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The Madness of Non-Fungible Tokens (NFTs)

I've spent half a century (yikes) writing for radio and print—mostly print. I hope to be still tapping the keys as I take my last breath.

What are non-fungible tokens, and why do people care about them?

What are non-fungible tokens, and why do people care about them?

Why would anyone plunk down millions of pretend dollars on “objets d’art” and “collectibles” that don’t actually exist in a tangible form? Such collectibles are known as non-fungible tokens (NFTs). Most of the experts who try to explain NFTs leave an aging schmuck even more confused. With that caveat, here is my best effort at explaining what many people deem to be inexplicable.

What Are Non-Fungible Tokens?

Let’s turn to the reliable British Broadcasting Corporation for NFTs 101: “In economics, a fungible asset is something with units that can be readily interchanged―like money.” If you have a ten-dollar bill, you can change it for two five-dollar notes, so a fungible asset is something that can be exchanged for something else of equal value.

Suppose you own an original painting by Henri de Toulouse-Lautrec. It’s a work of art that you can touch (although it’s best not to; the gaziilions of microorganisms on our hands might cause damage) that you could sell for between $20 and $30 million. Other people can buy prints of your painting for about $25, but there’s only one original. It’s a fungible asset.

A non-fungible asset, on the other hand, doesn’t exist in the physical sense, and this is where we enter a vocabulary thicket that will draw tears from a grown man. It’s the world of cryptocurrencies, blockchains, and Ethereum.

Ethereum is one of the most popular cryptocurrencies.

Ethereum is one of the most popular cryptocurrencies.

How Do NFTs Work?

CNN’s Jazmin Goodwin tells us that “NFTs transform digital works of art and other collectibles into one-of-a-kind, verifiable assets that are easy to trade on the blockchain.” See what I mean about expert explanations?

Simplified to the level of a country bumpkin, an NFT is a certificate to own an artefact that only exists digitally and that has been paid for with a form of money that also only exists digitally. What is far more interesting is how NFTs have captured the interest of so-called sophisticated investors who, we are led to believe, know what they are doing.

The Work of Beeple

Mike Winkelmann is a digital “artist” who goes by the name of Beeple. He sounds like a delightful chap whose “early works are full of racist images making fun of African Americans and Asians, and equally derogatory toward women” (Vanity Fair).

Moving into the digital medium, over the course of more than 13 years, Beeple posted an image on the internet each and every day. Then, he gathered them all together and titled the result Everyday: The First 5,000 Days.

The prestigious auction house Christie’s put what it called “the monumental digital collage” on the block. We can imagine the scene that unfolded on March 11, 2021:

Auctioneer: “Do I hear one hundred dollars? Two hundred, yes. A million from the man in the kilt beside the aspidistra. Two million!” And so on and so on. When the hammer finally descended, Everyday: The First 5,000 Days fetched a price of $69,346,250.

Investor Vignesh Sundaresan was the lucky high bidder who reached into his digital wallet and withdrew Ethereum, the world’s second-biggest digital currency.

This might seem like a lot to pay for a digital item of which unlimited numbers of identical digital copies can be made. One can only assume that Mr. Sundaresan intends to sell his NFT to someone else for more than he paid for it. His net worth is said to be in the region of $1 billion, all of it made in the cryptocurrency world.

Are Non-Fungible Tokens Safe Investments?

It may seem to readers that a note of incredulity—mockery even—has crept into this narrative. Perhaps. Let’s see what else is going on in the NFT marketplace.

Alex Ramirez-Mallis is a New York City filmmaker. He has elbowed his way into the NFT bazaar in a unique manner. As he was handed lemons by being in a coronavirus lockdown, he decided to make farts and sell them.

Ramirez-Mallis and four pals recorded their flatulence, and the result of this endeavour is One Calendar Year of Recorded Farts. “Own the Master Collection today. Or browse our selection of handpicked, limited edition single farts. New drops daily.”

Cryptocurrency is needed to acquire a cherished NFT toot: “Individual fart recordings are also available for 0.05 Ethereum, or about $85 a pop” (New York Post). As of this writing, eight owners have paid enough to get the full 52-minute accumulation.

So, is getting into the rectal gas NFT trade a good idea? Firstly, nobody in their right mind should accept investment advice from a writer. Secondly, Ramirez-Mallis simply says “If the value increases, they could have an extremely valuable fart on their hands.” The operative word here is “if.”

Are non-fungible tokens good investments?

Are non-fungible tokens good investments?

Other Available NFTs

If farts seem a little down-market there are plenty of other NFT offerings for the discerning investor. The CEO of Twitter, Jack Dorsey, made his first Tweet available as an NFT. It was a concise “just setting up my twttr.” It sold for the oddly specific amount of $2,915,835.47.

The high bidder was a Mr. Sina Estavi, the CEO of a company called Bridge Oracle that is involved in the esoteric world of blockchain technology. Perhaps the number 2,915,835.47 means something in the exotic land of alphanumeric mysteries.

Where was Charmin during the toilet paper crisis? Creating an NFT, it seems. The company’s “virtual rolls do arrive with a physical display and a good cause, ahem, ‘behind’ it: All proceeds are being donated to the non-profit Direct Relief” (insidehook.com).

Vanity Fair writer Nick Bilton scooted around the internet and found a multitude of NFT bargains: “The TV show American Gods is shilling trading cards of the show’s characters as NFTs. The website Quartz is offering a news article about NFTs as an NFT itself. There’s an NFT house for sale, nudes of the actor Katie Cassidy at auction as NFTs, and there are all sorts of digital collectibles ranging from pixelated punks to impish kitty cats with wings.”

Time Magazine tells us the NFT “phenomenon is attracting a strange brew of not just artists and collectors, but also speculators looking to get rich off the latest fad.” The magazine posits that it may be a bubble.

Charles Allsopp used to be an auctioneer with Christie’s. He told the BBC that “The idea of buying something which isn’t there is just strange. I think people who invest in it are slight mugs, but I hope they don’t lose their money.”

Bonus Factoids

  • Before NFTs, there were CryptoKitties. This was a place on which people bought and sold digital images of cats. The sales pitch is that “Each cat is one-of-a-kind and 100% owned by you; it cannot be replicated, taken away, or destroyed.” In 2018, someone paid $172,000 for just one moggy. As of March 2021, CryptoKitties were selling for between $15 and $700 each.
  • During the dot-com craze of the 1990s, the Nasdaq Composite Index, where internet start-ups were listed, rose by 400 percent. When the bubble burst in October of 2002, all of the gains from the boom were wiped out. Many companies that were the darlings of investors folded.

Sources

  • “What Are NFTs and Why Are Some Worth Millions?” BBC News, March 12, 2021.
  • “What Is an NFT? Non-Fungible Tokens Explained.” Jazmin Goodwin, CNN Business, March 17, 2021.
  • “I Started with Nothing, Says Man Who Shook Art World.” Ton Wen Li, Straits Times, March 21, 2021.
  • “NYC Man Sells Fart for $85, Cashing in on NFT Craze.” Hannah Frishberg, New York Post, March 18, 2021.
  • “While NFTs Soar, Cash Is Crumbling.” Elizabeth Renzetti, Globe and Mail, April 1, 2021.
  • “The Most Ridiculous Items Turned Into Tradeable NFTs.” Kirk Miller, Insidehook.com, March 22, 2021.
  • “Beeple’s Opus.” Christies.com, undated.
  • “NFTs Are Shaking Up the Art World—But They Could Change So Much More.” Andrew R. Chow, Time, March 21, 2021.

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2021 Rupert Taylor

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