Should You Try NFTs? | Part 1 of 3
by James Heflin
You’ve probably seen the headlines. An artist dubbed “Beeple” sold a collage/collection of art in NFT (non-fungible token) form called The First 5,000 Days for just shy of $70 million. And you can own one of a large number of cartoonish NFT portraits of chimps collectively called the Bored Ape Yacht Club for only, say, a quarter million.
Read a few stories like that, and it probably occurs to you that maybe you as an artist can get in on the cash bonanza. Yet NFTs, an outgrowth of cryptocurrency, can be bewildering. The very definition – “non-fungible token” – reads like a mash-up of meaningless syllables for most of us. So herewith, a two-part crash course for artists in cryptocurrency and NFTs. We’ll also talk to Massachusetts artists who’ve tested these new waters. By the time you’re done, you should have an easier time navigating the forest of strange names and new tech, and deciding whether to enter this new world.
So what is crypto, really?
Crypto is digital money that’s secure and traceable in ways regular money is not. Despite its sometimes silly aesthetic – you can exchange crypto called Apecoin at a place called SushiSwap – crypto is built on a solid technological foundation that is highly likely to prompt a transformative economic shift. It’s got a steep learning curve, since crypto talk is often an impenetrable language that only resembles English. This, for instance, is an excerpt from Kraken.com, helpfully explaining SushiSwap: “Liquidity providers contribute to SushiSwap pools by connecting their Ethereum wallet to the SushiSwap farming software and locking two assets into a smart contract.”
If you don’t understand that, you’re in good company. Just know that you can understand the world of crypto well enough to make and sell NFTs even if that sentence never makes complete sense to you.
Here’s what you do need to know: cryptocurrency and NFTs alike rely on underlying technology called “blockchain.” The idea is pretty simple, if a bit complex in practice. Imagine that you could keep track of every transaction made with dollars, if every receipt for every transaction got verified as legitimate, and recorded in a vast database -- anonymously, automatically, and unalterably. Imagine that the database is replicated in an equally vast number of places, and constantly updated in all of them. To mess with it would require herculean efforts.
That’s all blockchain is: a permanent, extraordinarily secure database of crypto transactions.
That’s all blockchain is: a permanent, extraordinarily secure database of crypto transactions. You can only use a crypto coin via the blockchain. The entire ecosystem of crypto-everything, from coins and NFTs to exchange apps, relies on and plugs into blockchain technology. Strange terms like “liquidity pools,” “smart contracts,” “mining,” and “proof-of-stake” all have to do with the detailed inner workings of blockchain. To “mine” a cryptocoin is, in perhaps overly simple terms, to help maintain the ever-evolving blockchain database. In return, a “miner” gets some cryptocurrency.
Bitcoin, the first crypto, has its own blockchain system. And there are newer ones that work a little differently, like Ethereum, which is likewise a coin and a blockchain. Most NFTs use the Ethereum blockchain.
Why does this matter?
Blockchain is extremely useful – it’s a supercharged, secure, programmable database. Cryptocurrencies are, in a sense, ever-evolving ways of using and interacting with blockchain databases – their complexity and the tech terms explaining their uses are why it’s so hard to get your head around them. The chief economic reason using blockchain is potentially transformative is that it makes it safe and reasonable to conduct transactions completely independently of governmental management of a currency. It’s not perfectly secure, of course, but it’s safe to say its security level is somewhere around “astounding.”
There are thousands of cryptocurrencies. For every near-magical success story you hear of astronomical returns, there are many more cryptocurrencies whose investors get little or nothing for their investment. As a result, savvy crypto investors focus on coins that exist for a well-defined purpose they believe has potential in the crypto world.
That world may not have done itself any favors with its habit of applying silly names to currencies, undermining their perceived seriousness. For instance, one popular coin, Dogecoin, is based on memes about a dog . But even if you don’t intend to risk your money investing in crypto, it’s important to know that the technology is mostly trustworthy, and its use is likely to keep right on growing in multiple arenas.
For every near-magical success story you hear of astronomical returns, there are many more cryptocurrencies whose investors get little or nothing for their investment.
So what, then, is an NFT?
Yes, it’s a “non-fungible token,” but what’s that really mean? And say you want to make your own NFT to sell – what do you set the oven on? What do you actually put in the dish?
Think of “non-fungible” this way – it’s simply unique. One dollar is like any other. One Bitcoin is, too. But an NFT is a unique digital item, or often, a basket of unique items. And because it’s not a coin but is tied to blockchain, it’s a “token.”
“Minting” an NFT basically means packing your item or items into a bundle authenticated via blockchain, so that it’s verified as your creation and can’t be duplicated. It therefore has a permanent blockchain record, just like a unit of cryptocurrency. And of particular interest to artists: via something called “smart contracts,” you can build in an automatic commission for yourself, so that any time the NFT gets sold again, you get a cut.
Say you’re a musician, and you want to offer an NFT. Technically, you could authenticate a digital copy of a song via blockchain and sell it. If there are still an infinite number of MP3 files of your song out there that are exactly the same as the NFT, it’s probably not going to be considered a high-value item. So to increase its value, add in something else – say, an unreleased version of the song no one else has.
Or do like musician 3LAU, whose NFT offering included the non-digital experience of recording a song with him. That’s the exciting aspect of creating NFTs. They can offer almost anything, and their blockchain-verification makes them unique and desirable to collectors or fans. Some of those fans, clearly, will pay a lot – 3LAU’s recording experience NFT went for $3.6 million.
Is there any reason not to NFT?
It’s not all unicorns and massive paychecks, of course. That someone named Beeple or 3LAU made millions on an NFT doesn’t mean anyone else will. Beeple’s First 5,000 Days is a large collection of artworks from an accomplished artist who already had people’s attention. That doesn’t entirely explain how someone can toss off a drawing of a monkey smoking and make a few hundred thousand, on the other hand.
Think of “non-fungible” this way – it’s simply unique. One dollar is like any other. One Bitcoin is, too. But an NFT is a unique digital item
Such things happen because of at least a few factors: Current NFT collectors are clearly in possession of a lot of money to spend in ways that might look frivolous to most of us. Secondly, the other big markets for NFTs are gaming and the “metaverse.” An NFT might be a weapon or avatar in a game, or even a “building” in a metaverse virtual reality.
Last on the list is an unfortunate truth: it’s difficult to create an NFT for free. Blockchain transactions come with fees which can be quite high (especially with Ethereum), and you do need some cryptocurrency to mint your NFT. Minting also comes with climate considerations, because the computational power it requires takes a lot of energy (a story in itself).
Right now, the market is full of possibility and innovation. But it’s also crowded – most every artist who hears about NFT sales wants in. And the big companies have noticed, too. Even Coca-Cola and Taco Bell have sold NFTs.
It’s not easy to get buyers interested unless you already have a large fan base. All those social media presence necessities and tending of online communities are key to selling an NFT, just as they were to selling a CD.
So what’s an artist to do? Wade in? Ignore this new market for now? Watch for the next article, in which we’ll take a closer look at NFTs, and talk to artists who’ve considered the question in detail.
NFTS: '5000 Days' by Beeple & Bored Ape 5258
Other photos: Galitskaya & Jose Martinez via Canva Pro