-dropping prices. But what are NFTs, and is it worth it to get on the bandwagon?
It was when the viral Charlie Bit My Finger YouTube video sold as an NFT that people began to truly question the nature of reality and technology. If you’re a millennial, you know which video we’re talking about, and chances are you’re confused about the sudden hue and cry about NFTs, too.
But this 56-second viral video with over 900 million views was almost taken off the internet after being sold as an NFT for $760,999.
How is this possible? We’ll break it down for you.
NFTs, or Non-Fungible Tokens, are digitised assets encoded on blockchain platforms that have unique identification codes. Each of these tokens is ‘non-fungible’, meaning that they cannot be replaced with another item of the same value. If you exchange an Dhs 10 note with another, it does not affect the utility of the currency, and you can get a shawarma with both.
But each NFT is uniquely encrypted with token-specific data and cannot be replaced. This could be an artwork, a video clip, a song, an in-game avatar, a jacket or even a tweet — as emphasized by Jack Dorsey’s first tweet that is now an infamous NFT!
Now, how would this work against selling a physical art piece? Selling an asset as an NFT would entail “minting” it. Like cryptocurrency, the digital artwork would be minted or encrypted on the blockchain platform through individuals solving complex mathematical equations and building the blocks on blockchains, making it more secure and harder to transgress. Selling a physical piece would mean signing the commercial rights over to the buyer. They then have hard possession of the piece, and can sell it to whomever they deem fit.
But buying an asset as an NFT does not give one commercial or trading rights over the piece. While you may resell the token itself, you will not be trading the actual object. Instead, all you get is “technical ownership” of the virtual asset or a certificate of ownership. That, and bragging rights on the internet, of course.
And yet, NFTs have emerged as a burgeoning industry of their own, with global NFT spending reaching over $40 billion. Why do people do it? You won’t be the first to ask.
Non-Replaceability
One of the biggest specialities of NFT trading is the non-fungible aspect of it. Each of these tokens hold unique cryptographic proofs, and not one is like the other. This non-replaceable nature of NFTs makes owning them that much more special; purchasing them ensures that you own an asset that nobody on earth has, and will ever be in possession of.
It amps up exclusivity in digital ownership, which can rightfully be dubbed as the single biggest appeal factor when it comes to NFTs. Unsurprisingly, “authenticity” is the buzzword of the season.
Evolution of Investment Opportunities
Apart from owning a piece of art or music, another avenue that NFTs explore is that of investments. While plenty of high players are tapping into NFTs to expand and diversify their investment portfolios, the unpredictability associated with NFT trading is a dangerous glint that attracts players into the game.
Unlike traditional bonds or stocks, the rise and fall of which can be mapped or forecasted, the value of NFTs is highly volatile, and nearly impossible to detect or predict. Everything from 2009 internet memes to pictures of animated apes and stylised pyramids are selling for millions of dollars. Nobody — not even the most trained, intuitive stockbroker — can survey an asset and determine what its value will be next week, or even tomorrow.
Supporting New Creators
Traditionally, artists and creators must dedicate a portion of their income to record labels or social media platforms in exchange for visibility and publicity. Through NFTs, however, they can partner with gateways and mint their artwork to trade it directly to the public through auctions.
This opens a whole new world of opportunities for up-and-coming creators who are not backed by high-flying labels or connections, as well as those that are already established and have a level of hype and reputation to back them up. Several old and new artists such as Euphoria, Uzair Merchant, Snoop Dogg, etc are making use of NFTs to create and pitch their craft directly to their fans. Here, it orbits for several hours or days while the fans collectively decide their value, literally and figuratively, and pay them their appraised worth.
That’s revolutionary.
Foolproof Authentication
Another underrated benefit of NFTs is that you attain foolproof authentication of a particular asset. While half the globe is concerned about the fact that buying NFTs is basically like buying a screenshot of the art, the rules remain the same as they do with physical art. A screenshot of the Mona Lisa or a perfect forge of Lady Gaga’s autograph might look and feel like the original, but you still don’t have the creator’s consent or partnership in owning it. A fake is, ultimately, a fake.
Once you purchase it, an NFT is a certificate of ownership that has the buyer’s details directly encoded in it. Not only is this extremely difficult to manipulate, but you could also keep track of an automatically updated supply chain. These tokens create an authentic, centralised repertoire of data, past owners, history, and the value of everything from digital artwork to a plot of land.
No paperwork, no bureaucratic red tapes, no long queues. At least, that’s what they promise.
Inclusive Growth and Economic Opportunity
You probably already know that currently, the most expensive NFT art is by Beeple (Everydays: The First 5000 Days), and was sold for a whopping $69 million.
But did you know that the buyer, Vignesh Sundaresan, is a 33-year-old investor of Indian descent who came from a family that had once struggled to make ends meet? Now, this rags-to-riches story might be too fluffy and perfect for some of you — and you may be right. But it doesn’t change the fact that NFT trading did make it possible for someone from an erstwhile lower class to not only amass millions, but also make headway in art-collectorship: a world that was previously populated by just the crème de la crème of society.
