Consider this offer: For $NZ17.5 million, you could buy digital proof that you ‘owned’ something.
Say it was a piece of digital artwork, and it just so happened it was represented by a ‘non-fungible token’.
You wouldn’t get automatic copyright or anything inherently material like a physical painting. Instead, you might get a link to the original file of the artwork. But, there was also nothing stopping someone from copying or downloading the digital file and using it how they liked.
Instead, what you had bought was a unique function on a public ‘blockchain’ — a decentralised ledger — that would, in most instances, ‘point’ to the file of the artwork through something like a URL.
University of Auckland professor and blockchain technology researcher Alex Sims said many people would, at this point, ask: “Why on Earth would I buy this NFT?”
That was because, by purchasing an NFT, you had bought the token that represented the asset. It’s a token wholly separate from the asset, and not the thing itself. The one-of-a-kind token just acted as your certificate of authenticity that said your copy of the digital artwork was the original.
“That’s one of the biggest criticisms of it. That might be what you think logically. But, we’re not logical creatures at all. People like to own things,” Sims said.
“Say, for example, you’ve got Van Gogh’s Sunflowers. The original is millions of dollars, but you could get excellent prints which you could swear was the same one … but people still pay millions of dollars for the real thing just to say ‘I own this.’”
Sims said that that change in what it meant to “own” something through an NFT was “what a lot of people didn’t get”.
NFTs came in a range of forms — often as digital art — but also as audio, video, tickets, and other digital assets.
The concept of NFTs has been around since the mid-2010s. But, they only recently entered into the public’s attention in a big way, in part thanks to the seemingly-exorbitant prices people were prepared to spend. Kiwi companies were also getting in on the action.
That NZ$17.5 million is what someone paid for one of the earliest NFTs, which depicted a pixelated masked alien. The image, created in 2017, was part of the 10,000-set CryptoPunks collection.
Online chatter about NFTs could be polarising too. Sometimes, they were promoted as a get-rich-quick scheme. Others dismissed the trend or characterised it as difficult to understand.
“There is so much hype at the moment that it is basically a bubble. It will crash. Some people are spending stupid amounts of money [on NFTs], and a lot of that will become virtually worthless,” Sims said.
There was also “a lot of scammy behaviour”, she added.
“That’s not to say that NFTs aren’t good, as a general concept.”
One group that could benefit from the trend were artists. Some reported making more money than ever, and Sims said that could be because people could now buy artwork and prove they “owned” it.
She said some saw NFTs as a way for creators to cut out the middleman because they could make and sell digital art themselves.
“I really do think it’s putting the power back in the hands of the artists and the creators, who have never been in a position of power.”
But, it had its downsides.
“Some people are just ripping everything off the internet and making their own NFTs, and it’s infringing copyright. Some established artists are having NFTs of their artwork sold [by others],” Sims said.
“If you’re purchasing an NFT, you have to be really careful that what you’re purchasing hasn’t been copied off someone else because, if it is, it’s effectively worthless.”
She said another often-cited concern about NFTs was their massive electricity use and subsequent environmental impacts.
Many NFTs used the Ethereum blockchain. To secure its ledger, it used a model that required devices in a network from around the world to come to a consensus on aspects like account balances and transactions by solving a type of complicated mathematical puzzle.
Ethereum estimated about 73.2 Terawatt-hour (TWh) was required to power it every year, which was about equal to the energy consumption of a middle-country like Austria. Ethereum also noted it was phasing out the method for another, which it said would cut energy consumption by more than 99 per cent.
Sims, taking an optimistic view, said NFTs could begin to take on more meaning as the ‘metaverse’ gained importance. The ‘metaverse’ referred to an idea that people could one day work, play, and interact in an immersive, simulated digital environment.
In fact, there were already examples of art galleries within metaverses. NFTs were being used here to prove the art displayed in that gallery was the original, Sims said.
She said the metaverse wasn’t going away either, with brands like Nike now preparing for a digital future.
“There would be trademarks over digital goods, which will be NFT. So, when you’re in Nike’s metaverse, you will be able to wear the clothing of the entity you bought.
“That’s exactly what happens in the real world … a lot of human beings are hard-wired to spend money to differentiate themselves.”
Sims said she planned to mint — produce a unique instance of an asset on the blockchain — an NFT for research purposes. She told 1News she didn’t currently own any NFTs.
As with any purchase, there was an element of “buyer beware”, she added.
“If people are going to buy something, it’s like with any art. Why buy it? Because you like it.
“If you’re thinking that you can make some money, that’s not a good thing. You’re setting yourself up to fail,” she said.
“It’s a paradigm shift — there’s no other way around it.
“Some people won’t understand it, but you can’t just dismiss it. But, you also don’t want people putting their life savings into NFTs because they will get horribly burnt.”