investigation
Special investigation: What are NFTs and what do they mean for the future of art, music and collecting?

It is the children’s story so well known it has become an idiom. The Emperor’s New Clothes tells the tale of an emperor taken in by swindlers who charge him a mint for clothes they claim are invisible to stupid people, culminating in him parading naked through the city because nobody will admit they can’t see a stitch. What do NFTs, or non-fungible tokens to give them their full name, have to do with this classic folk tale? Only that some believe the much-hyped new technological development represents the digital equivalent of the emperor taking a tour in the altogether, while others believe NFTs are the future of art, music and collecting. To answer the question of whether NFTs represent a seismic shake-up to culture or a digital pyramid scheme, The Sunday Times spoke to tech experts, NFT creators and academics running the full spectrum from devotee to cynic. But before anyone can understand the answer to that question, a more obvious one presents itself: what are NFTs and what does fungible mean anyway? In layman’s terms, an NFT is a digital token that can be attached to anything from an artwork to a tweet to a clip from a basketball game so that someone can say they own it. It is traded on a blockchain, which is the same virtual ledger technology behind Bitcoin and other cryptocurrencies. In one sense, an NFT is nothing more or less than a string of zeroes and ones. In another, it is bragging rights. The “fungible” refers to the fact that NFTs cannot easily be traded for something of the same type unlike, say, money. RMIT University professor Ellie Rennie, a member of RMIT’s blockchain innovation hub, put it this way: “Bitcoins are like bank notes in that they are fungible: one $50 bill is interchangeable with another, as is one bitcoin. “An NFT is unique. The Mona Lisa is not interchangeable with Vermeer’s Girl With A Pearl Earring — same with NFTs.” The term NFT has been around since 2014 but only came close to hitting the mainstream this year when British auction house Christie’s sold a digital-only artwork, Everydays, complete with its own unique NFT for £50 million ($89 million). What made the sale remarkable is that the buyer of the artwork by Mike Winkelmann, better known as Beeple, was paying for a digital token promising ownership of a digital image that anyone could screenshot online. Everydays was far from the first art NFT to change hands: the artist Grimes, also known as the other half of cryptocurrency fan and Tesla billionaire Elon Musk, had already sold about $6 million worth of her work as NFTs. But the involvement of Christie’s conferred a certain credibility on a technology that was still opaque to many. So why would someone pay £50 million for an artwork they could simply save to their computer with a couple of clicks? “You can also print a painting from Monet’s Water Lilies series and hang it on your wall but that’s not the same as owning it,” Professor Rennie said. “You certainly can’t sell that print for $40 million.” Another unusual NFT sale will take place at Christie’s next week, this time involving a work by Emily Ratajkowski. She is the model and writer whose naked Instagram post was somewhat famously appropriated by the artist Richard Prince, printed on a big canvas and slapped with a $US90,000 price tag. Ratajkowski has announced she will make — technically the term is “mint” — an NFT of an image showing her standing in front of the Prince print. The name of Ratajowski’s piece tells the story: Buying Myself Back: A Model for Redistribution. The value of the NFT market is estimated to be in the hundreds of millions of dollars, with some bullish analysts tipping it to top $US1 billion by the end of the year. While the potential of NFTs to shake up the art world has garnered the most headlines, the applications stretch considerably further. Kings of Leon were one of the first high-profile bands to release an album as a series of NFTs, while Star Trek alum-turned-pop culture icon William Shatner has been selling NFTs for his personal memorabilia, including a digital photo of him hugging one-time co-star Leonard Nimoy and even a dental X-ray. Other celebrities using NFTs to monetise their fame include Paris Hilton, Lindsay Lohan, Azealia Banks and Shawn Mendes. Virtual sneaker brand RTFKT Studios sells digital shoes via through blockchain auctions, with $US3.1 million worth changing hands over just seven minutes in March. Horseracing enthusiasts can even buy digital horses via the Australian-based Virtually Human Studio. And in the world of professional basketball, NFTs are already a huge money spinner thanks to the online forum, NBA Top Shot, which allows fans to trade clips the same way they might trade basketball cards. The platform has reportedly made more than $US230 million in sales. The record for the most expensive “moment”, as they’re called, traded hands in February for $US208,000 and featured a legendary LeBron James dunk. As journalist Elizabeth Lopatto wrote for The Verge website at the time: “Now, you can go on to YouTube and watch a clip of this dunk. A clip of the moment is even included in the celebratory NBA Top Shot tweet announcing Schwarz’s acquisition. But you won’t own it.” You can even sell an NFT of a tweet, as Twitter founder Jack Dorsey did in March when he auctioned off his first tweet for $US2.9 million. It is that kind of sale that has Perth-based strategist Meg Coffey scratching her head. “Art has always been subjective and what you’re willing to pay is not always what someone else will pay,” she said. “But then you have something like Jack Dorsey selling his first tweet for $2.9 million and when you look at that you say ... I can just print that tweet out myself and put it in a frame and I have a copy of it. Why do you need a tweet? That’s weird. “NFTs are one of those things that it’s cool that I don’t get because it’s not for me ... I could care less, but then there are people who say that the blockchain is the future of how everything will