Flying Pop-Tart Cats and Million Dollar Tweets: What on Earth are NFTs?

In March, a collage of images by an artist named Beeple sold at Christie’s for $69.3 million, the third-highest price achieved by a living artist.  This was notable not just because of the eye-popping price, but because the collage is “entirely digital.”  The buyer bought, in essence, a JPG file.  What is special about this file is that it is linked to an NFT, or non-fungible token, which is “an asset verified using blockchain technology, in which a network of computers records transactions and gives buyers proof of authenticity and ownership.”  The NFT is ”the metadata associated with the image file,” here, Beeple’s collage, that allows “the file to be bought or sold like a physical piece of art.”  Ultimately, the NFT serves to authenticate a file as the original. 
While NFTs can be pretty much anything digital, high-priced sales of NFT images and GIFs have received a fair amount of attention recently.  Undoubtedly, this is in no small part to the fact that NFTs challenge traditional notions of ownership, and, well, art.  Much ink has been spilled over the news that the creator of “Nyan Cat,” a ten-year old meme that consists of an animated flying cat with a Pop-Tart body, sold an NFT of it for nearly $600,000 in February.  And just last month, Twitter co-founder Jack Dorsey sold an NFT of his site’s first-ever tweet for $2.9 million.
If this does not make sense to you, you are not alone.  After all, NFT owners do not usually acquire “copyrights, trademarks, or even the sole ownership of whatever it is they purchase.”  The NFT buyer is not purchasing a work of art, but rather a publicly available token that links to that work, and buying that token does not put the buyer in a position to use the work “any differently than someone who hadn’t bought it.”  
So what, one may ask, is the point?  For the creator, NFTs provide a way to monetize content.  While the Internet provides anyone with “the power to make music, a piece of writing, entertainment or another creative work and be noticed,” it has not made it easy for content-creators to make a living off of that content without the middlemen of “social media companies, art dealers, and streaming music companies.”   NFTs “give people ways to make their work more valuable by creating scarcity[.]”  For the buyer, NFTs potentially give them “three things: the warm feeling that may accompany financing an artist; the pride that comes with claiming a relationship to a digital artifact and its creator; and perhaps most tangibly, an asset that can be traded at a later date.”  Viewed in this light, digital art linked to an NFT is not so different from traditional artwork.  It is not difficult to understand why someone would want to own an original Monet, even though anyone can buy a print.   
Only time will tell whether NFT art turns out to be a wise investment.  Unsurprisingly, “there is uncertainty over the stability of values, since many of the [NFT] transactions are using cryptocurrencies, which have fluctuated wildly in worth over the last two years.”   That said, it may be too soon to write them off as a passing craze.  As the New York Times reports, “true [NFT] believers remind people that most big things in tech—from Facebook and Airbnb to the internet itself and mobile phones—often start out looking like toys.”  

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About Katherine M. Lenahan

Katherine M. Lenahan is a Partner in the New York office of Faruqi & Faruqi, LLP and focuses her practice on securities litigation.

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