NFTs go mainstream — but can be complicated
● When Christie’s auction house sold a digital artwork called Everydays — The First 5000 Days for $69.3m (R1.02bn) last month, it put the establishment stamp of approval on a new form of ownership.
The art was sold as an NFT, for nonfungible token, essentially a digital certificate of ownership that cannot be copied. It is stored on a blockchain, the distributed ledger system that is the basis for cryptocurrencies such as bitcoin and ether.
The flexibility of Ethereum, the blockchain on which ether is transacted, led to it becoming the basis for the first widely traded collectable NFTs back in 2017. Since then, those in the know have been quietly accumulating or trading in NFTs.
The concept finally exploded into the mainstream as a result of the confluence of three high-profile NFTs: singer Grimes sold $6m worth of digital art as NFTs; rock group Kings of Leon put its new album on sale as an NFT, raising more than $2m even before the music was available; and artist Mike Winkelmann, known as Beeple, helped Christie’s record the third-highest price ever for a work by a living artist.
While Beeple had already made a few million dollars from NFTs of his work, the highest price he had ever realised from a print was $100.
The result of the sudden surge in NFT sales and media hype is that it is dismissed by many as a bubble.
That may well be true for Everydays, but it ignores the vast ecosystem of both digital systems on the one hand, and collectors and investors on the other, that has evolved in the shadow of bitcoin hype.
Artists and musicians, in particular, are waking up to the massive opportunity represented by NFTs.
The latter in particular have seen their livelihoods all but vanish as streaming music subscriptions entirely replace physical production of saleable goods that generate royalties for successful acts.
Now, even a million downloads a month on Spotify will not earn a performer a decent living.
Ironically, Spotify, Apple Music, YouTube Music, Tidal and similar platforms have sparked a boom in music sales, reversing half a decade of decline.
But that is cold comfort for the artists, who even saw their live performance revenues vanish during the pandemic.
NFTs offer them not only redemption from the vagaries of the industry, but also the ability to cut out the intermediaries that have always taken the lion’s share of music revenues.
It also means they can sell to a global audience, and finally move beyond the antiquated absurdity of regional rights for music sales.
On the surface, then, it appears that NFTs are a logical progression in the sale, ownership and authentication of works of creativity.
But, as the ancient Greeks may have reworked their proverb, there’s many a slip ’twixt the cup and the NFT.
For one thing, while coverage has gone mainstream, the marketplace for NFTs is anything but.
It remains a highly technical arena, in which the newcomer will be utterly baffled by the transactional knots that have to be untied.
The Kings of Leon NFT, or KLNFT, is a perfect example.
The album, When You See Yourself, was ostensibly available for purchase as an NFT called “NFT Yourself” on the band’s website for $35.
It was a compelling offering, including the rights to a digital album download, digital album artwork, and a limited edition vinyl record — yes, they still make those.
But that was merely the shop window. The prospective buyer was directed to a trading platform called Open Sea, from where the transaction had to be initiated via the Ethereum cryptocurrency, ether.
But wait! First you had to have a digital wallet containing ether, and linked to Open Sea.
So newbies would have found themselves opening an online account with a crypto wallet system like Meta Mask.
And then simply load it with ether? Again, not so fast.
The ether still had to be bought on a cryptocurrency platform, and sent to the MetaMask wallet.
In SA, that would typically have meant opening an account with Luno, which trades in ether and bitcoin. Then deposit funds into Luno.
Then buy ether — with a hefty transaction fee added. Then send the ether to MetaMask. With a hefty transaction fee added.
Then, the final indignity, OpenSea required a massive fee for “gas” — an Ethereum transaction charge — which was higher than the cost of the NFT itself.
Ultimately, the $35 KLNFT would have cost a newcomer anywhere between $90 and $170.
Soon, simpler platforms will emerge that allow the purchase of an NFT with a mere credit card.
But until then, expect one of the steepest learning curves of your digital life.
Expect one of the steepest learning curves of your digital life