69 million reasons why you should care about NFTs

·13 min read

Turns out Warren Buffett is just a few degrees of separation away from that crazy $69.3 million Christie’s auction of the artist Beeple’s NFT work “Everydays: The First 5000 Days,”—making it the third most most-expensive piece of art sold by a living artist after Jeff Koons and David Hockney.

That’s because the runner-up bidder—who lost in the final minute with a bid $250,000 less (much drama there)—was controversial crypto entrepreneur, Tron founder and BitTorrent CEO, Justin Sun. The same Justin Sun you may remember who paid $4.57 million to have lunch with Buffett early last year—much drama there too. (Remember Justin Sun, we will come back to him.)

A man looks at digital paintings by US artist Beeple at a crypto art exhibition entitled Virtual Niche: Have You Ever Seen Memes in the Mirror?, one of the world's first physical museum shows of blockchain art, ahead of its opening in Beijing on March 26, 2021. - RESTRICTED TO EDITORIAL USE - MANDATORY MENTION OF THE ARTIST UPON PUBLICATION - TO ILLUSTRATE THE EVENT AS SPECIFIED IN THE CAPTION (Photo by NICOLAS ASFOURI / AFP) / RESTRICTED TO EDITORIAL USE - MANDATORY MENTION OF THE ARTIST UPON PUBLICATION - TO ILLUSTRATE THE EVENT AS SPECIFIED IN THE CAPTION / RESTRICTED TO EDITORIAL USE - MANDATORY MENTION OF THE ARTIST UPON PUBLICATION - TO ILLUSTRATE THE EVENT AS SPECIFIED IN THE CAPTION (Photo by NICOLAS ASFOURI/AFP via Getty Images)
A man looks at digital paintings by US artist Beeple at a crypto art exhibition entitled Virtual Niche: Have You Ever Seen Memes in the Mirror?, one of the world's first physical museum shows of blockchain art, ahead of its opening in Beijing on March 26, 2021. (Photo by NICOLAS ASFOURI/AFP via Getty Images)

I’m making this point about Buffett not to suggest for a moment that he’s plunged into the burgeoning netherworld of NFTs, or non fungible tokens, (explainer in next paragraph), but to demonstrate that NFTs are getting closer to Buffett and to all of us. The ripples of this NFT revolution—and after digging into it this week, I can tell you it is a revolution—may not be felt immediately but they will be soon.

Before we get into that though, let’s back up and answer the question many of you have: What the heck is an NFT anyway?

Simply put, a non fungible token is anything in a digital form; say an image, a video or a song, with a unique signature that is accounted for by Blockchain technology usually by the cryptocurrency Ethereum. That means a digital picture of a cat or a rat or a hat can be bought or sold with completely verifiable ownership through computer code. Of course there can be copies of this NFT, just like there are copies of a painting, but there is only one original and the NFT, the token, is its statement of authenticity or provenance. The "non fungible" part refers to the item being singular, as opposed to currency, where say one bitcoin or a $100 bill is the same as any other.

So yes, anything digital can be turned, "bing bong," as Beeple said to me, (see more from him below), into an NFT.

I agree with my old school mate, Kara Swisher, who wrote last week in the New York Times that NFTs were really a matter of: “Everything that can be digitized will be digitized.” The question after that though is, what should be digitized? Meaning what things when digitized, create value, in the broadest sense?

That’s what we’re in the process of finding out.

That makes this a bit of a moment for NFTs and more importantly for crypto. Heaven knows we are only in the very beginning of an explosion of experimentation and discovery here. Many of us have been waiting for that time when crypto jumped species from wonk to mainstream, which could be starting now. NFT mania, enabled by the acceptance and commercialization of blockchain and crypto currency, is really just the latest phase of the digital revolution. What’s new now is that this is the first time that many of us see how crypto currency can actually enter and impact our lives.

Think of it as, NFTs are to crypto what the creation of Netscape (a consumer facing browser) was to the internet in 1994. In both cases the smaller first element in these simile pairings helped unlock the power of the much greater second element. My colleague Sam Ro says that NFTs are easier to understand than crypto, and I would also add, NFTs make crypto itself easier to understand, as in, "Hey you need to have crypto to buy this stuff."

And to that point, here’s the most important takeaway: Someday soon, you will want to buy an NFT. And someday soon, you will have to buy an NFT. That’s right, have to. It might be for your kids, but that day is coming.

NFT activity is surging right now. “...In 2020, NFT trading was worth over $250M, an increase of almost 300% from 2019,” says Chakradhar Kommera, chief technology officer at RubiX. And trading volume this year? I bet it will be more. Much more.

