What Is a Non-fungible Token? Why Are Some Digital Artworks Being Sold for Millions of Dollars?

"I understand that you can feel overwhelmed and underwhelmed, but is it possible to be completely whelmed?"

Chastity then asks Bianca this question in the hilarious 1999 comedy 10 Things You Hate About You. This pretty much summarizes my feelings when I first Googled "non-fungible token". In this instance, I was overwhelmed by the fact that what is non-fungible makes me feel overwhelmed. Also, can there ever be fungible?

It turns out that it is possible. Cue tech specialists (oh and economics and languages experts and anyone under 25 years old) are calling me stupid, but I'm sure they're not the only ones.

The likelihood was that the word "non-fungible" wasn't used in everyday conversation before 2021. It is now a common topic in the news about digital art, where many pieces are selling for enormous sums.

What is an NFT? It's basically the newest trend in cryptocurrency and has seen a lot of popularity in the last few months. It is interchangeable with other goods or assets if it is fungible. Non-fungible is when it is not.

Football trading cards and plane tickets are good examples of non-fungible assets in the real world. While two tickets might look identical, each ticket will have a different destination and seat number. Each ticket also has a different airline class. They cannot be exchanged.

An NFT is a unique digital asset. Skeptics might not believe it, but investors will often part with their money.

Christie's held the March first-ever sale by an auction house of art that doesn't exist in its physical form.

It was created by Beeple, a digital artist. It sold for $69.3m (PS50.3m). An earlier sale online of NFTs by digital artist Pak netted $16.8m (PS12.2m). This includes an image of a single pixel that sold at $1.36m, (PS987,000).

Each case involved no physical objects being transferred - NFTs are digitally created and maintained by blockchain, a digital record that acts as a public ledger to verify ownership. Although critics claim that these works are easily copied and shared, experts insist that this is not the case. Copyrighted copies are not the original.

In recent months, there have been many more examples of NFT sales. Kings Of Leon being the first to release an NFT album, Grimes selling a digital collection of music for PS4.3m, and Jack Dorsey, chief executive at Twitter, selling his first tweet for just PS2m.

An online group of crypto enthusiasts bought an original Banksy for PS68,000 and then burned it live online. The art was turned into an NFT... and sold for PS290,000.

What is the point of it all? What is it all about? Art revolutionizing, investment, or both?

To find out more, I spoke with Tim Fowler, Sotheby’s Max Moore, and Ashley Ramos from NFT Marketplace Nifty Gateway.

"The greatest barrier to our generation's success is navigating the digital and physical worlds."

Tim Fowler is a Leicester-based artist who has been full-time for three years. He sells his work in traditional terms - physical paintings that can be hung on walls. He decided to jump into the digital age earlier this year. His NFTs were inspired by a 2018 performance exhibition, where people could watch him create 100 paintings of his skulls in one gallery over the course of a week.

Sango, the creator of NFT Crypto Trolls, approached him and asked if they would be interested in getting involved. He admits that he was initially skeptical, but his curiosity eventually won him over.

"I asked the same questions people ask me: What are [buyers] paying? It is why people are buying it. Is it possible to have legal copyright on the piece they purchased? We started the process after I had a rough idea of it."

Tim is not a solely digital artist. He still makes physical pieces and photographs his work to create NFTs. Because he liked the idea of having a collectible item, he decided to use his skull designs.

"We wanted to slowly release 100 skulls again, and each one would have different mints - another edition term. There could be 10 NFTs for one skull, while others may only have one, making them rarer. The idea behind slowly releasing these skulls is to get people to want to collect them, like Pokemon cards or football stickers.

In the last three weeks, Tim has sold around PS6,000 worth of NFT skulls. He says that the digital world has not diminished the value of his physical pieces but rather helped elevate his traditional work. He says that the digital world makes the piece, the actual piece, more attractive and valuable because there is already a collector base. It's similar to selling a print edition, but you still have the original painting.

He says that this is something gamers and cryptocurrency experts know a lot about. Why is it so hard for some people to grasp?

Fowler says that the greatest barrier for most people, especially those of our generation, is figuring out the difference between the physical and digital. If you talk to children today, they will spend a lot of cash on games like Fortnite. They'll buy clothing... or a sword.

