With racy headlines and spectacular auctions, media and neophytes alike are stunned to see that a simple animated GIF can sell for millions of dollars. Has the Web gone crazy too? Not so fast. Despite the excesses of the moment, NFTs are neither a fashion, nor a temporary madness. Here are some explanations.
This month, Christie’s sold a digital collage by the artist Beeple for a whopping $69.3 million. Elsewhere, a crudely pixelated GIF of a “CryptoPunk” monkey wearing a bandana sold for $1.2 million. Meanwhile, Twitter CEO Jack Dorsey auctioned off the first-ever tweet. The sale was concluded at the final price of … 2.9 million euros.
What are the NFT ?
These particular tokens establish an unbreakable link between any object and an address on a blockchain. An NFT is therefore not really a work by itself, but a title deed attached to a work: an individual unit of value representing an object (physical or digital) and associating it with an owner, through a blockchain. Just like the units of a crypto-currency, NFTs can have a market value and be transferred from one person to another. Hence the current craze, based on wild speculation. But there is more to the principle of NFT than that.
Fungible?
To understand NFTs, we must first look at the principle of fungibility, a “dirty word” that is less complicated than it sounds. All traditional currencies, such as the euro or the dollar, are fungible. This means that any unit of value in these currencies is indistinguishable from another unit of value in the same currency. In concrete terms, if you have a €10 bill, you can exchange it for any other €10 bill at any time. Each banknote is unique (and identified by a number), but the object as such does not matter, it is the value it represents that counts.
In the same way, crypto-currencies are fungible. All Bitcoins have the same value, and if you own one Bitcoin, you can exchange it for any other Bitcoin.
But not everything is fungible. In everyday life, many objects have a different value than similar objects and are therefore not “fungible” goods or values.
This may be for a variety of reasons. If you have an object that belonged to your great-grandmother, you probably wouldn’t want to trade it in for something that is exactly the same, but fresh from the factory. Your grandfather’s is “more valuable” to you, even if this purely sentimental value is impossible to quantify. In the same way, all paintings by the same artist are not fungible, even if they may have the same market value. Each is a unique collector’s item, not exchangeable for a similar painting by the same artist.
Often the non-fungibility is directly related to rarity. The game of Scrabble is based on this principle. It uses 102 tokens representing letters of the alphabet, but these letters are more or less rare: the tokens A and E are much more numerous than W, X or Z, and the value of these tokens reflects this distinction. A W is worth 10 times more than an A, an H is worth 4 times more than an E. This value is different in different languages: in the Polish version of the game, the letters W and Z are very common and therefore have little value. In Scrabble, the letters of the alphabet, represented by similar tokens that all have the same function and use (to compose words), have a value that depends directly on their rarity in a given language and are therefore not interchangeable, not fungible.
Blockchainizing uniqueness
NFTs correspond to the transposition of the principle of non-fungibility to digital values. Through crypto-currencies and their blockchains, we create particular tokens (tokens), uniquely identifiable and therefore not exchangeable with each other as simple tokens. Each NFT is a unique and independent digital object with its own value. It should be noted that not every token is an NFT, quite the contrary: there are countless “simple” tokens on the blockchains that are fungible (just like crypto-currencies).
What is the difference between NFT and Bitcoin?
These NFTs, also known as nifties, are non-fungible tokens, meaning they are not interchangeable and have a unique character, unlike Bitcoins which are fungible in nature. NFTs are virtual tokens that rely on the secure and independent blockchain system Ethereum, which runs on its cryptocurrency Ether.
What can be purchased with NFTs?
Any digital asset that a creator wants to make unique can potentially become an NFT. Once the person owns that token for a piece of art or other accomplishment, he or she becomes the exclusive owner and only he or she can resell it.
Popular forms of NFTs include:
- digital artworks,
- jpeg images,
- GIFs,
- videos,
- tweets…
A million dollar anecdote
The co-founder of Twitter sold on Monday the first message he had posted on his own social network fifteen years ago. A spectacular transaction that highlights the craze for “non-fungible tokens” (NFT), which allow to give a value to virtual objects.
This is probably the most expensive message in history. On Monday, Jack Dorsey, the co-founder and CEO of Twitter, sold an authenticated version of his first tweet for $2.9 million, a new illustration of the madness of NFTs, virtual objects that collectors are snatching up.
This image of the message “Just setting up my Twttr account”, on sale on the Valuables platform since March 5, was acquired by the entrepreneur Sina Estavi. The sale was made possible by the emergence of a new digital format, the NFT, for “non-fungible token”. It allows to associate to any virtual object, whether it is an image, a photo, an animation, a video or a piece of music, a certificate of authenticity.
