What is NFT all about?

Everydays: The First 5000 Days

Sold for $69,346,250!

Yes you read it right. The JPG file (21,069 by 21,069 pixels) which I just took from the internet was sold on 11th March 2021 on Christie’s for $69mio. The art work is called Everydays: The First 5,000 Days and is by an artist who goes by the name Beeple. This is the highest ever for a piece of digital art, third highest for a piece of art by a living person. 

Who bought it?

Bought by an Indian guy who goes by the pseudonym Metakovan. He lives in Singapore and this is not his first Beeple. He revealed his identity a few days back as  Vignesh Sundareshan along with his colleague and friend Anand Venkateswaran aka Twobadour.

Their journey and rise from a small village in the southern part of India to buying Beeple’s is clearly depicted in the below picture and was part of their coming out article.

Why did he buy it? 

Because he thinks it’s a good investment and he has tasted success with earlier ones.

“When you think of high-valued NFTs, this one is going to be pretty hard to beat. And here’s why – it represents 13 years of everyday work. Techniques are replicable and skill is surpassable, but the only thing you can’t hack digitally is time. This is the crown jewel, the most valuable piece of art for this generation. It is worth $1 billion.”

Now that might sound like a dialogue from a Christopher Nolan movie, but it’s real.

Earlier, in a January auction of original Beeple art on an online marketplace, Metakovan purchased 20 images for a combined US$2.2 mio. He later fractionalized them. Currently, those works have a market cap of US$163.5 mio. That means the value is up 75 times.

What about authenticity? 

The image file is connected to a non-fungible token (NFT), which was “minted” just last month, and serves as its certificate of authenticity recorded via blockchain technology.

Confused? Please don’t be. We will explain everything.

First things first, Who is Beeple and what is this piece of art?

Beeple’s original name is Mike Winkelmann, and he is a graphic designer from Charleston, South Carolina in the US.

Beeple started posting new works of art online starting on 1 May 2007. He then continued doing the same thing day after day, creating and posting a brand-new digital picture, or ‘everyday’ as he called it. He did that for every single day for 13-and-a-half years. Have you heard of 10,000 hours? He probably spent over 50,000 hours doing this. 

EVERYDAYS: THE FIRST 5000 DAYS, is a unique piece of work in the history of digital art where he has digitally stitched together all those 5000 pieces of art into one.

What’s this masterpiece made up of?

This is one of the 5000, and it’s one of my favorites. You can deep-dive and check out all 5000 individual frames here. 

Right then, time to understand NFT!

NFT stands for Non Fungible Token. NFTs are tokens (or simply, a unit of data) that can be used to represent (or act as proof of) ownership of unique items. NFTs act as unique identifiers of things like art, collectibles, or even, real estate. 

While the digital files themselves, in the case of say art such as Beeple’s, are infinitely reproducible, the NFTs representing them are tracked on their underlying blockchains and provide buyers with proof of ownership as they can only have one official owner at a time. This proof of ownership is secured by a blockchain such as Ethereum. 

And, no one can modify this type of record of ownership or copy/paste a new NFT into existence. At a very high level, most NFTs are part of the Ethereum blockchain. Ethereum is a cryptocurrency, like bitcoin or dogecoin (made popular by Elon Musk), but its blockchain also supports these NFTs.  It is worth noting that other blockchains can implement their own versions of NFTs (Some already have)

A quick aside, on ‘non-fungible’…

Non fungible here means that each of these tokens is not interchangeable with any other token. I.e. Each of these NFTs is unique. (This is different from say a cryptocurrency like bitcoin where 1 bitcoin looks exactly like all others or even other currencies like USD or INR.)

What is a blockchain?

Blockchain is an open, distributed digital ledger (or record of entries) that can record transactions between any two parties efficiently and in a publicly verifiable and permanent way. 

Blockchains therefore provide a coordination layer for digital assets, giving users ownership and management permission. 

Because the records are publicly verifiable i.e. open, transparent and visible to all, the parties who undertake exchanges of value within this system don’t need to trust each other. The incentives are such that they can come together to create a single, working, growing, indestructible ledger that remains open and transparent to all.

Bringing it back to Beeple’s unprecedented success selling his piece of digital art, using NFTs. What role did NFTs play here? 

Because every NFT must have an owner and because this is a matter of public record and easy for anyone to verify, NFTs enable unique identification of digital objects such as art in this case.

