You are here reading this article probably because you’ve heard about the JPG file that sold for USD$69 million in March 2021 at Christie’s, one of the most prestigious fine arts auctions in the world and are wondering how something like that can happen. Or because you keep bumping into these three seemingly innocuous but increasingly ubiquitous letters--N, F, & T. There may be different paths that led you here but I know there’s only one thing you are searching for when it comes to NFTs:
Just what in the world are they? I will try to provide some perspective and offer some explanations but I make no promises. If you’re okay with that, let’s get started.
NFT stands for non-fungible token. I know, I know--even spelling out what the acronym stands for barely makes it any more understandable. Let’s break down the term into two parts, non-fungible and token. Let’s tackle non-fungible first.
No, it doesn’t refer to fungus. Non-fungible simply means not replaceable. When something is non-fungible, it means it is unique and is not replaceable by anything.
For example: let’s say you have a 100-dollar bill and I also have a 100-dollar bill. If your bill falls to the floor and I pick it up and I hand you my 100-dollar bill instead, it doesn’t matter right? Your 100-dollar bill has the same value as my 100-dollar bill. They are interchangeable. In this example, it doesn’t matter which physical piece of cash you are holding as long as its value is 100 dollars. Cash is fungible.
But now let’s say that a year ago you had landed your first job and that 1 month after, you received your first-ever paycheck. Let’s say that from that paycheck, you kept one 100-dollar bill as a souvenir of this milestone in your life. You intended to never spend this 100-dollar bill and to just keep it in your wallet as a future reminder of how you started. Now, if this 100-dollar bill fell to the floor and I picked it up for you, you wouldn’t accept it if I replaced it with my 100-dollar bill because your 100-dollar bill, the actual physical paper, has an emotional value for you. It cannot be replaced by any other 100-dollar bill. In this example, your 100-dollar bill is non-fungible.
To understand the token part, we’re going to have to understand the blockchain. I’m sorry but there’s no simpler way to do this. In order to understand the T in NFT, we are going to have to understand the technology behind NFTs which is called the blockchain.
The blockchain was first created in 2009 when Satoshi Nakamoto wanted to create a new digital currency that doesn’t require relying on a centralized institution like a bank. He (for this article’s sake, I’m assuming he is a male and a single person; nobody really knows who Satoshi Nakamoto is) called this new digital money Bitcoin.
To understand how the blockchain works, let’s first see how the traditional money works: let’s say I sell headphones and you wanted to buy a pair for $100. You swipe your debit card in my store's handheld point-of-sale unit. The unit will signal to your bank that you are trying to spend $100 from your account. The bank will check its record of your account and see if you have enough funds. Upon seeing that you have (for example) more than enough in your account, the bank approves the transaction, takes $100 from your account and sends it to my bank. My bank then checks my account, adds $100 to it, and alerts me that the transaction was successful.
In this example, our transaction depends solely on our bank's individual abilities to keep accurate records of our transaction histories and their ability to coordinate with each other on our behalf.
Bitcoin wanted to remove this dependence on banks and other similar intermediaries. To do this, it needed to find a new way to keep records of transactions and verify its accuracy without going through a centralized database like a bank. The technological solution that bitcoin found involved “decentralizing” the record-keeping: every member of the network (the blockchain is basically a network of computers) keeps a record of their own transactions AND of everyone else’s.
Let’s go back to our previous example: I sell headphones and you want to buy a pair for 1 bitcoin. This time you simply send 1 bitcoin to my digital wallet. Instead of checking with a bank if you have enough bitcoins to spend, your computer checks the communal record. Upon seeing that you do have enough bitcoins, the transaction goes through. On my end, my computer updates my record (I received 1 bitcoin from you) and also sends that information to everyone else’s record.
This communal method of recording transactions was named blockchain because new transaction information from everyone in the network came in as blocks of data. These new blocks were added onto or chained together onto existing ones by highly complex math. Hence, blockchain.
Okay, so 7 paragraphs have passed and we still haven’t gotten around to the T part of NFT. Hold on to your seat. We’re getting there.
The decentralized nature of the blockchain coupled with its method of verifying the validity of transactions using complex math makes it a system that’s much more secure and harder to hack from the outside than centralized systems. Bitcoin’s blockchain used this security to protect the records of financial transactions within its network.