"My view is that a lot of people who buy NFTs come from the crypto-world. They are buying something they will hold onto with the hope that it will be more valuable in the future. They're also buying Bitcoin for the same reason.

"That's why it confuses many people because they view it as an art buyer's world, just like how we buy paintings to hang up on our walls. Many of these people are buying it to store in their crypto wallets.

He says that it is as much about investment and art as it is about art. Artists themselves receive royalties later, which is not the case with physical works.

"I sell a skull at $200. Because everything is on the blockchain, it's all monitored. I get royalties for any sale of mine further down. If someone wants to sell the piece again, for example, for a grand or 10 grand, they'd get 10%. This residual income is what I earn after selling the piece.

"In the real world, this is not true... therefore artists continue to make money."

"I consider NFTs an art form."

Max Moore, co-head of Sotheby’s New York contemporary art sales, admits that he was not too confident about NFTs initially. He began to travel the world over the past year and was able to get in touch with Pak in 2021.

Pak's Fungible collection sold to 3,080 buyers. The 23,598 cube units were "open edition", which brought in $14,026,000. The Pixel and The Switch were sold as "one-of-1" digital artworks for $1.44 and $1.36 million, respectively, to 10 and 12 bidders.

He says, "I had been watching the NFT market with skepticism from 2018 onwards." "I was first introduced to CryptoPunks' collection of works. Although they didn’t visually speak to me, conceptually I could see something. At the time, I wasn't paying much attention.

"I was fortunate to be able to get in touch with Pak in early January. I was still there to learn. Although I didn't intend to bring this to Sotheby's or even plan to, conversations with Pak helped me see the creative process behind their work. Each piece was designed with a purpose and had a meaning that connected to the past and the future.

"So, for me, it was understanding the genius and creativity that was emanating from this artist. I quickly realized that there was more to it."

NFT art has many questions. One is why are people willing to spend large sums of money, sometimes millions, on art that can't be displayed in the traditional sense but can be shared online.

Max admits that it took him some time to grasp the concept, but he soon realized that NFT art appreciators see it in the same way. He says that they had the same reaction to the artwork and that they felt the same connection to it. They didn't need to have a physical connection with a physical object. It was not for me to say this, simply because I wasn’t connecting with it.

"I realized quickly that there is a whole market, a whole universe of people that don't care about physical objects the same way we do. They are totally enamored with digital assets. They tend to be younger and more likely to have made a fortune with cryptocurrencies.

Max said that he hopes people who bought Pak works will continue to keep them.

"I hope collectors will stay collectors and not just start flipping the work. For this market to grow and flourish, there must be education from a collector's perspective. It can't be just a small subset of people who are responding to the artwork. There are many actors out there that are only interested in financial gain. That needs to be strengthened, I believe. However, I believe that a result such as this can help steer the conversation in that direction.

"You could take pictures of the Mona Lisa. You don't have to own it.

Ashley Ramos, a senior producer at Nifty gateway, collaborated with Sotheby's to sell Paks and hosted Grimes' sale. Since its inception, the platform has sold more than PS72m worth of "uniquely identifiable, secure digital art" over the past year.

Even her Zoom background is an NFT (pictured below in the Instagram photo), designed by Frank Guzzone. This shows how artworks can be displayed on TV screens if desired.

She says, "I would argue many people have always loved experience art, not just something tangible or physical, but experiential art." Some would argue that Yayoi Kusama, a Japanese contemporary artist, is an excellent example of this. These are experiences. You can't take them home to put on your walls. The Tate Modern's Mark Rothko room is another example of an amazing experience. People go to museums to see the art and not take it home.

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"But, I believe the common misconception that you can't display them in your house is false. You can display [NFTs] inside your home and bring the experience into your home if you wish. The vast majority of digitally native consumers aren't in it for the take-out, but to give back. These are the record-breaking numbers we're seeing. For the sake of supporting artists and our platform, collectors are coming to our table in huge numbers. Even if nothing is achieved, it's still a beautiful thing."

What is Nifty Gateway's response to the claim that works can easily be copied? It's a question they are often asked.

Ashley says, "You could take pictures of the Mona Lisa." It doesn't necessarily mean you own it. It doesn't mean you own it. You can see the profiles of Nifty Gateway members who are aware of their ownership.

It could be considered a problem, but not more than someone going to the Louvre and snapping a photo of one of the pieces and saying, "I own this." "This is my piece."