Are NFTs the next Bitcoin?
NFTs and Digital Art — We’re just at the beginning
First posted on my personal website (see here)
Disclosure: none of this is investment advice. Buy NFTs at your own discretion and do your own due diligence. Everything stated here is my personal opinion and should be treated as such.
I bought my first NFT today, and yet I think this industry is going to explode over the next decade. As Gary Vee has said, this could be like buying into Bitcoin in 2009. We all know how well Bitcoin has done in the last several years, but imagine buying into it when it just started. This could be happening with NFTs right now.
First, what is an NFT?
NFT stands for non-fungible token. To understand this, you need to understand what fungible means. A ‘fungible’ asset means something that can be exchanged with another unit of the same asset. A good example is a dollar. If I trade you my $10 bill for your $10 bill, nothing is different. While they’re different pieces of paper, both represent the same exact value.
A non-fungible asset refers to something original. “A 1 of 1”. No two assets that are exactly the same. This is where things get interesting.
Because of blockchain technology, humanity has been able to implement ideas that didn’t seem possible. A perfectly good example of this is Bitcoin. But Bitcoin is a fungible token. One bitcoin is one bitcoin is one bitcoin.
A non-fungible token creates a digital certificate representing a unique asset. This token can be attached to any digital file, like a meme, picture, or video. This allows anyone to create proofs of authenticity for digital content that can be owned, bought, sold, and traded. These tokens are stored on an open blockchain (like Ethereum) meaning their history is verifiable by anyone in the world with an Internet connection. If you don’t understand blockchain/Ethereum and want a better explanation, see here.
What does this all mean?
Let’s use an example. Say you created a drawing of a smiley face and uploaded it to the Internet as a JPG file. Once it’s uploaded to the Internet, anyone can create a copy of that picture. If I go on Facebook or Google, and right-click “copy image” on your smiley face, I can create exactly the same copy. If I do this a thousand times, I would have a thousand copies of the same image. This means that the value of that image is effectively nil because it can be copied into eternity.
Let’s say you uploaded that same picture and minted it on the blockchain (a fancy way of turning it into an NFT). Now, there’s a 1 of 1 proof of authenticity on the blockchain that exists securely stored in your digital wallet. Anyone can verify its authenticity with websites like Etherscan. This allows me to put it up for sale so anyone can purchase it on the blockchain.
You might be thinking ‘Why would anyone want to buy a smiley face I made?’ This is the initial reaction most people would have, but what if that smiley face was a painting created by a famous artist like Pablo Picasso that could never be forged?
That’s exactly what’s beginning to happen. Artists and digital creators from around the world are starting to create their own digital art and sell it on the blockchain. By creating a rare 1 of 1 NFT and selling it online, people get to own a piece of their art that can never be forged.
You may be thinking “why is this different from real art?”
It’s potentially better.
Real art can be forged. There are countless examples in history of artwork being forged and collectors spending millions of dollars on fakes. When you buy a Picasso or Michaelangelo, you are trusting that the seller, usually an auction house like Christie’s or Sotheby’s, has verified the painting to be real.
But it can be faked. One of the biggest art scandals of the 20th century was when a man by the name of Han Van Meegeren forged countless Vermeer’s paintings, duping collectors out of more than $30 million dollars in today’s money. For more examples of famous art forgeries, see here.
With NFTs and the blockchain, this is impossible because everything is unique and can be independently verified. This opens up numerous possibilities because any digital file can now be tokenized as an NFT.
If you’re an NBA fan, you’ve probably now heard of NBA Topshot. For those of you who don’t know, it’s a company launched in partnership with the NBA to ‘tokenize; NBA players’ highlights. Recently, some of the highlights have sold for over 200k USD, including a normal Lebron James dunk. The best way to think about it is like digital trading cards. NBA players are even tweeting about their own player highlights and trying to get in on the action.
The company is still in the early stages but given the increased demand, tons of people are coming to the platform. They’re doing over $30M in transaction volume per day, when they did under 50k a month last year. That’s insane
So what’s the deal with digital art?
