NFTs: $69 million, and still undervalued

March 14th 2021 300 reads

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In an earlier article we outlined the potential of non-fungible tokens (NFT) for commercial activity, and today (some 2.5 years later) the New York Times and even the Wall Street Journal are catching up to the topic. Albeit, the authors still seem to struggle with the terminology - i.e. separating blockchains and cryptocurrencies.

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It is therefore unsurprising that it is yet again not the technology that is making the headlines, but the value ascribed to buyers of blockchain-derived assets.

In this case the widely reported multi-million dollar sale of an NFT by an artist going by the moniker Beeple.

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Bidding for the digital art started at just $100, however, in the final sixty minutes, more than 180 bids flowed into Christie’s online auction driving the price up to $69.3 million. The price was a new high for an artwork that exists only digitally, beating auction records for physical paintings by J.M.W. Turner, Georges Seurat, or even Francisco Goya.

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Auction House Christie's said 33 participated in the bidding, and that 64% of them were either Millennials or Gen Z.

Yes, Beeple's reaction (see video below) is indeed priceless, but the buyer has it right: "the only thing you can't hack digitally is time" - referring to the years of diligent labor it took Mike Winklemann - Beeple's name IRL - to assemble the piece.

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Something which cannot be said for CryptoPunk 7804, a computer-generated avatar of a teal-colored, pipe-smoking alien wearing a hat and sunglasses, which was recently sold for 4,200 ETH (ether), which equates to approximately US$7.5 million, setting a record for the highest amount paid for a pixelated punk.

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State of Technology

It is important to understand the state of NFT technology. In its current form, Ethereum based NFT standards (I think of those mostly as 'APIs'), carry and convey only a small amount of data. While the underlying blockchain may have achieved a state of decentralization, standards for the expression of function not already encoded in accepted data formats (i,e. PNG, JPG etc.) are largely absent. In-game goods based on Ethereum's ERC-721 and ERC-1155 might allow those ins possession of the private keys to list these on online market places, or send them directly to other users of digital wallets accepting these formats. However, their utility is still mostly tied to centralized organizations maintaining processing intensive game environments, which may cease to exist if the entity behind the effort decides to discontinue the service, or the technology becomes obsolete.

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As for digital art, there are no effective enforcement mechanisms to-date which would prevent others from copying these PNGs, or JPGs, enjoying the same visualization as the rightful owner (mins the bragging rights, of having spend elaborate sums on the data, of course). However, this holds mostly true for physical manifestations of art as well. Setting the utility as kindling aside, any pricing ascribed to the Mona Lisa's painting is derived from a a shared believe system or social contract.

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Other NTF Use Cases

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Non-fungible tokens make for interesting experiments in the world of gaming and digital art. However, practical real world use cases are abound, and cover anything from supply chains to titles.

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In the future, not only will visual art be digitally native, but every physical thing will have a digital twin - often one that was 'born' before the physical instantiation of the item in the real world. This makes the adaption of this technology paradigm virtually endless. That's why this technology paradigm is still vastly undervalued.

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