The market for non-fungible tokens is evolving
JOURNALISM IS ABOUT telling a story, rather than living it. Yet sometimes these two realities collide. When a new technology shows promise, trying it out can help tell the story. In September we wrote that non-fungible tokens (NFTs) and the crypto infrastructure they sit on could in time transform finance and the digital economy. Our cover image that accompanied the article, inspired by “Alice in Wonderland”, shows Alice tentatively peering over the edge of the rabbit hole, into this weird new world.
Now she is part of it. On October 25th The Economist auctioned an NFT of that cover image, raising 99.9 ether (around $420,000) for charity. In addition to raising money for a good cause, the sale allowed us to grasp more fully the potential of the technology.
An NFT is a record, typically on the Ethereum blockchain, that represents a piece of digital media: an image, say, or some text, or a video. Invented in 2014, NFTs enjoyed a mini-boom in 2017 as “cryptokitties”, collectable images of digital cats, began selling for thousands of dollars. But the tokens grabbed the headlines in March this year when Christie’s, an auction house, sold an NFT of a work by Beeple, a digital artist, for $69.3m.
Today the total value of NFTs issued on the Ethereum blockchain is $14.3bn, according to DappRadar, a research company, up from around $340m last year. According to a poll conducted in March by Harris, a market-research firm, 11% of American adults say they have purchased an NFT (only a percentage point less than those investing in commodities). Analysts at Jefferies, an investment bank, expect the value of NFTs to double next year, and to approach $80bn by 2025. Furthermore, the tokens’ use is expanding beyond cats and collectables. In time, they could prove useful for all sorts of activities in both the digital and the real worlds.
NFTs are crypto-tokens, like bitcoin or other cryptocurrencies. Bitcoin, however, is fungible: one unit is worth the same as any other, much like a dollar bill or a print copy of the latest issue of The Economist. NFTs, like plane tickets and baseball cards, are not. The tokens store some data, often including the name of the NFT and a link to a digital image. Each token is unique and can be held only in a single online wallet. The image, however, can be viewed, copied or downloaded by anyone.
Curiouser and curiouser
Why would such a set-up exist? NFTs were invented by Anil Dash, an entrepreneur, and Kevin McCoy, an artist, to help convey that an item was a digital original. They offer proof that the holder owns that specific token, even if it does not give them copyright or exclusive use of that work. Even Mr Dash seems a little bemused by their popularity. “If you liked an artwork, would you pay more for it just because someone included its name in a spreadsheet? I probably wouldn’t,” he wrote in April….