The growing hype around non-fungible tokens (NFTs) seems to be neverending, as fans around the world continue to pay upwards of $1 million for a piece of the pie. August was another record-breaking month for NFT sales, with an estimated $900 million spent on this bizarre new digital art craze. Even major credit card company VISA has jumped on the bandwagon, purchasing a CryptoPunk NFT for $165,000.
The leading NFT trading platform, Opensea, is now struggling to meet the demand, with their tiny team of 37 staff managing 98% of all NFT volume. In just the past month, OpenSea processed $2.84 billion in trading volume through sales of CryptoPunks, Axie Infinity, and other popular NFT collections. This represents an eye-watering increase of volume by 76,240% this year alone.
NFTs are now the hottest new thing in crypto but their growth has caused some controversy, with some crypto commentators unsure why they’re so popular. The popular host of the “What Bitcoin Did” podcast, Peter McCormack, recently posted a tweet jokingly claiming he “stole a $5.3m NFT” by downloading the picture.
I just stole a $5.3m NFT
(Right Click + Download). pic.twitter.com/hcRLJXdaQT
— Peter McCormack (@PeterMcCormack) August 28, 2021
The tweet highlights the confounding question as to why anybody would pay millions of dollars for a digital picture that can just be copied. In relation to the traditional art market, it would be the equivalent of buying a print of the Mona Lisa as opposed to the original. However, buying an original artwork actually gives you physical possession of the art, whereas buying an NFT gives you…. well, an entry on a blockchain. So what’s the deal here? Beyond the speculation, do NFTs represent actual, real-world value?
Proof of Ownership
Although low-res digital artworks of punks and penguins are dominating the NFT scene at the moment, the pictures themselves are somewhat irrelevant. The true value of an NFT lies in the token which is used to prove ownership and authenticity. While still a nascent technology that requires further development, enthusiasts believe NFTs could one day be used to prove ownership of any number of items, from books to houses. Earlier this year, the famous rock band Kings of Leon became the first band in history to release an album as an NFT, using the technology to gives fans access to bonus materials.
The immutable, incorruptible, and transparent nature of blockchain technology provides a reliable and trustworthy means of recording and transferring data without the need for a third-party intermediary. This not only provides a cheap, instant means of legal dispute resolution but also removes the possibility of human error and corruption from the mix. Copyright lawyers are already looking into the legality surrounding NFT resales of original artworks but with no existing legislation, it’s a wild west market.
Currently, NFTs have largely been co-opted by wealthy crypto hodlers as luxury items, similar to rare trading cards of the past. Their value lies in the ability to show off, or flex, your wealth through ownership. However, whether or not the technology finds a more practical use-case in society remains to be seen.