be and we’re early adopters and you’ll see.” The words NFTs, blockchain and Bitcoin have a tendency to wind up in sentences together. There’s a good reason for that but, to the average person, it is hard to figure out how the terms intersect. Both NFTs and Bitcoin exist on what is known as the blockchain. But while Bitcoins are fungible, or replaceable, NFTs are not. That is because NFTs have a code that differentiates one from another. Ethereum may lack the popular name recognition of Bitcoin but it is the most popular kind of cryptocurrency used as payment for NFTs. Deakin University’s Luke Heemsbergen describes the intersection of Bitcoin and NFTs this way: “Each rely on a distributed ledger to track transactions of unique digital assets. “Sometimes these transactions trade assets called ‘Bitcoins’ or other cryptocurrencies ... sometimes they reference other types of assets, like art, that can be digital.” Not everyone making money from NFTs, or trying to, is an eccentric billionaire, a glamorous model or an NBA executive with an eye for trends. WA artist Dayne Barber runs the Facebook group NFT Australia and has been making and selling NFTs of his work for a couple of months. A tattoo artist who is constantly creating digital images on his iPad, Barber “stumbled” upon NFTs via YouTube and saw it as a way to earn some passive income for the work he was already doing. “It’s very difficult for digital artists to make money from what they do,” he said. “Before it was very difficult because you could just screenshot it (the artwork) and do whatever you wanted with it.” For Barber, part of the appeal of NFTs is that copyright resides with the artist. The person who buys the NFT owns the digital work but Barber can still, for example, create physical prints to sell. He also receives royalties if and when the NFT gets sold again. Barber is a believer that longer-term NFTs and cryptocurrency will be mainstream. “The way I think about it is how technology has changed from the internet to now,” he said. “I think: ‘What’s tech going to look like in 30 years?’” Sydney-based artist Jake Latimer has been working digitally for more than seven years, with a background in games design and visualisation. He is similarly bullish about the implications of the technology for artists like himself. “I believe that this is definitely the future of the art world and will change how galleries across the world will operate,” he said. “I have had experiences with physical gallery spaces in the past and the online approach regarding NFTs allows more artists to showcase their work to a much wider audience, which may not have been possible with traditional outlets.” So, say you are convinced about the value of NFTs and you want to create one. Or you want to buy one. Where do you go? This is not the kind of product you can pick up at the Apple store along with a phone upgrade. The number of online platforms set up to mint and trade NFTs is big and growing. Some are exclusive and require an invitation to join, while others are open to all. OpenSea, Rarible, SuperRare and Nifty Gateway are among the most popular. An artist looking to sell an image does not need an in-depth understanding of blockchain or cryptocurrency to make and sell an NFT. Typically all they need to do is pick a preferred platform, upload the image and, depending on the platform, likely set up an online wallet to store the type of cryptocurrency supported. Some websites let users create NFTs for free, others charge a fee. Money is not the only cost associated with NFTs and their growth has not been without controversy. Aside from the question of whether they represent value for money or a kind of mass hallucination is the problem of their carbon footprint, which is immense. That is because minting an NFT requires an energy-intensive computing process known as “proof of work”. The New York Times reported last month that the average NFT has environmental footprint equivalent to driving 800km in a car. NFTs are hot right now in more ways than one. Whether they will remain so is up for debate. For Dr Heemsbergen, NFTs are here to stay but the applications will continue to evolve. “People make up things like this all the time,” he said. “Yuval Harari (author of Sapiens: A Brief History of Humankind) suggests humans are unique in their capacity to ‘transmit information about things that do not really exist, such as ... nations, limited liability companies, and human rights’. “Why not authenticity value of who ‘owns’ art as well?” Or to put it another way: “Art is a pyramid scheme.” Professor Rennie is similarly optimistic about the potential, pointing out streaming services such as Netflix and Spotify have already normalised the idea of using digital platforms to lease digital content. “So it makes intuitive sense that we should be able to purchase and own works via digital platforms, too,” she said. “We didn’t have the means to do this before blockchain. Blockchain is known as ‘the internet of value’ because we can move value around the internet in a peer-to-peer fashion for the first time. NFTs are how we move non-fungible value and that’s highly significant.” Ms Coffey is decidedly more on the fence. “I think it’s going to remain super niche,” she said. “I’m happy to be proven wrong, I think it’s going to stay niche, especially in Australia. “I just don’t think that enough people are enough up on digital that it’s going to change anything in three to five years. “But I’m happy to be proven wrong. “Fortune favours the brave and good on people for trying things, I just don’t have enough confidence in it that it’s legit. “I mean it is legit — it is a real thing — but I do look at cryptocurrency as a Ponzi because it’s the big guys putting their money in and getting real money out but ... who’s left holding the bag?”

investigationSpecial investigation: What are NFTs and what do they mean for the future of art, music and collecting?

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Special investigation: What are NFTs and what do they mean for the future of art, music and collecting?