13 years ago, Mike Winkleman created a computer illustration of one of his relatives and published it on the Internet. The next day, he uploaded another illustration. The next day - another one. And so on and so forth, until last month he received 69 million dollars for all the paintings.
Yeah I know. A serious twist in the story.
Winkelmann, known by the pen name "Biffle", collected all the drawings, reduced them and created a mosaic from them known as "All Days: The First 5,000 Days". He created a digital currency (we will explain later) that represents the ownership of the work - that is, whoever has the coin is considered the proud owner of the image. He offered the work - remember, only digitally, without any physical object linked to it - at an auction. The price started at a hundred dollars, and for two weeks it slowly rose, until in the last minutes it jumped to more than a million dollars with each offer. The lucky winner ended up paying $69 million for… a code. digital code. Not an algorithm, not a sophisticated artificial intelligence, but just a piece of code that represents ownership of a digital creation.
Biffle / Winkelmann couldn't believe his good luck, and he wasn't the only one. About 2.9 days after Biffle's bank manager opened a bottle of champagne, another digital creation was sold: Jack Dorsey, CEO of Twitter, sold his first ever tweet for $XNUMX million.[I]. Famous artist Grimes sold a fifty-second video for $390,000. You can watch the video at the link at the end of the article. It even includes music, which must have boosted its value[ii]. And of course, let's not forget Nyan Cat - a tiny gif showing a cat spraying a rainbow from its seat - whose ownership was purchased in February 2021 for $590,000[iii].
Let's make an important point clear: the ownership of these digital files - Beeple's photo, Grimes' video, the cat gif - did pass into the hands of some person, but all these works are still online. Anyone can download them, put them as wallpaper on the screen, or even print them and cover all the walls of the house with them, if they really want. Whoever purchased the ownership only received a digital code that makes it clear that he and only he is the owner of the work, but beyond that he has no rights to it.
No wonder many people all over the world are trying to understand these days what the hell is going on here, and why people are willing to pay millions of dollars for what seems like nothing-at-all.
But there is logic in what is happening, even a lot. In this article I will explain why and how digital works are sold for millions of dollars, what it means for the art world, and finally - I will also offer my own digital work for sale: a one and only prediction that will never be the same again.
Expensive art
Rare art objects have always fetched imaginary sums. The painting "Girl in the Garden" by Claude Monet was recently sold for 16 million dollars. The painting "The Scream" by Edvard Munch was sold eight years ago for 120 million dollars. The value of Picasso's "dream" is 155 million dollars, and so on.
But why are they so expensive? Why are millionaires willing to spend a fortune to purchase the paintings?
I am sure that some of those world rich people love art with all their hearts, and derive immense satisfaction from staring at Monet's latest painting displayed in their living room. But this is not a sufficient explanation. After all, they could have purchased a copy of the picture, or - with an investment of several thousand dollars - hired a painter to reproduce the work almost one-for-one. Among the rich, there are those who present the original paintings as a status symbol - "Look, I'm rich enough to purchase an original work by Monet!"
But this is not the only reason either.
The simple truth is that art is a profitable business. A small correction: it is not profitable for artists, the vast majority of whom at most manage to close the month, but for art collectors. The value of the global art market today exceeds one and a half trillion dollars - about one and a half percent of the total annual global product[iv]. In fact, consulting companies such as Deloitte issue annual reports discussing the value of works of art, with the understanding that this is an investment that can generate huge profits in the long term.
The value of the works of art only increases with the years. The same painting by Monet that is worth 16 million dollars today, cost only 310,000 dollars in the seventies. In the last forty years, works of art have only managed to increase in value at a rate greater than that of gold, and even more than the shares of the largest companies in the world (except perhaps the new technology giants)[v].
Smart investors know that they can generate endless profits from investments in the art market, especially in works that are already associated with great artists. In fact, as long as they carefully guard the works of art they purchased, they cannot lose the money they spent on them. The works will always be more expensive than they were at the time of purchase, because there are not and will never be identical works. Picasso would never be able to paint another "dream". Van Gogh will not return from the dead to curl more clouds in the starry sky.
Yes, these works can be reproduced. You can copy them. You can hang their posters in every house, and we do. But there is only one original "Sunflower" by Van Gogh. Only one original "Girl in the Kindergarten" by Monet. These artefacts are similar to gold, a large part of its value comes from the fact that it cannot be produced out of thin air. But their value is even more stable than that of gold, since the precious metal may still be mined from asteroids or extracted from the earth in different ways. But original works? Such will never be again.
Art objects, therefore, are the only goods that will never decrease in value. Even in a world where all our material needs depend on their satisfaction - food, water, medicine - we will still appreciate these original creations and be willing to pay even more for them, because there are no more like them in the world.
And now that it's clear why people are willing to spend millions of dollars on physical works of art, an important question still remains: why don't they invest similarly in digital works?
The answer concerns the unique nature of the digital world - a nature that has recently been undermined thanks to blockchain technologies.
