What Are NFTs, Anyway? One Just Sold for $69 Million. | 2022
From the New York Times, I’m Michael Barbaro. This is “The Daily.”
Today, It started with a picture posted on the internet and ended in an extravagant cryptocurrency bidding war.
Now to the latest trend that’s sweeping the internet, the skyrocketing prices for digital art sold as NFTs. NFT, and that stands for nonfungible token.
My colleague Sabrina Tavernise speaks with columnist Kevin Roose about digital currencies newest frontier, his unexpected role in it, and why it actually matters.
It’s Tuesday, April 13.
So Kevin, I realized how little I understood about your world when I saw this headline of yours in the paper. And I’m going to read it to you right now. So it says, why did someone pay $560,000 for a picture of my column? So tell me about that.
Well, actually, that is a little outdated because the exchange rates have fluctuated since I published that column. So someone actually paid $725,000 for a picture of my column.
So you’re saying you sold something that everybody can read online, basically for free, for hundreds of thousands of real dollars?
Yeah, I mean, I would like to think that all my columns are worth at least $725,000. But that might have been an anomaly. But that is the world of NFTs for you.
So Kevin, where does the story of NFTs begin?
So the story of NFTs really starts with the story of cryptocurrencies and, in particular, with Bitcoin, which began all the way back in 2008. During the financial crisis, there was a mortgage meltdown. The Federal Reserve was bailing out banks and printing all this money, trying to stabilize the economy. And in the middle of all this, this mysterious paper appeared on a cryptography email listserv. And it was written by someone calling themselves Satoshi Nakamoto. And it proposed this new form of digital money called Bitcoin. And the technology that sort of powered Bitcoin, the infrastructure that allows Bitcoin to work becomes known as the blockchain.
So explain both of those to me. How during that work?
OK, you know how money, regular money, is controlled by a central bank. The Federal Reserve manages the United States dollar. And the Federal Reserve basically has free reign to do whatever it wants with the dollar. It can decide how many dollars there should be, like whether we should print more money or not, based on how much they think the dollar should be worth. So it’s this very centralized system where the government, politicians and institutions have a lot of control over money, this thing that affects all of us. So what Satoshi Nakamoto proposed was a totally decentralized system. And in this system, there are a finite number of units. There will only ever be 21 million bitcoins, and no more can ever be created. So everyone knows exactly how many there are, how many there will be. And people can just buy them with regular money and spend them anywhere that accepts Bitcoin. And instead of the supply and the value of bitcoins being controlled by a central bank or a government, Bitcoin is controlled by a piece of software called a blockchain. And at a very simple level, a blockchain is a network of computers all over the world, thousands of them. And they keep track of every Bitcoin transaction ever made. So every time a Bitcoin is bought or sold, that transaction gets recorded in this shared global database, kind of like a Google spreadsheet or something. And anyone with an internet connection can go back and see every change that’s ever been made to this database in a very public, and transparent, and permanent way. So no one person or institution controls this thing. It’s just this permission-less, distributed computer network that people who are into Bitcoin think is actually more trustworthy than banks that can be manipulated by politicians and governments.
Got it. So this is ultimately about trust and transparency coming off the distrust people developed after the 2008 financial crisis. And that felt like institutions were manipulating things behind the scenes. Whereas here, there’s no wizard behind the curtain, no shadowy figures, no politicians, as you say doing, the manipulating. It’s just a bunch of computers that no one controls.
Yeah. It’s essentially taking this giant financial system that is based on human decisions, and political considerations, and global economies and it’s just replacing it all with computer code.
OK, so Kevin, Nakamoto creates this whole new system of buying and selling and tracking those sales. But so then what happens? What do people do with it?
Yeah. So this paper appears on this obscure cryptographic listserv. And then Satoshi Nakamoto, whoever he, or she, or they are, disappears. And people sort of take this idea of Bitcoin and they run it.
