NFTs: Gimmicky status symbol or tech revolution zeitgeist? Here's what you need to know

11:48 am on 13 March 2022

It's one of the biggest buzz words online these days: NFTs. Are they a gimmicky, expensive status symbol for celebrities and influencers, or are they a starting point for a technological revolution that will seep into every part of our lives?

Or are they a little bit of both?

The NFT world is growing in scope daily, but it can seem like a mystery to outsiders. So what's it all about?

RNZ is here to clear it all up.

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Photo: Bored Ape / Nike / Beeble / Cyber Cosmos

Okay, I keep hearing the word "NFT," but what on earth are they?

NFT stands for "non-fungible token" - non-fungible being a fancy way of saying they are unique and cannot be replaced. They are essentially digital assets that can represent objects such as art, gaming items or music. Each NFT is either one of a kind or part of a limited edition.

Another way of looking at NFTs is that they're a form of proof, a tool for verification that cannot be easily stolen or duplicated thanks to them being created using blockchain technology - the same tool that's driving cryptocurrency.

Wait, what's blockchain, again?

That's a whole separate topic in itself, but boiled down, a blockchain is a type digital ledger that records online transactions across a network. Blockchain, the tech foundation of cryptocurrency like Bitcoin, maintains records without using one central authority, spread among thousands of computers.

So NFTs are like Bitcoin?

Not exactly. They're not currency, but some can be sold and traded online. NFTs come in many shapes and sizes. Right now NFT collectible art is having a moment. The early NFTs Cryptokitties were launched in 2017, but recent headlines about million-dollar purchases have brought new attention to the growing world of NFTs.

You can buy NFTs of digitally created artwork, comic books, video game content, existing artworks in digital form, popular meme photographs or even tweets.

Basically, if it exists in the digital world, it could be turned into an NFT. You could even turn this article into one, in theory. Would anyone buy it? That's the question.

Alex Sims is an associate professor in the Department of Commercial Law at the University of Auckland and on the executive council of BlockchainNZ.

Sims has been extensively researching the world of blockchain technology since 2016, when she had an epiphany about how much potential she saw in it: "My brain exploded and I thought this is gonna change everything".

In a world where you can copy any image online by just clicking on a mouse, NFTs offer verification of ownership. It can also be applied to far more areas than just digital art, Sims said.

"A lot of people say with blockchain, it's a solution looking for a problem but it's not - it's actually solving real problems.

"Particularly with NFT, it's just like a digital token, like a pass or something, but it can also be used to prove you own something."

Ankita Dhakar is the managing director of Hamilton cybersecurity firm SecurityLit, and is launching a series of NFTs called Cyber Cosmos World featuring female warriors that she hopes will inspire women to try tech careers.

"People buy NFTs for many reasons," she said. "It could be because people want to support a social cause, or because they want to invest in them purely to make some money by flipping NFTs. Or they could simply just want to curate and collect some digital art."

I keep seeing stories about NFTs of apes and cats selling for thousands of dollars. What's going on?

The NFT market surpassed $US40 billion in 2021, with some very big purchases along the way.

When the artist Beeple sold an NFT of his work for $US69 million last year, the mainstream sat up and took notice.

Celebrities like Jimmy Fallon and Paris Hilton promoted the exclusive Bored Ape Yacht Club NFTs, which became a must-have status symbol for some very wealthy people while also fuelling a large backlash against the whole idea of digital pictures of monkeys being worth millions.

The user-friendly platforms allow even tech novices to easily buy, sell and trade in NFTs, Dhakar said.

"This may only be the beginning of the NFT boom."

On the other hand, Michel Mulipola is an Auckland comic book artist who has been critical of some aspects of the NFT scene.

"I have called the current NFT market as exploitative, for artists, buyers and the environment."

Some of the recent hype fuels "a cash grab and exploitation of the market by artists and NFT organisers to make as much money as possible while the trend is hot," he said.

The big-ticket sales are "only one little part" of the world of NFTs, Sims said.