And, if you own a piece of art to which an NFT is attached:

• You can easily prove you own it.
• No one can manipulate it in any way.
• You can sell it anywhere as it’s borderless
• You can even retain ownership rights over your own work, and claim resale royalties directly
• You can hold it forever, resting comfortably knowing your asset is secured by your wallet on Ethereum.

So you can use NFTs to buy digital art. What else can NFTs be used for?

Currently, the main use case is collectibles and that’s how you can think about digital art being sold with NFTs. But, it is not just art, there are other areas that are seeing NFT related innovations: 

• Basketball trading cards
• A series of art videos created by Grimes that sold for a whopping total of $6 million
• Virtual real estate: Buying and developing space in a virtual land
• Jack Dorsey selling his first tweet for $2.5mio

History of NFTs

Though you can trace the history of NFTs from 2012 onwards, real work on NFTs began as late as 2017.

The first Ethereum-based NFT experiment was CryptoPunks, which consisted of 10,000 unique collectible characters (punks), each of which has a set of unique characteristics. Today, given their limited supply and strong brand among the early adopter community, CryptoPunks are likely the best candidates for true digital antiques. As recently as March 2021, individual punks have sold for more than the equivalent of $7mio. 

It was around 2018-2019 the art world started getting excited about NFTs. Digital art turned out to be a natural fit for non-fungible tokens. 

Then came NBA Top shot. Ok what about it?

NBA Top Shot is an online-only marketplace where users can buy, sell and trade NBA highlights. These highlights, or “moments,” are owned by users through NFT.

They’re basically virtual sports cards, but instead of a picture of a player with statistics on the back, you get a video highlight of a play like a LeBron James dunk or a Steph Curry 3-pointer.

Packs are sold in low quantity and are backed by a NFT. All Top Shots are officially licensed by the NBA. The league partnered with Dapper Labs, a company that specializes in blockchain, to develop NBA Top Shot.

So far it has generated over $230mio in sales.

Net net, why do people buy NFTs?

You can think of them as collectibles. It’s the same reason people buy paintings or any other physical art. 

Their demand is usually driven by quite traditional forces: utility, authenticity and scarcity. Utility is the obvious one. For example, people are willing to buy an NFT ticket because it lets them into a conference. Or, they are more willing to buy a piece of art if they can show it off in a virtual world. And, they are willing to buy an item if it gives them special abilities in a game. 

The concept of authenticity tells you the story behind an NFT.  Where did it come from? Who has owned it in the past? 

Finally, scarcity is best explained by Leonardo Da Vinci’s famous painting ‘The Mona Lisa’. In the world of NFTs, just as there is only one of The Mona Lisa, there is only one Beeple’s. 

Final Thoughts:

Hope you all are not confusing NFTs with Bitcoin. So while Bitcoin enables transfer of digital value without a trusted third party, NFT enables transfer of digital authenticity without a trusted third party

Markets have a long history of creating mania like the tulip mania in 1637. The baseball cards mania burst in the 90s.  Today, it’s mostly millennials who are getting excited about NFTs. Christie’s reported that among Beeple’s bidders, 64 percent were under 40 years of age i.e. Millennial or Gen Z. 

It may feel like a gold rush right now but the key question is if the supply is unlimited, then how long will there be value created in all of these new forms? 

One point to remember is that in a mania or a bubble, usually, the most value is created by people serving those involved in mania. During the California gold rush in 1848, firms that specialized in serving gold miners profited, usually more than miners themselves. How so? While prospecting for gold some struck riches while others found nothing, one could make steadier profits from serving the mining industry by selling supplies, lodging miners, or shipping money and mail.  In 1851, Henry Wells and William Fargo, who worked for American Express, seeing the opportunity presented by the California Gold Rush left American Express. Thus Well Fargo was formed, which is now a  $165bio bank.

This is not to say that a Beeple work’s value or market price may not increase or that it is not worth $69mio. Frankly, the value (beauty) of a piece of art lies in the eye of the beholder. What I would say is that the efforts of producing something everyday for 5000 days is surely worth something. For Metakovan it’s worth $14k per day of work.

To conclude, to me the crypto movement is also related to a “class war”. This quote from @metakovan and @twobadour sums it up “The point was to show Indians and people of color that they too could be patrons, that crypto was an equalizing power between the West and the Rest, and that the global South was rising,” write Sundaresan and Venkateswaran. 

What do you think?