Artists and creators are now selling their own unique NFTs. Imagine Picasso or Michaelangelo decided to sell their original paintings on the blockchain. Wouldn’t that be cool to own? This is super exciting because if you follow the right artists and buy their work early, you can potentially hold a piece that could be worth 100 or 1000 times its value in the future.
What I love about the space is the combination of scarcity and reputation of the artist. Humans like things that are scare. When a car company releases a car and they only make 10 versions, the price of that car is going to be much higher than if they released 1 million versions. What if they released one version? As long as the reputation of the car company is strong, like Bugatti for example, that car would be worth an insane amount of money.
The same can be said for NFT digital art. If the reputation of the artist continues to grow where people start to buy more of their stuff and they become better recognized, their art would start to sell for a lot higher, especially if it’s a 1 of 1. By buying into crypto art now from certain artists, you’re betting on them to continue to grow their reputation and become well-known artists years from now.
Why am I buying this?
This is just another way to diversify my portfolio. Like real art, having a diversified set of assets is only going to benefit you in the future. Not everyone is going to be able to afford NFTs at the early stages and that’s ok. Use this time to learn about the space, the artists and figure out what you’d like to own someday. Once you’ve saved up enough money, at least you’ll be more educated on what you want to buy.
Ok great, this NFT stuff is interesting and digital art is cool but how would I get started?
Learn. Spend time researching, reading and watching videos to learn more about the industry. Go down Youtube rabbit holes to watch how people assess different forms of digital art. Trust me, it’ll be worth your time.
Let me lay out exactly what I did before I bought my first NFT:
· Listen to podcasts about NFTs: Tim Ferris recently had on Katie Haun, a partner at A16z, one of the largest venture firms in the world, to talk about cryptocurrencies and NFTs. She does a fantastic job explaining the concept in simple terms and what the future could potentially hold. See here
· Read articles. I found this article to be particularly useful as an intro to NFTs (see here) as well as this one (see here). There are so many more I’m sure you can find searching through Reddit or Google
· Understand the marketplaces. There are several different marketplaces but the most popular ones are Super Rare, Nifty Gateway, & Rarible. There are other ones like Zora, Foundation, Makersplace and Known Origin. All can be found through the first article mentioned above. Go through the marketplaces and learn what’s going on. I personally bought my NFT through SuperRare because everything made there is a 1 of 1.
· Learn about up-and-coming artists. Check out this website which tracks all the recent transactions for digital art across all the marketplaces. You can search by transaction volume, whose paintings have sold for the most money, how much, how many paintings the creator has made, etc. That’s a good way to understand which artists are hot right now. You can also scroll through the marketplaces above and check out who are the top sellers and top collectors.
· Follow artists and marketplaces on Twitter. This is often the first place where artists will talk about their work and what’s going on in the space. If you want to get a head start, follow the artists and marketplaces you like.
Ok, now that I’ve learned about NFTs, I want to buy one. How would I do that?
You need to create an Ethereum wallet. If you want a really good summary, I’d recommend reading this article. There are tons of ways to set up a wallet but I found the easiest was to use MetaMask. It’s an extension that works with Chrome that’s super easy to set up.
You also have to purchase Ethereum. This can be done on all crypto marketplaces, but the one I personally used was Coinbase. Once you’ve bought enough Ethereum, you have to transfer it over to your digital wallet (see here). Now you’re all set
I believe that we’re still in the super early days of NFTs. There will continue to be tons of innovation in the space and this could disrupt tons of industries. For an interesting perspective on the wider potential of NFTs, check out this thread
Right now, the time is to learn because more people will start hearing about this over the next several years. As more and more people learn about NFTs and digital art, the value of NFTs is only going to increase. By understanding the space right now, you may be able to get a head start on the rest of the world.
Creators like Logan Paul, Gary Vee and even guys like Michael Burry (Christian Bale’s character in the Big Short) are all starting to talk about NFTs. Let’s just say they’re not going away anytime soon.
Lastly, for those curious as to what I bought, here’s a link to it. Although it may seem expensive, I’m so happy I purchased my first digital art piece of my hero.
Love you Kobe.
Major thanks to the creator, Tommy Wilson, for creating such dope art.
Keep going, you’re doing great.