"I actually don't like the speculation because the underlying technology is the really important thing."

Are they the future of art?

Art galleries around New Zealand are now exploring NFTs and offering them for sale. NFT images of the famed NZ artist Charles F. Goldie sold for $127,000 last month.

The International Art Centre in Parnell is selling a limited edition NFT version of New Zealand painter Rita Angus' celebrated "Cass" painting, in collaboration with the Rita Angus Estate and Glorious Digital.

"We will be first to offer an NFT of a New Zealand masterpiece," art centre director Richard Thomson said, noting that "Cass" was voted New Zealand's favourite painting in a poll on TVOne's arts programme Frontseat in 2006.

"There is a growing interest in NFT's," Thomson said.

"Whilst they have been around for some time, it's like any art medium, there is initial interest and then the market will dictate whether they are valuable or not."

While NFTs may seem daunting to some, Thomson said they are just another evolution in the constantly changing world of art.

"There are numerous mediums artists use to make their works of art, digital art and NFT is another medium."

"You can buy a painting, a sculpture. a lithograph, or an NFT - I guess it's real art. Let the buyers decide."

There are also possibilities for new programmable forms of art, such as people owning different "layers" in an NFT and being able to change them, Sims said.

So if I buy an NFT of a famous artwork, do I actually own the original artwork?

Copyright laws still apply in the NFT space, said Sims. So minting a digital image without the permission of the copyright owner - who may or may not be the artist - can result in legal challenges. You can't just grab another Rita Angus work and make your own NFT from it, for instance.

Even if the NFT you buy has been made with the permission of the copyright owner, thus does not mean you own the copyright in the actual NFT. The same principle occurs with real world objects, such as paintings.

Sims notes that many people struggle with the concept of digital art NFTs,  “if it's digital art and I can right mouse-click and make a copy, why would I (buy one)?"

But the appeal of verified ownership is a big attraction, she said.

"People have always liked to show they own something, and so it's no different. There can be a whole lot of copies made but that doesn't detract the value of your original - in fact it makes it more valuable then, you can prove you own it."

While this makes little sense in the real world as your original looks the same as the copy it will become increasingly important. Already, on Twitter you can only use an NFT as your profile photo if you own that NFT. As we move into the metaverse, some metaverses will allow only NFT owners to display their NFTs, others will allow anyone to display an NFT, but it will be clear who owns the “original”. 

But are NFTs good for artists?

Many argue that artists selling their NFTs can give them more control over how they distribute their work and a bigger share of the profits.

Clauses can also be added to NFT sales regarding resale royalties to the artists.

"The positives of the NFT space for artists is that artists earn a percentage of each sale of the NFT artwork in perpetuity," Mulipola said.

"That's great news in terms of fair remuneration for artists, something that the established arts industry doesn't cater to."

I don't need to own a Bored Ape NFT. So why do NFTs matter? Isn't it just a fad?

The technology involved is the tip of the iceberg, Sims said.

"We will increasingly be using the metaverse - basically online worlds that people will be going into."

NFTs will be a big part of that world, from an NFT of Nike sneakers that your avatar might want to show off - just like a sneaker buff might in the real world - to providing keys for exclusive access, identity verification and more.

"I think the value of them will be more long-term," Sims said.

NFTs can be used for access rights or proof of ownership for far more than just digital art. Sims said we already use tokens in a variety of settings.

You might buy a ticket for a concert and want to sell it, but potential buyers are worried about fraud. If you sold the ticket as an NFT and transferred it, there's no way it could be replicated. Musicians could also use NFTs to give exclusive access or reduced price tickets.

In the Netherlands, a blockchain project has the goal of eliminating fraud from container ship operations, using blockchain technology to verify receipt of goods.

Around the world governments are also looking at putting their land registries on blockchain, Sims said.

"NFTs are not just for Art," Thomson agreed. "NFTs are now being supplied by large companies to buyers of their products - some watch manufacturers for example provide an NFT as Certificate of Authenticity to their buyers of their products."