Early on this is sort of an experimental weird community of people who are really into this new form of money. And they’re just playing around with it. I mean, they’re testing out the technology. And Bitcoin, at the time, is worth basically nothing. I mean, each Bitcoin is worth a tiny fraction of a cent. So they’re doing things like buying pizza.
When I say Bitcoin, you say what?
So there was this programer in Florida who sort of famously bought two pizzas from Papa John’s for 10,000 Bitcoin, which, at the time, was worth about $25.
I just told people I wanted a pizza and I want to pay with Bitcoin. I didn’t want a gift card. I didn’t want some weird exchange. I want to give you Bitcoin and you give me pizza.
People start developing new ways to spend Bitcoin. People are sending it to each other instead of sending a Venmo payment or a PayPal payment. Some people are buying clothes with it. Some websites start accepting it as a form of payment. It becomes this viral phenomenon that people are very excited about.
Now it’s starting to actually gain some traction.
And as it gets more attention and people get more excited about it, The price of Bitcoin keeps rising.
Bitcoins are booming.
It reaches $5,000 a Bitcoin and then $10,000 a Bitcoin. And now it’s up well past $50,000 a Bitcoin.
Cash is no longer king.
And the reason why the price of Bitcoin keeps going up and up is because there are a finite number of bitcoins, so people are willing to pay more and more to acquire the limited number of them.
Exactly. And so as that’s happening, people are starting to create other different cryptocurrencies. Some of them are very serious, like Ethereum is a new one that pops up. But there are also joke coins. And people call them shit-coins sometimes. There’s a Dogecoin, which is like reference to this meme. There’s a Dentacoin, cryptocurrency for dentists. There’s Potcoin, which is the cryptocurrency for cannabis enthusiasts. There’s even Bitcoen, which is the Jewish crypto-token. So all of these start springing up. Most of them are worth absolutely nothing. But then there’s this quieter movement building, of people who are using blockchains as a base technology to build lots of other things, things like tracking the rights to photography online. So like if you’re a photographer and you want to get credit and get paid, when your photos are used, you could attach that information to a blockchain, where it would be permanently and publicly available for people to see. Like, this photo belongs to Sabrina. This one belongs to Kevin. And when these photos get used, they get paid this much.
That’s really interesting. That seems huge, actually.
Yeah, it becomes a way to track the ownership and the ownership history of lots of different kinds of digital goods. And so one big moment for cryptocurrency comes when this other blockchain, Ethereum, allows you to create one of a kind goods, goods that can’t be exchanged for other goods. If you have a Bitcoin, it doesn’t really matter whether you have one Bitcoin or another Bitcoin. It’s all Bitcoin. But what Ethereum allows people to do is to say this is a one-of-a-kind asset. And it can’t be exchanged for any other asset. It is unique.
So it’s like a deed to a house or something?
It’s like a deed to a house or a certificate of authenticity that you might get if you buy a rare antique or something. Ethereum allows you to kind of say this thing is mine and there’s only one of them. And I can track its ownership forever. And anyone can go on the internet and see that I own this thing. And this becomes known as the nonfungible token, or NFT.
So fungible just means you can exchange one of it for any other one of it. So dollars are fungible because I can trade you $1 and I have the same spending power with your dollar as I had with my dollar. Something like an artwork is nonfungible because there’s only one of them. So if I have a Renaissance painting, I’m not going to trade you for a poster of that painting because mine is the original. It’s more valuable. And why would I give you my painting?
And so basically, people are discovering this ability to create just one of something on the internet. Before this, things that were on the internet were just infinitely copyable. If you had a song or a photo, you could copy and paste that any number of times. And every copy would be exactly the same and totally indistinguishable from every other copy. But what the Ethereum blockchain allows people to do is to stamp these digital objects with sort of a certificate of authenticity to say this is the original of this item. And you can’t copy or fake the digital signature that is sort of attached to that item.
Can I ask a really stupid question at this point?
Is the NFT the thing or is the NFT the digital stamp of authenticity of the thing?
Great question. It is a token that represents a thing. When you have an NFT of an image or a video clip, the NFT is not the image or the video clip itself. It’s the certificate of authenticity that attaches to that thing and links to it.