The double-spending problem
Several companies tried to develop a system of digital money long before Bitcoin made headlines. They all discovered that they had to face the same challenge: the double-spending problem. What is meant by?
Let's say for a moment that I have a digital currency in my hand. That is, on the computer. It is a piece of code, after all, that can be read by the right system and marked as belonging to one of the Cezanne shepherds. At first I'm happy with that digital currency, but when hard times come I realize I need more money, and fast.
There is a problem? No problem: I'll duplicate the only digital currency I have - a basic copy-paste operation (and all the computer scientists in the audience will forgive me for the abstraction). And here I suddenly have two digital currencies. And I will duplicate them, so that I will have four digital currencies, and I will also duplicate them... until I have a trillion digital currencies and the entire economy based on these currencies will collapse in on itself. It is impossible to maintain an economic system when everyone can print more and more money for themselves.
The ability to duplicate the digital currency is a result of the three properties of the digital world: the duplication is done easily and without costing almost any money, it is done immediately and the product of each duplicate is exactly the same as the original.
When you look at it this way, it's clear why people have avoided investing in digital creations until now. There is no point in purchasing the source file of a digital drawing, when anyone can duplicate the same file, and thus it will be impossible to know whether it is the original file or not. In fact, this is an art market where anyone can forge the original work at the highest level of reliability, so that even the greatest experts in the world will not be able to identify that it is a forgery.
This was the case, at least, until the introduction of blockchain technology.
The blockchain and the NFT
Blockchain-based systems provide a solution to the double-spending problem - both of coins and of digital works of art. In general, these are systems that generate codes that cannot be duplicated without the attempt being immediately discovered. Every new coin that is produced is registered in the system and checked simultaneously by millions of computers all over the world. Please note: not by governments that can decide to change the laws of the digital economy, but by countless users who invest the computing power of their systems to preserve the digital economy. And in return for their labor, they win from time to time new digital currencies that are automatically and randomly generated for them.
I know you might have had to read the last paragraph several times, so let's summarize: it is impossible to cheat blockchain-based systems, once they have grown enough and assuming they were programmed correctly in the first place.
One of the largest blockchain-based systems in the world today is called Ethereum, and it allows the production of special coins: coins that cannot be duplicated. These coins are also called NFT - Non-Fungible Tokens. And in Hebrew, according to Wikipedia - "irreplaceable tokens". You cannot convert them in other currencies. You cannot divide them into coins of lower value (just as you can convert ten shekels into ten coins of one shekel). Each of them is unique and stands on its own.
Any artisan can upload a digital file to a network based on Ethereum (or other blockchain systems), and receive an NFT - one and only code - that represents that file. And once you've done it - that's it. There is only one version in the world of the same file with the NFT associated with it. There cannot be another version like this.
In this way, the NFTs allow us to define "original works" also in the digital world. And from the moment it is impossible to argue about a certain file being a "source", we can start talking about the value we attribute to it.
And as you can understand from the sales of Biffle, Grimes and Dorsey - the value can be very high.
And why not, actually? After all, there will never be another file created like the "source file" of Biffle's work, which was sold for 69 million dollars. And even if Beeple uploads the piece to the blockchain network a second time and obtains an additional NFT code for it, then this piece will still only be a 'second' one. The source is the source, and you can't argue with that.
The meaning for the future
Apparently, this is 'just' another strange development at the meeting point between technology and society. A bit like Bitcoin, for better or for worse. And yes, there is probably a bubble here as well that allows anyone to sell their picture having sex with a XNUMXD printer in virtual reality for a few thousand dollars, because - hey, it's an original picture, and it will be worth millions of dollars one day!
Still, it seems logical to me that there will also be works whose value will not decrease over the years, and even increase. For example, the video I put up for sale as an NFT, in which I predict the future of plagues (with an impressive microphone in the background). I will never put the same forecast up for sale again. This is a one-time source creation. Whoever buys the forecast video will own it, and in a few decades - when the forecast in it comes true - he will be able to brag that he predicted the future back in 2021. So much so that he invested a few dollars to show how certain he was of that future.
And if the forecast does not come true? So I hereby grant the owners of the video the right to be the first to make fun of me in public. And make no mistake: there is going to be a long line in front of the rotten tomatoes stand. But to the owner of the video I promise I will respond specifically to his mockery. Will be entertaining either way. If it interests you - Here is the link to purchase.
Why am I putting this forecast up for sale? First and foremost, because it is a demonstration of the ease of use of the new technology. Everyone can open their own NFT, for each piece (nowadays it's only music, image or video files, or I would also sell text files). Within an hour or two of trying I was able to open a new Ethereum wallet, register on the OpenSea website and put my forecast up for auction. Any child can do the same process. Now that you know about him - you can too.
Oh, and maybe - if people buy the forecast - it will also help pay the mortgage. Every little donation helps. And maybe it's time to point out that I haven't received a single dime for all my writing about the corona virus in the last 15 months. And the mortgage is heavy, heavy.