But eventually, other blockchains evolved to store extra information, not just financial transactions. This was the goal of the blockchain called Ethereum. While it also has its own digital currency called Ether, the vision of Ethereum creator Vitalik Buterin was for his version of the blockchain to be a kind of a platform technology upon which other applications can be built. Think of Ethereum as iOS or Android, a platform upon which you build apps. Apps built on Ethereum or any other blockchain are called dapps, short for decentralized apps. Examples of this are Axie Infinity (an NFT-based online role-playing game) and Uniswap (decentralized cryptocurrency exchange).
Because of Ethereum’s design, it was able to encode entries in the blockchain that are non-financial in nature--information like who created something, when and where it was created, how many of this thing was created, who owns this thing, to whom this thing has been sold, and for what amount. Once an entry is made in the blockchain, it is there forever and no one can make unauthorized changes to the information it carries. The entries are unreplicable, unfake-able, unfudge-able. The entries are unique. The entries are non-fungible.
Tokens are a type of entry on the blockchain. They represent smart contracts that contain ownership information and history of digital assets. These tokens are the T in NFT.
Now that you understand what an NFT is (that’s my hope, at least), we can now start talking about how it became involved with digital art.
In 2014, artist Kevin McCoy and techpreneur Anil Dash teamed up in a hackathon. They wanted to find a way to let artists assert ownership over a piece of original digital art. McCoy at that point had taught himself to code and was experimenting with a blockchain called NameCoin. McCoy and Dash found a way to register a looping art video created by McCoy’s wife on the blockchain. They gave this solution the name “monetized graphics.” People in the audience laughed. It was a bit ahead of its time.
In 2017, the idea of NFT art found new life when Matt Hall and John Watkinson created CryptoPunks. They were programmers who liked the simple programming language of Ethereum. They created 10,000 punk-rock-looking pixelated avatars and issued an NFT for each character. They put up 9,000 CryptoPunks on a website, free for anyone to claim. They kept the remaining 1,000 for themselves. At first, few people were claiming the NFTs. That changed when a Mashable article came out featuring CryptoPunks. Within 24 hours, all 9,000 CryptoPunks were claimed. Then something strange happened: those original claimers began selling their CryptoPunks in an aftermarket. By the end of 2017, a CryptoPunk NFT sold for USD$170,000.
In 2018, John Crain created SuperRare. The success of CryptoPunks inspired Crain to create a platform for selling digital art NFTs and help artists earn from their work in a setup that truly benefits the artists. In the world of traditional art before NFTs, artists for the most part could only sell work through art galleries that take 50% commission from art sales. SuperRare would only take 15% and--here’s the revolutionary part that only became possible because of blockchain technology--give artists 10% royalty for every subsequent sale of their digital art NFT. This kind of royalty sales has never existed in the art world until now.
In 2019, a SuperRare artist named Coldie sold an art NFT for USD$1000. It was the first time that an art NFT on SuperRare broke the 4-digit threshold. It got people buzzing. Fellow artists and collectors dubbed him “King Coldie.”
By 2020, SuperRare broke the 6-digit barrier. One of its artists, Matt Kane, sold an NFT of a digital artwork that changed depending on how Bitcoin’s price fluctuated.
In 2021, the 7-digit barrier was broken by the artist Pak. An NFT of their artwork called The Pixel sold for USD$1.96M. It is literally a single gray pixel.
And to mark the height of digital art NFTs, the above mentioned Beeple’s Everyday - The First 5000 Days. It went for USD$69M. It is the highest price ever paid for a single piece NFT. There’s more. This historical moment has been outdone by Pak who, to this day, holds the record for the most expensive NFT ever - $91M. Yes, it was a collection that contained thousands of pieces that were minted by thousands of collectors. Nevertheless, sales volume speaks for itself.
Since NFTs can be issued for anything digital--an image, a GIF, a New York Times column, a tweet--it can also be issued to 3d art. Yes, you can make money in NFTs as a 3d artist.
Take for example one of our GarageFarm regulars, Victor Duarte. He has created many 3d images and animations which he mint NFTs for and put them up for sale over at MakersPlace. NFTs of his works sell in the range of USD$3,000-$13,000. Read about our interview with Victor here and learn more about how to make money as a 3d artist via NFTs.