- NFTs are getting more mainstream attention as celebrities and artists are entering the space.
- A growing debate is gaining traction about the distinction between the ownership of the underlying asset and the token representing it.
- Since companies host these tokens through URLs or IPFS, this could be a potential pitfall for NFTs.
An NFT art piece made the headlines when sold at Christie's auction house for a staggering $69 million. Despite the high market value that art collectors are willing to pay for these digital assets, nothing ensures that NFTs remain available on the internet.
The digital art piece NFT that sold for $69M
A digital artist that goes by the name Beeple has sold his latest digital art piece, "Everydays: The first 5000 days," which sold for over $69 million on Christie's auction house. Although the piece of digital art could be copied and shared countless times online, NFTs create the buyer's opportunity to have a token that proves they have ownership of the original work.
While NFTs are gaining mainstream attention, there has been a growing narrative of the industry turning into a speculative bubble. Celebrities, including Grimes, sold some of her art for $6 million, and Twitter CEO Jack Dorsey has auctioned an NFT of his first-ever tweet with the highest bid at $2.5 million.
However, there has been speculation over what the underlying asset is. For example, NBA TopShot is an NFT platform that sells digital basketball cards and highlights of great plays — users can even buy a dunk highlight by Lebron James, which went for $208,000.
The growing motivation of buyers into the NFT craze compared to traditional collectibles is the idea of getting rich quickly. NFTs create scarcity — but what do they actually contain?
By default, the NFT would be digitally signed by the creator and contain its metadata, including the date, URL, and collectible content. Individuals who have purchased an NFT can resell the NFT, as the token is unique.
Litecoin founder Charlie Lee expects the prices of NFTs to eventually crash, as they are "non-finite tokens." Lee explained that there is no cost behind creating an unlimited number of tokens. Differentiating between real-world art and NFTs, he suggested that the latter creates "artificial scarcity" and further added:
I'm not saying that the digital artwork takes no effort and time to create. Some digital art are amazing and the artists are extremely talented and put in a ton of effort and time into them. But the NFT is not the artwork. Creating the NFT is cheap.
NFTs could be worth nothing
Nadya Ivanova, the COO of L'Atelier BNP Paribas, said that since anyone on the internet can create an NFT out of anything, there could be many "really bad" tokens out there, which applies to the physical art market as well.
Most people do not realize that there is a distinction between the ownership of the asset of which the token represents and the token that is on the blockchain. As startups issue some NFTs, some of these firms could go out of business and stop hosting these digital collectibles.
Since an NFT token points to a URL on the internet or an interplanetary file system (IPFS), tokens could represent files that no longer exist once the startup goes under. While IPFs ensure that the original creator cannot change the artwork, it would not ensure that the files would remain available.
Speculation around NFTs continues to loom as skeptics like Nicholas Weaver, a professor of computer science at UC Berkeley, said:
The ownership records themselves are the digital equivalent of Beanie Babies: cute little nothings that have no value beyond what someone else will buy them [for].
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