When asked about the flimsy nature of ownership that NFTs propound, Vignesh aka Metakovan, stated that he would love if people downloaded for free the art he had paid millions for. He, like thousands of others, believes that NFTs are the future of inclusive and equalised growth — opening the doors of art creation and collectorship to races, classes, and genders that were previously sidelined due to systemic inequalities, and the art world’s open partiality to heteronormative white men and their art.
Artists like Juno Cooper, Aida Sancho, Iris Nevins, etc have all come to the forefront to shed light on their art and identities in immensely creative ways.
Proclivity to Illegal Activity
Laundering massive sums of money under the guise of art collection is hardly a novel concept. As with physical art, NFTs are also assets that are valued at random and have immensely volatile prices based on speculation and perceived value. This makes them perfect for those minting money illegally to protect their sources while pushing their black money into the “noble cause” of owning priceless art.
NFTs and their tendency to balloon in rates overnight become a seamless excuse for launderers to transfer their illegal savings into crypto-currency wallets — even more easily than physical art ownership, as this is entirely devoid of paperwork and other formalities. Studies have proven that the NFT explosion has led to a directly proportionate rise in related money laundering schemes, too.
The absence of a KYC (Know Your Customer) or AML (Anti-Money Laundering) mechanism only increases its proneness to all kinds of illegal activities, including but not restricted to copyright frauds, plagiarism, forgeries, and pyramid schemes.
Quick Money Scheme
That brings us to the next point.
When you closely inspect some of the most popular NFTs in the market right now, you’ll quickly realise that a large proportion of these have very little to do with the genuine joy of creation or artistic motivation. Whether its the pioneering Cryptokitties or the BAYC, these tokens are undoubtedly rare, but they’re mass-generated rudimentary images that were created by banking solely on a few huge names and the hype they’re bound to tow along with them.
There is genuine satisfaction in having a beautiful piece of art or music that a creator has worked hard on hanging on your living room walls. But whether or not the same satisfaction can be derived from having a computer-drawn picture of a vaguely bored-looking ape as your Twitter DP, is an interesting question worth pondering upon.
NFTs are not just linked to ownership or the purchase of obscure art and literature. They have several other innovative uses including raising funds for political campaigns, advanced gaming, investment opportunities, as well as charity.
In fact, when direct donations to war-struck Ukraine became impossible, several artists raised funds through the sale of NFTs. Yet as high and varied as the scope of this is, the immense volatility of the value of these digital assets makes it impossible to say whether you’ve made the right call in investing or not.
NFTs are sometimes described as making use of the Greater Fool Theory. You can buy a JPEG of a rainbow cat for millions as long as there’s an even ‘greater fool’ who will buy it from you at an even higher price — thus endlessly rolling the ball. There will always be people who will part with their money for things that inherently hold very little value, for no reason other than the fact that someone else had bought it for a high sum before them.
Therefore, a Beeple photograph of a naked Trump might be worth millions today, but if the who’s who of the NFT community decide that Beeple is crass tomorrow, the value might come crashing down in a matter of minutes. The game is fun for as long as it lasts, but once things change, it could turn into a tragic turning-out of pockets for many.
Not So Equalising
Sure, NFTs are launching the careers of creators who would have struggled and failed in the traditional setup, but the platform is still not without its discriminatory evils. While plenty of works sell for smaller sums on these platforms, the biggest sales have all happened through large auction houses like Christie’s and Sotheby’s — the likes of which would require either an established social reputation or heavy influence to connect with.
Creations with deeply hurtful and derogatory connotations of racism, sexism, and class differences continue to be minted and get massively popular, too! Explicitly problematic works of artists like George Trosley and Unipic are looked at by Lady Luck, and earn millions of dollars as a result.
Another scary phenomenon is those who know how to expertly manipulate the NFT bubble by exploiting the sentiments of the masses. The release of tokenistic (pun intended) and opportunistic works like Trayvon’s Hoodie and Floydies show that hard-hitting systematic injustices can, and will, be utilised by conmen for selfish monetary growth.
Environmental Hazards
These NFTs are minted, similar to cryptocurrencies, on native platforms like Ethereum and Solana. The process of securing these NFTs to the blockchain is one that uses mammoth amounts of energy. The question that everyone’s been asking ever since the recent boom of NFTs is if we, as people, can afford to adopt such a hazardous mode of immortalising digital assets simply to innovate the way we consume, create, and invest in art.
So, there you go, the pros pitted with the cons.
Many call NFTs crude and unnecessary, while some others regard them as a path-breaking method of change in the way we record, and trade, data and assets on the internet. While they motivate some to mint their own digital art as NFT, they make some want to run the other way.
The concept itself is certainly innovative and interesting, but what gives it an added layer of intrigue are perhaps the pervasive and thorny moral and ethical questions that it poses.
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