From Crypto-Kitties to lactating cyborg Saber Tooth Tigers with exposed pulsating brains dripping blood, the non-fungible token (NFT) market has grown. The latest edition of Beeple-mania is a planned auction of “Everydays — The First 5000 Days” as an officially minted Non-Fungible Token. Christie’s will auction the work between February 25 and March 11. Estimate unknown, starting bid $100. Anyone with $100 can show up and bid, it is doubtful that it will win since the last auction of Beeple’s works went for a total of $3.5 Million, it was just selected works from the more than 5000 created in the last 13 years. The new work through Christie’s, which is all of them, can fetch more than $10 Million, maybe much, much more.
Mike Winkelmann a.k.a. Beeple, is an artist. A prolific artist, one who embodies the ethos of work, has made a piece of digital art every day, for the past 5044 days and counting. This is the opposite of scarcity. These artifacts have been available from Instagram for anyone who follows @beeple_crap. They are digital artifacts, infinitely reproducible without a loss of fidelity. How do you produce a collectible from this profusion? The way Christie’s has chosen to do this is to create a compilation of the first 5000 days into a single image. They also created an interactive surface that zooms in on any one image of the 5000. In order to enhance the rarity, a single token is minted using NFT on the Ethereum blockchain and transferred to the owner. Here the Ethereum blockchain serves as the public registry of ownership, authenticated by the issuance of this token mediated by Makersplace. Presumably the issuing contract will conform to the Ethereum Standard ERC-721. In addition, it may have some more meta-data about the artifact including a hash, an irreversible one-way function which in this case could be the root hash of a Merkle-tree based on the 5000 artifacts in the ensemble. Once bought, it can be freely transferred to another owner without an intermediary. The Christie’s auction stipulates that Beeple or his heirs will receive 10% of any future transfer according to the NFT smart contract.
All of this gobbledygook means that, there is protection from even a minute alteration in any of the underlying artifacts which is now tied to the winner of auction, and other factors of provenance, the time, date and authenticity of the transfer of ownership from the artist to the winner are available. This is now visible to anyone on the Ethereum blockchain. Were the winner to transfer ownership to the next owner for a price, that fact is also recorded. Transforming shit (beeple_crap) into gold. Alchemy of the highest order.
The creation of an exquisitely tooled physical display case that the buyer can hang as a trophy on their own wall is another rarity. Perhaps with a randomly chosen rotating display of a single image of the 5000. Although Beeple has not planned physical artifacts for the upcoming Christie’s auction; he and his collaborator, his wife Jen, have done so for the other auction.
NFTs hit the scene with crypto-kitties which almost brought down Ethereum. NFTs differ from “regular” fungible tokens in their fungibility. Fungibility is the property of being substitutable, one token is the same as another, a fungible token can be exchanged for another. In fiat currency, this is expressed as the price of money, a dollar in a bank deposit can be converted to a dollar bill at par. A dollar bill can be exchanged for another at par. Fungible tokens of the same ilk can be exchanged at par. NFTs are not fungible, each token represents a unique object or creation, a house, a piece of art, a digital artifact. One NFT cannot be exchanged for another. A house in Detroit cannot be exchanged for a Rembrandt. Each NFT represents a unique artifact or thing of value. Of course a true on-chain medium of exchange and unit of account will make this easier; a Stablecoin or a CBDC, easily reachable and interoperable across chains.
NFTs can be the foundation of decentralized securitization. Creating smaller valued Fungible Tokens (FT) backed by a pool of NFTs. Such an FT will be increase in value because of a rise in value of the underlying NFT and any other cash flows that the NFT throw off. Such a structure could increase the democratization and decentralization of NFTs. In the main there are two types of NFT, one that stands for an artifact that cannot directly generate income like a piece of art; or a house that can bring in rent. Even this distinction may not be relevant in the future as there may be ways to rent art and so that it can be displayed prominently at a company gathering or a party thrown by a high net worth individual. Either way, an FT on the foundation of one or more NFTs could be the next step. Of course, legal structures for the administration of such a tiered structure have to be setup. In the decentralized ethos of the day, such a structure should be a decentralized autonomous organization.