OK, I think I understand. With NFTs, you can still make a copy. But this allows us to know which one is the original, which one exactly. And we can assign value to that original and see the whole story of buying and selling that original item.
Exactly. It’s a way to keep track of ownership and where something came from.
OK, so Kevin, there are these things, nonfungible tokens, or NFTs. What do people do with them?
So for a while people are just sort of thinking about the theoretical possibility of NFTs. And then in about 2017, people actually start creating them. So the first NFTs are kind of these crypto art projects. There’s this thing called crypto punks, which is this set of cartoon characters that people started treating as digital action figures. And other people would take memes, like popular graphics, and turn them into NFTs and sell the NFTs, this thing that represented, like, this is the one true version of this meme. And then last year, they really exploded.
You’ve got songs, music videos, memes, even tweets of Lindsay Lohan’s face all becoming NFTs.
People started buying NFTs of sports videos.
: Our next guest is the first NFL player to get involved in the NFT craze, launching a new line of exclusive digital trading cards this morning. And I am proud to be launching the Rob Gronkowski Championship Series NFT collection. Tom Brady announced he’s launching an NFT company called —
A clip of LeBron James dunking became an NFT and was sold for more than $200,000. Jack Dorsey, the CEO of Twitter, sold his first ever tweet as an NFT for $2.9 million.
I don’t know about you, but this sounds nuts. Where do you hang the NFT in the living room, you know what I mean? Like, over the mantle?
And earlier this year, the biggest NFT sale ever happened. Christie’s, the auction house, auctioned off a collection of digital art by this digital artist named Beeple for $69 million. And that was sort of —
That’s more than most Picasso’s, Monet’s or Warhol’s. The beauty’s in the eye of the NFT beholder here, Carl.
And all of a sudden it’s like, wow, this is a real market. People are really willing to pay for these tokens, these digital certificates of authenticity. And there’s a lot of money to be made here. So I thought to myself, why should LeBron James and Jack Dorsey have all the fun? Why can’t I make and sell my own NFT?
So Kevin, you see this world of NFTs kind of going crazy, gaining traction. And you, Kevin Roose, a New York Times journalist, decide to sell an NFT yourself. So what do you do? What’s the first thing you do?
So I decided that I would write a column explaining NFTs. And that I would turn that column into an NFT and sell it. And whatever I made would go to the Neediest Cases Fund, which is the New York Times’s charity. So I wrote the column. And then I had a graphic created of the column. And I took that graphic, the picture of my column. And I then did what’s called minting an NFT. I actually created the NFT and put it on the blockchain. And then it was ready to be sold.
And what happens once you get the NFT on the blockchain? I mean, is there like, I don’t know, confetti or balloons or something that appear on your screen? Like, what does it look like?
Yeah, Jack Dorsey shows up at your house and gives you a bag full of cash. No, it basically just says this thing lives on the blockchain now. It is here. And once you have the NFT, then you have to actually set up the auction to sell it. So the auction is not run by humans. They’re run by software. You have some choices to make. So one thing you can do when you’re selling it left is to set a royalty, essentially saying that if someone buys it for $100 and then resells it for $200 to someone else, the artist, the person who originally uploaded that, can get a portion of that sale forever. And that’s sort of built into the code of the auction.
So that would essentially allow you to continue to make money each time the thing is sold, right?
Yes. And that’s part of what makes NFTs really attractive to artists. Because if you’re selling physical paintings, you sell it to someone, they resell it to someone else for a lot more money, and you don’t get a cut of that as the artist. But with NFTs, you can build it into the code that every time it’s resold, forever, the artist, the original person who uploaded the file, can get paid a fraction of that.
Right. It’s a really big difference.
You can also set a minimum acceptable price, so like, what is the lowest amount of money I would be willing to sell my NFT for? And I was feeling pretty optimistic. I thought maybe someone out there, some New York Times reader, will have some Etherum burning a hole in their digital wallet and they’ll decide my column is worth half an Ether, about $850. So I set the minimum price and I listed the auction and simultaneously published my story about the auction. And so then it was just on the blockchain up for sale.
