NFTs might be the future of art

Photo: Unsplash

By r.c.d. kreimerman

NFT stands for non-fungible tokens. Before I get to what this means I need to talk about money. I am sure that by now you have heard of Bitcoin. You might even be somewhat familiar with the concept of crypto currencies and you know that, in theory, anyone can create a currency out of thin air. To be fair, money is a complicated concept. Money is anything that is accepted as a reference for trade and represents the value of the thing being traded. It circulates from person to person and it is used to set the prices of the things being traded based. 

There are at least two types of money: fiat and representative. Fiat money, such as paper money and coins, is physical. Representative money is a promise to pay; for example cheques. The value of fiat money is determined by the government, not based on the material it is made of. Representative money, on the other hand, is backed by a physical commodity such as a precious metal; or at least it was. Before the 1970’s most economies used the gold standard; that is, money was backed by the hard asset that is gold. In theory, anyone holding paper money could turn it for a fixed amount of gold. Hence, governments were preoccupied with having gold reserves as they could only issue the amount of money they could back up with this metal. 

Today no country subscribes to the gold standard, which means the value of money is whatever governments say it is and markets choose to believe. As you can appreciate, money is just an illusion, an agreed upen story based on trust. If you trust the robustness of your government you would trust the value of the currency will remain overtime.

What about NFTs?

I’ll get there in a moment. A very important difference between a fiat currency issued by a government and a crypto currency is the backing institution; that is, the trusted third party. In the case of a country the trusted third party is the government itself. The strength of the government is what constitutes the backbone of the system. This, of course, could be problematic because, as history has proven many times, governments tend to fail. Bitcoin and other crypto currencies are not backed by governments, each transaction is validated among a network of computers which maintain a decentralized record of all transactions. Thus, there is no need for a single entity acting as a trusted third party; the collective guarantees the security of the system.

Almost there. Most cryptocurrencies are based on a technology called blockchain. A blockchain is a way to store data. Instead of rows and columns data are stored in blocks that are linked together.  As new information comes in it is added at the end of the chain. The result is a decentralized, timestamped, immutable record of transactions. The most common use of this powerful technology is in cryptocurrencies but its applicability is expanding to many areas, including art.

NFTs 

As mentioned before NFTs are non-fungible tokens. Another word for fungible is replaceable. Something fungible runs out when it’s used. Conversely, non-fungible relates to something that is unique. Anything that can be produced in a digital format (a song, photo, video, text, painting, you name it) could be transformed into an NFT. A code is added to a file creating a unique signature. Therefore, NFTs are a way to certify the authenticity of a piece of digital art. They live in a blockchain and therefore each transaction is timestamped, permanent and ownership is verifiable. 

I know it sounds weird but today you can collect digital art as if it were physical paintings. With tangible art, watching the original piece produces a richer experience than seeing a poster or a digital reproduction on your computer. With digital art you could only experience it through a digital medium and you wouldn’t be able to distinguish the original from the copy. And yet, NFTs are gaining notoriety and momentum. In February 2021 Christie’s, the famous auction house, sold “The First 5000 days”, a NFT from the artist known as Beeple, for $69 million dollars. It is too early to know if NFTs will become the future of art or just another craze linked to the crypto world.

r.c.d. kreimerman

Resources:

https://nomadcapitalist.com/finance/gold-backed-currency/

https://www.investopedia.com/ask/answers/041615/what-difference-between-fiat-money-and-representative-money.asp

https://www.investopedia.com/terms/b/blockchain.asp

https://www.definitions.net/definition/trusted+third+party

https://www.technologyreview.com/2017/12/14/104996/a-cryptocurrency-without-a-blockchain-has-been-built-to-outperform-bitcoin/

https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-art-faq

https://learn.rumie.org/jR/bytes/what-are-nf-ts-non-fungible-tokens?

https://www.theverge.com/2021/3/11/22325054/beeple-christies-nft-sale-cost-everydays-69-million

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