A virtual work of art entitled “Everyday: the first 5000 days”. Created by digital artist Beeple, it is the first NFT-based work of art to be auctioned off at Christie’s.
Christie’s
From art to sports trading cards, people spend millions of dollars on digital collectibles.
These cryptographic collectibles, known as NFTs, have become popular lately. Last week it became a music video created by digital artist Beeple, whose real name is Mike Winkelmann, for a record $ 6.6 million. It had originally been purchased for about $ 67,000.
Meanwhile, one of thousands of computer-generated avatars called CryptoPunks has recently been sold for $ 2 million. And a crypto artistic rendition of the 2011 Nyan Cat meme sold for about $ 590,000 at an online auction.
At the same time, critics see the madness of NFTs as another potential speculative frenzy of cryptography that is sure to fade.
So what are NFTs? And why are they suddenly sold by the millions? CNBC goes through everything you need to know.
What are NFTs?
NFTs or non-expendable tokens are a new type of digital asset. The ownership of these assets is recorded in a blockchain, a digital book similar to the networks that support bitcoin and other cryptocurrencies.
But unlike most virtual currencies, you couldn’t exchange one NFT for another in the same way you would with dollars or gold bars. Each NFT is unique and acts as a collector’s item that cannot be duplicated, which makes them rare for design.
You can think of them as the cryptographic alternative to rare Pokémon or baseball cards.
The rise of the internet meant that anyone could watch pictures, videos and songs online for free. People buy NFT without believing that they will be able to prove ownership of a virtual item thanks to blockchain.
NBA Top Shot, an NFT platform based on the American basketball league, allows users to buy and sell short clips that show the highlights of the star players. The NBA licenses the reels to Dapper Labs, a start-up that digitizes images, making a limited amount to create scarcity. NBA Top Shot has so far provided more than $ 277 million in sales, according to the CryptoSlam website. Dapper Labs gets a discount on every transaction while the NBA receives copyright payments.
Basketball is not the only sport that is becoming cryptographic. French start-up Sorare allows users to collect and play officially licensed football cards in fantasy games. According to NFT NonFungible data tracker, Sorare’s market has generated sales worth more than $ 21 million so far. Sorare announced last week that it had raised $ 50 million from investors, including Benchmark, Accel and Reddit co-founder Alexis Ohanion.
“It’s a case of obvious industry use for NFT,” said Lars Rensing, CEO of blockchain firm Protokol. “Trading cards and collectibles have always been a profitable revenue stream for clubs.”
Meanwhile, art dealers are also taking part in the action, with auction house Christie holding an auction of a virtual Beeple artwork. The auction has not yet closed, but the work has already been offered for up to $ 3 million.
NFTs are not a new phenomenon. CryptoKitties, one of the first examples, was so popular that it obstructed the digital currency ether network. To date, CryptoKitties has generated sales of more than $ 40 million, according to NonFungible.
Why are they so popular?
The coronavirus pandemic played an important role in the NFT boom. Last year, the total value of NFT transactions quadrupled to $ 250 million, according to a study by NonFungible and research firm L’Atelier, affiliated with BNP Paribas.
This is not largely due to the restrictions on being at home that caused people to spend much more time on the Internet and save money due to lack of travel. It’s similar to the rise in retailers betting on GameStop for other historically unloved stocks promoted on the Reddit WallStreetBets board.
Meanwhile, it also comes at a time when bitcoin, ether and other digital currencies have risen in value, with bitcoin briefly surpassing $ 1 trillion in market value last month.
“Right now we live in a point in the world where the majority of the population spends 50% of their time online and a significant amount of their time on a PC,” said Whale Shark, a pseudonymous collector of NFT who claims to have amassed a collection worth more than $ 2.7 million, he told CNBC.
Skepticism
Many investors buy NFTs as a speculative investment in the hopes of being able to turn them around at a much higher price than they originally paid. But a growing number of people also keep them long-term collectibles.
“Like any technological hype cycle, we start with a speculative activity and this usually gives way to a more fundamental value,” Nadya Ivanova, L’Atelier’s chief operating officer, told CNBC.
“The NFTs started in 2017. A lot of the issues were about speculation. What we saw in 2020 is that the market is maturing.”
NFTs have attracted celebrities like Mark Cuban, Lindsay Lohan and Gary Vaynerchuk, while major brands are also getting involved. And people find other cases of using NFT, such as virtual real estate and games.
However, the NFT space has been skeptical by some artists and investors. Critics see it as another cryptographic fad similar to the initial 2017 coin offerings that will eventually turn into irrelevance. Not surprisingly, the companies behind these tabs disagree.
“I think 99% of the projects in space today might not exist two or three years later, very similar to the ICO boom,” WhaleShark said.
Many NFTs are priced in ether, the digital testimony of the Ethereum blockchain. The digital asset briefly touched a record price of more than $ 2,000 last month before falling about $ 600 in a matter of days, reminding investors of the wild volatility of cryptocurrencies.