Everything You Need to Know About NFTs—the Crypto Art Selling For Millions

Anna Grace Lee
·7 min read
Photo credit: nyan cat/ryder ripps/getty
Photo credit: nyan cat/ryder ripps/getty

From Esquire

Here's a riddle: What features a naked former president lying prostrate in the grass, cannot be touched or held in your hands, is free to download for anyone with an internet connection, and costs millions of dollars? Answer: the digital artist Beeple's NFT piece, "CROSSROAD" which recently sold for $6.6 million, making history as the most expensive digital art sale ever made. It was the most expensive digital art sale ever made, at least until March 11—when Christie's sold their first digital-only work of art, Beeple's "EVERYDAYS: THE FIRST 5000 DAYS" for a whopping $69.3 million.

If this information leaves your brain in total shambles, you're not alone. The burgeoning market for NFTs, or non-fungible tokens, is turning the art, music, and finance worlds upside down. This week, Grimes sold almost $6 million of her digital art—renderings of tattooed, spear-wielding cherubs floating in purple-hued post-apocalyptic ruins—as NFTs on Nifty Gateway, the "premier marketplace" for NFTs. Today, Kings of Leon became the first band to offer an album as both a streamable collection of songs and an NFT. In the sports world, game highlights can be bought and sold as NFTs, though anyone can watch these for free. Got a spare $213,000? You can buy an NFT of this specific LeBron dunk (from a game they lost, no less). Got a spare $213,000? You can buy an NFT of this specific LeBron dunk (from a game they lost, no less).

NFTs have rapidly become the next big thing in cryptocurrency's crossover out of elusive anonymous e-wallet dealings and into the more public cultural web sphere. If you've seen any of this news and wondered, okay so what even is an NFT?, here is a brief guide to the emerging form of digital collectibles.

What are NFTs?

NFT stands for "non-fungible token." This kind of token is like Bitcoin, except while you can trade Bitcoin and have more of the same thing that represents real money at a varying market value, each NFT is unique. You possess the token that says you own something, like an art piece, and you can trade it, but if you do, you'll be getting an entirely different piece. To keep all the parts in place, there's enforced (artificial, but isn't everything?) scarcity.

It's easy enough to wrap your head around the fact that a piece of art can be created and exist on a screen, be it your phone, computer, tablet, etc. Then, that piece of art can be seen, screen-shotted, and downloaded by anyone online. But the deeper concept of NFT art is agreed-upon value and ownership; even if anyone can see, download, print out and hang up a piece of digital art, only a select few can actually own that exact piece. So NFTs are a form of digital asset, whose ownership is recorded on a blockchain. What's a blockchain? Good question. Picture a ledger that lives online, keeping a publicly accessible record of who owns what, similar to the kinds of networks that ground cryptocurrencies like Bitcoin or Dogecoin. NFTs are connected to the Ethereum blockchain like this: you buy a NFT (say a piece of art from Beeple Crap) and the unique bit of information about that artwork—including its smart contract—is stored on the blockchain. It proves you own it.

How Are NFTs Created?

Mickey Rapkin explains this concept in his Esquire article "‘Beeple Mania’: How Mike Winkelmann Makes Millions Selling Pixels":

Why would someone pay $777,777 for an MP4? Couldn’t you watch that on Instagram for free?

Theoretically, yes, but the crypto art scene uses blockchain technology to authenticate and identify a single, unique piece of digital art. To understand how that piece of art sells for the price of a one-bedroom apartment in Brooklyn, one needs a brief primer on something called nonfungible tokens, or NFTs—digital goods that are bought and sold on emerging websites like Nifty Gateway, which hosted the Beeple auction. Nifty Gateway was founded in 2018 by the absurdly named Duncan Cock Foster, twenty-six, and his twin brother, Griffin. When asked to explain NFTs, Duncan used this analogy: Imagine you owned a pair of expensive Air Jordans. If Nike went out of business, those sneakers wouldn’t suddenly disappear from your closet. Why should digital goods—like a Fortnite skin or an original Beeple—be any different?

And so: Nifty Gateway—one of several upstart online marketplaces in a field that also includes sites called MakersPlace and SuperRare—mints a unique NFT, assigns it to a piece of digital art, and stores it forever in that company’s custodian wallet. Anyone with an Internet connection can log on and see who owns that piece.

How to Buy NFTs

There are a variety of marketplaces on which to buy and sell NFTs: Nifty Gateway, MakersPlace, SuperRare, OpenSea, Decentraland, and Rarible are just a few of many. For NBA highlight collectibles, check out NBA Top Shot—where $230 million has already been spent trading tokens, or "moments."

YellowHeart, the platform that Kings of Leon used to release their various album NFTs, is a music-centric platform that ensures authenticity of concert tickets and seeks to prevent scalping using blockchain. Some say it's the future of concert-going, and can put more power back into the artists' hands.

How to Make and Sell NFTs

Are you an artist or content creator of some kind, looking to make a buck (or potentially several million bucks) off of work that is otherwise not inherently monetizable? You could make your piece an NFT. Say you have a doodle you want to turn into an NFT, or a comic strip, or something like Nyan Cat, the animated cat with a Pop-Tart body and a rainbow trail, which just sold as an NFT for about $580,000. The process differs from site to site, but it can start on platforms like Nifty Gateway, where you can apply to create a project to be sold as an NFT on their marketplace.

Are There Any Problems or Controversies Surrounding NFTs?

Once you peel back the initial layer of NFTs, a number of overlapping issues—ethical, logistical, and environmental, to start—arise.

Many have pointed out the extreme ecological impact that an explosion in NFT minting and trading would have on a planet already wrecked by climate change, climate-change related disasters, environmental racism, and inequity. What do NFTs have to do with climate change? Put simply: the process of minting NFTs by adding the tokens to the blockchains, combined with the tidal wave of trading transactions (bidding, resales, etc.) results in a major use of energy. Multiply that to the nth degree, in a market driven by greed and the desire to keep up, and we could have a new form of environmental destruction on our hands. Ethereum, the platform which hosts the blockchains to which many of these NFTs are anchored, has pledged to switch to a less carbon-guzzling form of keeping their systems secure and working, called proof-of-stake, but this hasn’t yet actually happened. It’s unclear when (if ever) the shift will happen.

From an ethical and equity perspective, the option of selling one’s art as NFTs may not be the ample opportunity it has the potential to be. On Twitter, digital artist RJ Palmer recently warned fellow artists that there was an account ripping off art by minting artists’ tweets of their art and selling them as NFTs. There’s potential for abysmal exploitation of emerging artists’ work, without the proper enforcement or investigation into whether the person minting an NFT is the actual artist, true creator, and copyright owner of the work. The relative anonymity of crypto transactions has created an environment ripe for exploitation, theft, and harm.

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