Crazy or cutting edge? Everything you need to know about buying NFTs
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By Robert Hackett
It was the gavel smack heard round the world: Mike Winkelmann made waves in February when he sold, through Christie’s auction house, a gargantuan collage of frequently crass computer-crafted sketches for $69.3 million. The moment signaled the apex of a digital collectible craze. On the auction block were non-fungible tokens, or NFTs, coded references to one-of-a-kind virtual goods that are logged on a blockchain, the distributed accounting ledger that underpins cryptocurrencies such as Bitcoin and, more often, in this case, Ethereum.
NFT mania crescendoed over the past year, like the buildup to an EDM drop, as prices of the cryptocurrencies to which they’re tied soared. Winkelmann, who goes by the alias Beeple, or sometimes Beeple Crap, represents the apotheosis of the trend, but there are plenty other examples of unbridled exuberance. Musical artists ranging from the rock band Kings of Leon to the R&B pop star the Weeknd have sold limited-edition audio tracks for millions of dollars. New York Times columnist Kevin Roose pawned off an op-ed for $804,354.50. Jack Dorsey, Twitter’s founder and chief executive, hocked his first-ever tweet—“just setting up my twttr”—for $2.9 million. (Some of them donated the proceeds to charity.)
Is this all just a flash in the pan? A cash grab? Or is the world’s sudden infatuation with artsy crypto tokens an early glimpse of fortunes to be made? One must naturally wonder: Can people make money by investing in NFTs?
What is an NFT?
First, people ought to know what they’re really buying.
An NFT is a reference to a given work, not the work itself. Consider the token as a sort of blockchain-based certificate of authenticity, a kind of tradable file representing a global bibliographic entry. Cameron Hejazi, the chief executive and cofounder of Cent, a marketplace for “NFTweets,” compares these items to “the digital analog of the signed baseball card, just for digital content.” Of course, the card is virtual in this case—a string of numbers and letters, a computer coded allusion to something else, whether that be artwork, virtual real estate, tweets, or even, apparently, farts.
If that all sounds like Byzantine vaporware to you, you’re not exactly wrong. Sam Williams, the chief executive and cofounder of Arweave, a project that aims to offer unlimited, permanent digital storage, warns that original pieces of art can vanish from the Internet if not properly secured. That’s already happened to some NFT-linked wares, at least temporarily, such as a video of a spear-wielding, planet-size baby angel created by Grimes, the eccentric singer-songwriter.
Technology aside, NFTs can be thought of financially as collectibles. Advisers call them “alternative investments,” in the sense that they are nonstandard. Experts generally do not recommend them as one’s first line of defense in preparing for retirement. (They tend to recommend stashing the bulk of one’s wealth funds in low-fee, index-tracking exchange-traded funds, or ETFs.)
Nevertheless, some well-to-do people do diversify their portfolios by collecting things such as fine art, fancy cars, premier wines, and other rarities. Other people hoard coins, baseball cards, comic books, etcetera. Often these people are guided by passion, rather than lucre. In that sense, NFTs are to the Internet what postage stamps are to philately in the physical world.
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