OK, so what happens?
So immediately, my colleagues start joking about the fact that no one’s going to bid on my dumb NFT. There’s a Slack thread with some of my colleagues where they’re sort of betting on how much it’s going to sell for. The consensus is that it’s not going to go for much. So I list it in the morning. And at first, there are just a couple of bids. Someone bids the minimum, $850. And then there’s $1,000, then $1,200. And I’m going, OK, we’re going to make some money here. And before I went to bed that night, I checked again. And the top bid had risen to more than $30,000, which was like mind blowing to me. I was like this picture, this NFT, is now worth more than basically anything else I own.
And I’m thinking, this is insane. This is going to make a great story. Can you believe it, $30,000 for a picture of my column? Then I wake up the next morning and the chaos starts.
So the auction is supposed to last for 24 hours. And in the last, I would say, hour of that, a bidding war breaks out. It started going up, and up and up. It went to $98,000, then $143,000, then $277,000.
And I was just watching my computer screen and refreshing, and just agog. I was like, is this real? Like, am I being pranked here? So in the final minutes of this auction, it went from 100 Ether, which was about $160,000, all the way up to the final sale price, which was 350 Ether, which, at the time, was about $560,000, but is now about $725,000.
Kevin, it is crazy. I mean, no offense, but your column, in my mind, it is not worth the price of a nice house. I mean, it’s a good column. But you know, house, column, house, column.
No, I mean, I generally have decent self-esteem. And even I was like, there is nothing I’ve ever written is worth this much money.
But also, Kevin, especially when I can read it for free online.
Yes, I mean, that was the thing that was so crazy is like, you could go on nytimes.com and read this entire thing for free. And I just stared at my monitor just laughing uncontrollably, just totally in shock about what had happened.
So Kevin, who bought this? And more importantly, why did someone buy your column for the price of a nice house, a really nice house?
I’d like to think they just have good taste. But more realistically, the winner of the auction — I don’t know for sure who it is — but their username was 3F Music. And they appear to be a music production company based in Dubai. And they are a prominent NFT collector. And so I did reach out to 3F Music. I also reached out to a number of other people who bid on the auction. And I asked them why. And for some of them, especially the early bidders who are bidding relatively small amounts of money, they thought of this as just a fun transaction that might get them some publicity. So I should say, in addition to the NFT of this column, I also said that I would write a follow-up column about the auction and feature the winner. And so I think for some of them, it was like, this is a price I’m willing to pay to get into The New York Times. But then, at a certain point, I would say like around $10,000 or so, I started to hear other explanations. And some of them were basically saying this was a speculative investment. So they were bidding on this NFT because it was the first NFT created by The New York Times. And you know, there’s sort of like a status attached to the first of something. And so they thought if NFTs become a huge industry, then owning the first one from The New York Times, I might be able to resell that for more money later on. I also talked to some people who said that this was essentially like an ideological statement for them. I talked to one musician who actually bid on my NFT who said that he had grown up in the era of Napster when songs were first able to be copied and distributed on the internet for free. And piracy became a huge problem, and that blockchain technology. And NFTs had changed that by basically allowing digital goods to have scarcity, which is what gives physical goods their value. So this musician said, basically, that collecting NFTs was less about owning the actual NFT, but more about sort of signaling optimism and belief in this new ownership model.
Right. So you have the speculators, you have people who are trying to invest, but you also have people who care about art and intellectual property who are trying to make a statement, which I think is pretty interesting. But also, I mean, $500,000 is just so much money. So was there some deeper reason for this purchase, do you think, I mean, not only your column, but these other crazy high prices for sort of seemingly cheap things?