The internet is full of scams and misinformation. How do you know you're not getting ripped off?

Sure, there are scams involving NFT and cryptocurrency. But there have been scams as long as there has been money and it's not an exclusive feature of NFTs, Sims said.

"There are really dodgy things going on but there is also some really good, legitimate things.

"My worry is that people look at the dodgy things and think well, we need to stop this. There's nothing inherently dodgy about NFTs."

"Anything can be used for good and bad ... We don't say ban cars because they could possibly be used to harm someone."

There are still plenty of questions around NFTs, including taxation, and some accusations of money laundering. US President Joe Biden announced this week an executive order looking closer at the cryptocurrency industry including possible regulation.

Some people really do seem to hate NFTs, though.

It's not hard to find comments online along the lines of "NFTs are a joke" or "NFTs are worthless." There have been backlashes against new technology for decades, and most observers tend to agree that we're in the early days of figuring out how bitcoin and things like NFTs can apply to our ordinary lives.

"NFTs are definitely a legitimate way of sharing art," Mulipola said. "It's more about how the onus of the current market is revolved around the ownership of the art over the art (itself)."

For those who just don't like NFTs, "No one is forcing NFTs on to them and they can be absolutely assured that traditional art forms as we already know them are here to stay as they have been for thousands of years," International Art Centre's Thomson said.

There's a certain amount of fear of the new involved too, Sims said, but current digital security systems and existing banking systems are hardly flawless.

"What blockchain and NFTs and crypto do is they magnify the current systems and show how absurd they are and people get all upset, but that's just how the world works and they just haven't realised it before," Sims said.

"We're still early," she said. "Bitcoin, the first blockchain, has been around for just over a decade ... The advances since then are remarkable."

NFTs have been used for charitable action like raising relief for Ukraine, and Dhakar said a sense of community pervades much of the movement.

"The inception of NFTs and de-centralised communities inspires new ways of thinking around sustainability and social responsibility."

So they're not just all a bunch of "crypto bros"?

"The current landscape of crypto and NFTs is very male dominated," Mulipola said. "And with the NFT artwork, it is also geared towards a male dominated market."

Mulipola pointed out a large collection marketed to Pasifika that had no Pasifika or female or non-binary characters among its thousands of NFTs as an example of lack of diversity.

Dhakar said her work with Cyber Cosmos NFTs is among those hoping to change that.

"We along with the many other women NFT projects are working on breaking those barriers down and making NFTs more inclusive.

"If you jump on Twitter which is one of the main social media platforms for promotions of NFTs, you will see there are many women NFT and LGBTQ collections working together and supporting each other out."

I keep hearing that the energy involved in cryptocurrency mining harms the environment. How bad is it?

Bitcoin does use more energy than many countries do through computers working to validate transactions.

Many NFTs are held on the Etherium blockchain, and there have been concerns about how much energy it uses.

Sims said work is constantly ongoing to find more sustainable alternatives. Ethereum has announced plans to move to a more eco-friendly system.

"Lots of NFTs use other blockchains which use actually far less electricity than people when using Spotify," Sims noted. "All NFTs get tarnished with the same brush."

OK, I'm curious. How do I get myself one of these NFTs? I'd like one with a unicorn if possible.

Like any other quick-moving investment craze, from the dotcom bubble of the early 2000s to real estate speculation to cryptocurrency offers, it pays to do your homework first - and it's never good to dive in with the idea of making millions.

"Do lots of research," Dhakar said. "Get familiar with the jargon and terminology that is used in the NFT space."

You'll need a crypto exchange account, and start looking into NFT marketplaces such as OpenSea and Rarible.

"This stuff is not going away," Sims said.

"If they're curious, just start to read up," Sims said. "But I wouldn't go buying anything. Just look. And if you did want to buy an NFT, think of it of a way of supporting an artist, if you like an artist's work, then do it. But don't think, oh, I can make some money."

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