Big bucks for digital tokens
It took Canadian musician Grimes just 20 minutes to sell an $8 million art collection, but the buyers got nothing tangible. Esther Taunton reports on the NFT phenomenon.
Last month, Canadian musician Grimes sold a collection of artworks for a cool $8 million. The pieces – some unique, others limited editions – were snapped up within 20 minutes, leaving Grimes, along with her brother and co-creator Mac Boucher, to split the enormous profits.
The buyers, however, had nothing tangible to show for their frenzied spending.
Instead, each became the proud owner of a unique digital token known as an NFT, the latest trend in the crypto-economy and touted as the digital answer to collectibles.
But what is an NFT?
NFT stands for ‘‘non-fungible token’’, although unless you’ve studied economics, that probably isn’t much help.
While ‘‘non-’’ and ‘‘token’’ are pretty straightforward, ‘‘fungible’’ is proving a bit of a head-scratcher for many.
In simple terms, if something is fungible it is mutually interchangeable.
A $20 note, for example, is fungible – you can swap it for two $10 notes or four fives and you still have $20. Cash is fungible.
A non-fungible item is unique and irreplaceable, like a signed album or an original artwork – sell or trade it and it’s gone.
OK, so how does that work in the digital world?
While digital assets can be easily copied, NFTs allow them to be ‘‘tokenised’’, creating a digital certificate of ownership for things like songs and artworks.
When the token is bought or sold, the transaction is recorded and stored on a ledger known as the blockchain.
Even if a digital asset is shared, downloaded, or pirated, ownership of its NFT is protected by the blockchain.
Sounds bizarre. Is this whole thing just a fad?
Not according to experts. Nigel Green, founder and chief executive of financial advisory firm deVere Group, which has an office in Auckland, said traditionalist investors who dismissed NFTs were ‘‘fooling themselves if they believe they are a passing fad’’.
Although so far something of a novelty, NFTs would become increasingly valuable as the world rapidly became more digitalised, he said.
‘‘Demographics are on the side of NFTs, too. Millennials, and Gen Z especially, have digital lives and it’s natural to want to take digital representations of luxury brands, music and art into these worlds – and now they can.’’
Who’s selling them?
A growing number of global brands are joining the NFT market, including America’s National Basketball Association and traditional auction houses like Sotheby’s and Christie’s.
But anyone can get a slice of the NFT pie. Closer to home, Wellington craft brewery Juicehead has a series of unique NFT collectibles, including tap badges, logos and original artworks, up for grabs.
Napier sculptor Ben Pearce is also onboard. His work, a tiny brass moon named Lepius, exists in the real world as well as digitally, and is listed for sale on the Foundation App.
Creatives love NFTs, which are positively changing business models in the industry, Green said.
‘‘Artists and musicians, for example, can provide enhanced virtual experiences for collectors and buyers.
‘‘They can prove if their works are counterfeited, and they can include criteria to get royalties every time their works are re-sold in the future.’’
So we should be buying them?
Not in a huge hurry, Green warns. ‘‘NFTs are the hottest new digital asset, but investors need to exercise extreme caution. This market is still the Wild West in terms of investing. Personally, I would wait until the dust settles.
‘‘That said, those who dismiss NFTs outright would probably have been the people who previously dismissed online retailers such as Amazon and digital currencies such as bitcoin.’’