It’s a great question. And there are a lot of possible answers. You know, wealth inequality is obviously part of the equation, the fact that there are people with this much disposable income. And one of the artists I talked to who bid on the auction actually said, you know, this isn’t actually that strange in the offline world. Rich people spend vast sums of money on things of dubious value all the time. They fly off to art fairs. They spend millions of dollars on sculptures and pieces of art for their walls. Or maybe they don’t even have the art on their walls, maybe it’s just they’re trading pieces of art that live in a warehouse somewhere. And so all they really have is the knowledge that they own a thing.
Right. It’s like a new Birkin bag or owning a Warhol.
Exactly. And I think that for some people who are investing tons of money in an NFTs, we can’t underestimate the role that just emotion and status and bragging rights play in all of this.
OK, that kind of brings us all the way back to the very beginning, Kevin, because the point you just made about NFTs and how they operate, it’s kind of similar to how we’ve always valued things. So I’m wondering, if you go back to the conversation about the blockchain, we were thinking about what Nakamoto was trying to solve for. He wanted to fundamentally change the financial system and how it works. But did he succeed? Or has he just created some different system in which we operate basically in the same way, with the same kind of human emotion motivations? Did he just create a thing to covet or did he actually do something truly new?
So I think there are sort of two ways to look at something like NFTs. On one level, I think, yes, as you said, it’s just taking something that existed offline, this concept of scarcity, of having one of something and having that quality of scarcity be the thing that gives an object its value. And you’re translating that onto the internet, where it really hadn’t existed before. So even if NFts are just a way of kind of replicating the scarcity that objects can have in the offline world, that’s an incredibly valuable thing. But I think there’s this other change happening, this generational transformation that’s happening as more of our lives move onto the internet. I mean, we spend so much time in the offline world sort of curating our surroundings, putting art on our walls, figuring out what car to drive, what house to buy, what neighborhood to live in, expressing ourselves through the consumption of scarce goods and building identities around the physical objects that we own. And now, with NFTs, that aspect of life, kind of figuring out what to buy to signal who we are and what we value, that can also be online. Maybe the thing that gives you status and identity is not a physical object, maybe it’s a token on the blockchain.
Thanks so much, Kevin.
Thank you for having me.
Here’s what else you need to know today. [ARCHIVAL RECORDING] This appears to me, from what I viewed and the officer’s reaction and distress immediately after, that this was an accidental discharge that resulted in the tragic death of Mr. Wright. As outcry and protest grew over the shooting of Daunte Wright, an unarmed black man killed during an encounter with police officers in a suburb of Minneapolis, local officials said that the officer who shot Wright appeared to have done so by accident. After stopping Wright for a traffic violation, police in the city of Brooklyn Center discovered there was a warrant for his arrest. According to police, Wright stepped back into his car, triggering a struggle with officers. A video of that encounter, recorded by the officer’s body camera, shows that she repeatedly yelled taser before discharging her gun and immediately expressed surprise after shooting Wright. [ARCHIVAL RECORDING] As I watch the video and listen to the officer’s commands, it is my belief that the officer had the intention to deploy their taser, but instead shot Mr. Wright with a single bullet. The shooting occurred less than 10 miles from the courtroom where former Minneapolis police officer Derek Chauvin is on trial for the murder of George Floyd. And on Monday, the Biden administration urged the governor of Michigan, Gretchen Whitmer, to lock down her state to slow what has become the nation’s worst outbreak of COVID-19 infections. But Whitmer remains resistant and instead called for a surge in vaccinations in Michigan.
When you have an acute situation, an extraordinary number of cases like we have in Michigan, the answer is not necessarily to give vaccine in fact, we know —
That suggestion was rejected by the head of the Centers for Disease Control and Prevention, Rochelle Walensky. ROCHELLE WALENSKY The answer to that is to really close things down. To go back to our basics, to go back to where we were last spring, last summer, and to shut things down, to flatten on the curve, to decrease contact with one another, to test to the extent that we —
Today’s episode was produced by Stella Tan, Rachelle Bonja and Neena Pathak, It was edited by Paige Cowett and Rachel Quester, and engineered by Chris Wood.
That’s it for The Daily. I’m Michael Barbaro. See you tomorrow.