But let's leave the sad present for a moment. Buy the forecast, don't buy the forecast, everything is fine (although if you are interested in purchasing ownership of my other forecasts, contact me privately). The really big question is what the future holds for NFTs.
And here I foresee a promising future for technology, and more importantly - for the artists themselves.
Future of ownership
First of all, it is important to understand that NFTs are not just coins or tokens. They are also 'smart contracts' in their own right. That is, they contain certain instructions that are filled in automatically upon purchase. Let's say, for example, that you chose to purchase my forecast for a million dollars (come on, you know it's worth it), and after five years you managed to sell it for five million dollars (I told you you should!). I can include in the NFT of the forecast an explicit provision, visible to everyone, saying that once the forecast passes from one hand to another, I earn certain royalties.
I wrote about the meaning in my book "The Controlling the Future" already five years ago, in 2016, when very few people in the world had heard of blockchain technologies. I described the supposed future success of a blockchain-based technology developed by a young startup company called Mycelia, named after an underground mushroom network capable of spanning many kilometers. Technology was in its infancy in those days, and it is still so today, but even then I prophesied about its ability to change the future, as follows.
"When an artist uploads his digital works to Micalia, they are translated into the form of smart song contracts: the song file itself contains the conditions under which it operates. The artist can define/determine that another dollar, or some virtual currency, will be withdrawn from the bank account of anyone who downloads the smart song, or even listens to it once on their computer. These royalties will automatically go to the bank account of the artist, who no longer has to rely on the music companies or the Apple Music Store. The users can search for the songs on the Internet with a simple search engine, or share them among themselves using file sharing engines of all kinds. Due to the high level of encryption of the song file, it is almost impossible to play it without the smart contract being realized - and the artist will be rewarded.
If Mycelia succeeds - and as of today it is still a big "if" - it will be able to eliminate Apple's control of the music market within a few years. The artists will choose a service that provides them with larger royalties, and the public will choose a service that is clearly perceived as more ethical, since it rewards the artists directly and not the intermediary Apple. Mycelia's operating costs will be zero, as it will use blockchain technology and file sharing technologies, so that users will serve each other. Mycelia's entire role can be summed up in the creation of the algorithm that will convert the song files into smart contract files, and at the same time support artists who wish to use their services."
I am short of saying whether Mycelia will succeed or not. I try very hard not to provide forecasts for specific companies. What's more, I believe in the idea behind the technology: the ability to turn works into smart contracts - that is, NFT - that will automatically transfer royalties to the artist every time they are purchased, or maybe even every time they are played.
In such a future, artists will have greater control over their works than ever before. They will be able to receive tiny royalties automatically every time these are played, thereby bypassing all the big bodies that currently supervise the field of copyrights. Organizations like Akum - "Association of Composers, Authors and Music Publishers" - will become meaningless. They will no longer be needed. The smart contracts will enforce and execute the transfer of royalties automatically.
And what about the value of the creations of Beeple and others, the NFTs for which were recently purchased for millions of dollars? I believe the buyers made a smart deal. Or at least, not as crazy as it might seem at first glance. Since there is no way to fake these original works, their value will only increase in the coming decades.
Please note that I am not recommending that you go purchase any NFT that comes to market in the coming months (except mine, of course). You wouldn't go and buy paintings now from an unknown artist, hoping they would be worth millions of dollars in the future, would you? The market will soon be flooded with NFTs of all kinds, produced by bored kids, ambitious teenagers, and poor musicians. Out of all this huge variety of works, only a very few will rise to greatness. Just like it happens with creations in the physical world. And yet, if you bet on the right digital works - and from the moment a certain work sells for millions of dollars, it is surely right - you can expect that its value will increase at a similar rate to that of physical works. That is, it will be a particularly successful investment for the future.
Summary
I know this was a long article, but I hope I managed to convey the meaning of the NFT: why people are willing to pay millions of dollars for them, why they (probably) act smart and how this technology will further affect the world. And along the way, while writing, I also taught myself how to create an NFT, and made a forecast to sell. It will be amusing if the sale actually works out.
The technology behind the NFT marks a new era, in which the blockchain finally begins to serve a practical purpose. Unlike Bitcoin - which cannot yet function as a global currency before the system behind it is overhauled, fixed, and possibly rebuilt - NFTs seem to have matured and are now able to flourish on their own. They provide real value, and will continue to do so for the foreseeable future, and possibly beyond.
Going to be interesting in the future.
[I] https://www.theverge.com/2021/3/22/22344937/jack-dorsey-nft-sold-first-tweet-ethereum-cryptocurrency-twitter
[ii] https://niftygateway.com/itemdetail/primary/0x948b3515d81034a3c16d5393c6c155946c93c103/1
[iii] https://www.businessinsider.com/ethereum-nft-meme-art-nyan-cat-sells-for-300-eth-2021-2
[iv] https://www2.deloitte.com/lu/en/pages/art-finance/articles/art-finance-report.html
[v] https://www.nanalyze.com/2020/04/how-to-make-fine-art-investment/
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