A digital-only artwork has sold at Christie’s auction house for an eye-watering $69m (£50m) – but the winning bidder will not receive a sculpture, painting, or even a print.
Instead, they get a unique digital token known as an NFT.
Where Bitcoin was hailed as the digital answer to currency, NFTs are now being touted as the digital answer to collectibles. Unsurprisingly, there are plenty of skeptics who think it is all a bubble that is going to burst.
What is an NFT?
NFT stands for non-fungible token.
In economics, a fungible asset is something with units that can be readily interchanged – like money. With money, you can swap a £10 note for two £5 notes and it will have the same value.
However, if something is non-fungible, this is impossible – it means it has unique properties so it cannot be interchanged with something else. It could be a house, or a painting such as the Mona Lisa, which is one of a kind. You can take a photo of the painting or buy a print but there will only ever be the one original painting.
NFTs are “one-of-a-kind” assets in the digital world that can be bought and sold like any other piece of property, but they have no tangible form of their own. The digital tokens are essentially certificates of ownership for virtual or physical assets.
How do NFTs work?
Traditional works of art such as paintings are valuable because they are one of a kind, but digital files can be easily and endlessly duplicated.
With NFTs, artwork can be “tokenised” to create a digital certificate of ownership that can be bought and sold. Just like with crypto-currency, a record of who owns what is stored on a shared ledger known as the blockchain.
The records cannot be forged because the ledger is maintained by thousands of computers around the world. Furthermore, NFTs can contain smart contracts that may give the artist, for example, a cut of any future sale of the token.
How much are NFTs worth?
In theory, anybody can tokenise their work to sell as an NFT but interest has been fuelled by recent headlines of multi-million-dollar sales.
On 19 February, an animated Gif of Nyan Cat – a 2011 meme of a flying pop-tart cat – sold for more than $500,000. Then, only a few weeks later, musician Grimes sold some of her digital art for more than $6m.
It is not just art that is tokenized and sold. Twitter’s founder Jack Dorsey has promoted an NFT of the first-ever tweet, with bids hitting $2.5m.
Christie’s sale of an NFT by digital artist Beeple for $69m (£50m) set a new record for digital art.