Why are the big buyers, or whales as they are called, feeding right now? “I think it could be somewhat correlated to the fact that crypto markets are doing well,” says Mason Nystrom, a research analyst at Messari focused on cryptocurrency. “Some existing crypto natives have done very well over the past several months. They’re spending some money on some NFTs.” Put more crassly, crypto zillionaires have so much money they don’t know what to do with it.

How crazy is it right now “We’re in a bit of a bubble,” says Alex Gedevani, research analyst at Delphi Digital. “There is reason to be cautious with NFTs. There’s a large supply coming into the market. Different creators in different fields are minting artworks in different NFTs. Think about the supply and demand effect, too much supply, not enough buyers. But the important thing is the concept of NFTs is clicking with people.

“A lot of the younger generation growing up digitally native, the transition to crypto is easier,” says Gedevani. “There is a bit of a disconnect per se, among generations. [For] older generations it’s a bit more of a longer term shift of becoming comfortable with that change.”

“NFTs by their nature of being non fungible are super illiquid, and currently rely on auction-based sales systems for price discovery,” notes Craig Russo, the co-founder of Polyient Games, an NFT-focused department within the Polyient investment group. “Right now you have to be an expert auctioneer to traverse the space. It’s not for everybody. Weeks are days in this space, things turn very quickly.”

Are there public stock plays? Yes, but it is 1000% speculative. Give you an example.

You’ve probably noticed the firehose of news stories (and endlessly long blog posts) about NFTs. In recent days we’ve seen:

1) Time Magazine creating an NFT of its covers, with plans beyond that. “Phase one of what's happening in the NFT space is very much about collectibles. Phase two is thinking about how these tokens can unlock or provide access to subscriptions, memberships, and unique experiences," Time president Keith Grossman told Yahoo Finance’s Julia LaRoche.

2) Jack Dorsey selling his first tweet as an NFT (proceeds went to COVID-19 relief in Africa), to a Malaysian crypto whale, Sina Estavi for $2.9 million. Guess who the runner-up was again. Yup, Justin Sun.

And

3) A gentleman in Brooklyn selling an NFT of an audio recording of a specific act of flatulence. Apparently, (I have not and will not check) a compilation is still available. Meaning we’ve already reached the point where NFT art has become a parody of NFT art. Somewhere Marcel Duchamp is smiling.

And there are a million (literally) more: an NFT house, an NFT self-portrait by Sophia the robot, an NFT Kings of Leon album, a LeBron James NFT dunk, via the NBA’s Top Shot, naturally Playboy NFTs, a Lindsay Lohan NFT auction (with guess who, NFT Zelig, Justin Sun) and on and on.

“Five years from now, when say everyone has Apple glasses or augmented reality, you're gonna walk into someone's house and look at the wall, and go, Wow, Joe, you have a Beeple,” says Joe Conyers III, a former music industry exec who recently joined crypto.com, a cryptocurrency exchange, to serve as that platform's head of NFTs. Conyers and team have Boy George, Snoop and Lionel Richie signed up to create NFTs of their work.

“Gary Vaynerchuk talks about maybe you'll post your NFTs on your Tinder profile so you'll show them this is my collection, this is what I'm into,” continues Conyers. “It might also represent something that you can take with you across different platforms. Maybe you buy a digital Gucci shoe and you can wear it in Fortnight or on your Roblox character. Or you can go into some other new game and take it with you. Imagine a celebrity puts out a version of something that's a gold or platinum edition and you're the only one who has it.”

But what about the person who's already made a fortune here, Beeple, the NFT-man-of-the-moment, suddenly a world famous artist and $60 million richer (after Christie’s commission)? I spoke with him on Thursday and as it turns out, Beeple is kind of an endearingly edgy, every man named Mike Winkelmann, 39, who lives near Charleston, South Carolina, with his wife and two kids. Beeple, who took his name from a Ewok character, hails from Wisconsin and graduated from Purdue with a degree in computer science.

Mike, as he prefers to be called, didn’t just fall off a cabbage truck. He’s been a successful digital commercial artist with a distinctive style and a massive following. His non commercial art is, well, just plain edgy (without the endearing part.) He seems to favor Elon Musk, Disney characters, political figures often in dystopian scenes.

Winkelmann’s piece “Everydays -The First 5000 Days,” is a sort of cumulative collage of the digital art pieces he’s done every day for the past 14 years. Beeple worked with a platform called Makersplace which was his intermediary to Christie’s.

It’s not as if Winkelmann won the lottery, it was more a matter of him being the right person at the right time. (The New Yorker recently did a nice long-form piece on him.)

Here then are highlights of my conversation with Winkelmann:

Andy: What were the final moments of the auction like?

Beeple: We were sitting there watching it in my living room. I'm in a Clubhouse with, like, 2,000 people in it. There's two film crews freaking shooting me. So yeah, there was quite a bit of visibility on me at the time. And it was like the $60 million thing. I mean, just, it was just like, yeah, I mean, when it jumped from, like, $27 million to like, $50 [to $60 million.] It was just like, bing bong, oh, my God. It was just like a bomb went off.

Andy: How did all this happen?

Beeple: Literally, like months ago, in mid-October, I'd never sold a print for more than $100. The technology just was not possible to sell digital work and like, nobody was interested. The market would not have emerged without these crypto people who are already used to speculating on something, deciding to speculate on exactly what I do. You know what I mean? Like, that's where it's like, I got super, super lucky. And like, I didn't see this technology coming, like it just came out of nowhere,

So I was a very popular designer, that's kind of how I was in the position to do this. I was doing really good commercial gigs and stuff like that, making a good living, working for really good clients, like I did the last couple Super Bowls and Louis Vuitton. And [I had] almost 2 million followers on Instagram, so I was quite widely known. That's sort of what positioned me to be able to do this so quickly.

I was doing conferences all over the world, like talks and shit. That's a big sort of like piece of it, just kind of like being known in the industry. I think people sort of like overlook that and think that I just kind of came out of nowhere.

Andy: You sold your $60 million of Ethereum, the proceeds from the auction?

Beeple: Honestly, I'm quite, quite conservative when it comes to like investments. And so it was very volatile at the time, too, and which actually worked to our favor, it was up 10% in like, two days, I was like, OK, let's just pause, pump the brakes here.

Andy: Where does this all go from here?

Beeple: I think it could really be a true alternative asset class, especially for like, younger demographics. With the rules of the stock market, kids don't like stocks, they don't like corporations. So this idea that they're just gonna keep putting money into corporations and just sort of like, continually invest in that type of asset, I don't know that's guaranteed. I think these could really be something that connects with younger people on an emotional level.

Andy: Do you think that your work should be or will be in the Louvre, or the National Gallery?

Beeple: Definitely be in the Louvre! Definitely in the Louvre! Mark it down! Mark it down!

Andy: There have been some charity auctions recently. Jack Dorsey just sold his first tweet.

Beeple: I raised more than Jack Dorsey, you can put that in your article. I raised $69 million from one "Everydays" and he raised frickin $2.5 million from his first tweet. Write that in your article! Shots fired, Jack! Shots fired, Jack!

In fact Beeple’s auctions have gone well. Here’s one that just wrapped up Thursday night—a GOAT self-portrait of sorts it appears—for $500,000 with the money going to COVID relief.

And then there’s this trippy one, "Ocean Front," from last week, the proceeds of which go to Open Earth Foundation, a climate accounting and technology organization spun out of Yale University, explains CoinDesk:

NFT art, which typically uses the Ethereum blockchain to create title deeds to digitally rendered pictures and animation, has exploded in popularity, leading some artists to question the energy consumption of the underlying blockchain — hence the carbon-neutral fundraising auction for Open Earth.”

Ultimately the "Ocean Front" piece fetched $6 million and was purchased by none other than, you guessed it, Justin Sun! So Justin finally got his Beeple.

“I am so thrilled to have won Beeple’s art work 'Ocean Front,'" Sun told CoinDesk via email. “Not only am I now the owner of an art piece from the most sought-after NFT artist of our time, but I get to support the leading agenda of our time, which is climate change.”

Somewhat lost in all the NFT hullabaloo last week was another auction by Christie's archrival, Sotheby’s, of a real, or should I say non-digital, piece of art, specifically Van Gogh’s "Street scene in Montmartre," painted in 1887, which sold for a mere $15 million. Even though that was nearly twice what the auction house had estimated for the work, the marketplace determined that Beeple’s "Everydays -The First 5000 Days" is worth about 4.5 times more than this particular Van Gogh.

Does that make any sense at all? It does today. A hundred years from now, who knows? Maybe both will be hanging in the Louvre.

Shots fired Vincent! Mark it down!

This article was featured in a Saturday edition of the Morning Brief on March 27, 2021. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Andy Serwer is editor-in-chief of Yahoo Finance. Follow him on Twitter: @serwer

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