Non-fungible token

Based on Wikipedia: Non-fungible token

The Greatest Art Heist That Never Was

In March 2021, someone paid ninety-five thousand dollars for a Banksy print, then set it on fire with a cigarette lighter while filming. They weren't destroying art—they were creating it. Or at least, that's what they claimed when they uploaded the video and sold it for far more than the original had cost.

Welcome to the world of non-fungible tokens, where burning a physical artwork can make you money, where cartoon apes sell for millions, and where ninety-five percent of everything ever created is now worth precisely nothing.

The story of NFTs is one of the strangest chapters in the history of money, art, and technology. It involves virtual cats crashing a blockchain, rocks made of clipart selling for six figures, and a market that went from eighty-two million dollars to seventeen billion dollars in a single year—only to collapse by ninety-two percent shortly after.

What Exactly Is a Non-Fungible Token?

To understand NFTs, you first need to understand what "fungible" means. It's an old word, borrowed from medieval Latin, that describes things that are interchangeable.

A dollar bill is fungible. If you lend me a twenty and I pay you back with a different twenty, you don't care. One twenty is as good as another. The same goes for Bitcoin, or barrels of oil, or bushels of wheat. They're all fungible—interchangeable units of the same thing.

But the Mona Lisa is not fungible. There's only one. A print of it, no matter how accurate, is not the same as the original hanging in the Louvre. That painting is non-fungible—unique and irreplaceable.

An NFT takes this concept and applies it to digital files. It's a unique digital certificate, recorded on a blockchain—which is essentially a public ledger that's extremely difficult to alter—that says "this particular person owns this particular thing."

Here's where it gets confusing, and where a lot of people got burned.

The Certificate Is Not the Art

When you buy an NFT, you're not buying the digital artwork itself. You're buying a certificate that points to the artwork. The image, video, or audio file typically lives somewhere else entirely—often on a regular web server that could go offline, or a storage service that might stop operating.

Think of it like this: imagine buying a certificate that says you own the Mona Lisa. You get a fancy piece of paper with the painting's location written on it. But you don't get the painting itself. You can't stop other people from looking at it. You can't prevent them from taking photographs. And if the museum burns down, your certificate still exists, but it now points to nothing.

This is essentially what happened with many NFTs. The blockchain record is permanent, but the digital files it references can vanish. This problem even has a name in the tech world: link rot.

Even more surprisingly, owning an NFT doesn't automatically give you copyright to whatever it represents. As legal scholar Rebecca Tushnet put it bluntly: "In one sense, the purchaser acquires whatever the art world thinks they have acquired. They definitely do not own the copyright to the underlying work unless it is explicitly transferred."

You might own the certificate, but the artist can still make more NFTs of the same image. Other people can still copy the file. You've bought bragging rights, essentially—a spot on a public ledger that says you paid for something.

The Birth of a Very Strange Idea

The first NFT was created in May 2014, years before the frenzy that would make them famous. An artist named Kevin McCoy and a technologist named Anil Dash were presenting at a conference in New York. McCoy's wife Jennifer had made a video clip, and during the live presentation, McCoy registered it on a blockchain called Namecoin and sold it to Dash for four dollars.

They called it "monetized graphics." The term NFT wouldn't catch on until years later.

For the next few years, NFTs remained a niche curiosity. In October 2015, a project called Etheria launched—a game where you could buy and trade hexagonal virtual tiles on the newly created Ethereum blockchain. Each tile was hardcoded to cost one Ether, which at the time was worth about forty-three cents.

Almost nobody bought them.

The tiles sat there, mostly unsold, for more than five years. Then, in March 2021, during the NFT boom, people suddenly remembered they existed. Within twenty-four hours, all of them sold for a combined 1.4 million dollars. Those forty-three cent tiles had become worth thousands.

Virtual Cats Break the Internet

The first NFT project to capture mainstream attention was, of all things, a game about collecting cartoon cats.

CryptoKitties launched in November 2017. The concept was simple: users could buy, breed, and trade virtual cats, each with unique digital "genes" that determined their appearance. Some cats became rare and valuable. Individual kitties sold for over a hundred thousand dollars.

The game was so popular that it overwhelmed the Ethereum network. The blockchain that was supposed to be the foundation for a new decentralized internet was being clogged by people trading cartoon animals. Transaction fees skyrocketed. Other applications on Ethereum slowed to a crawl.

But CryptoKitties proved something important: people would pay real money for unique digital items. The gold rush was about to begin.

The Strange Taxonomy of Early NFTs

Before CryptoKitties made everything official, the NFT world was a bizarre menagerie of experiments.

In 2016, a project called Rare Pepes emerged on Bitcoin. It was built around Pepe the Frog, the cartoon amphibian that had become an internet phenomenon. Artists would submit their own Pepe variations to a curated directory, and people could buy and trade them. It was folk art meets cryptocurrency, a collision of meme culture and financial speculation.

Then came CryptoPunks in June 2017—ten thousand tiny pixelated characters, each generated by an algorithm with different combinations of accessories, hairstyles, and features. They looked like something from an ancient video game, just 24 by 24 pixels each.

For years, CryptoPunks were mostly worthless. Then they became status symbols. By 2021, some were selling for millions of dollars. The cheapest ones cost more than houses.

Even stranger was EtherRock. In December 2017, someone created a collection of clipart rocks—simple, cartoonish images of stones that looked like something you'd find in a children's book from the 1990s. There were only one hundred of them. At the peak of the NFT bubble, individual rocks sold for over a million dollars.

There was no utility to them. No game. No membership benefits. Just the knowledge that you owned one of a hundred digital rocks, and the blockchain could prove it.

The Standard That Changed Everything

The technology behind NFTs was formalized in 2018 with the publication of something called ERC-721, a technical standard written primarily by a civic hacker named William Entriken. The name is bureaucratic and dull—ERC stands for "Ethereum Request for Comments," and 721 is just a number—but its impact was enormous.

Before ERC-721, creating NFTs required custom code. Each project was essentially its own experiment. The standard gave developers a common language, a set of rules that ensured all NFTs would work the same way, be tradeable on the same platforms, and be recognizable to the same software.

It's worth noting that the term "NFT" itself was debated during the standard's development. Other options considered included "deed," "distinguishable asset," "title," "equity," and "ticket." Entriken, using the online handle "Fulldecent," held a vote among the people contributing to the standard. NFT won.

In 2021, the art publication ArtReview, which annually ranks the most powerful forces in the art world, put ERC-721 at number one—above any living artist, collector, or museum. They called it "the most powerful art entity in the world," praising it for creating a market that bypassed traditional gatekeepers.

The Boom

The NFT market grew from eighty-two million dollars in 2020 to seventeen billion dollars in 2021. In the first three months of 2021 alone, more than two hundred million dollars changed hands.

The moment that made headlines around the world came in March 2021, when Christie's—the centuries-old auction house that had sold works by Picasso, Van Gogh, and da Vinci—auctioned an NFT by an artist named Mike Winkelmann, who went by the name Beeple.

The piece was called "Everydays: The First 5000 Days." It was a collage of five thousand digital images that Beeple had created over more than thirteen years, posting one new image every single day. The auction started at just one hundred dollars.

It sold for sixty-nine million dollars.

This was the third-highest price ever paid for a work by a living artist at auction. The buyer was someone using the pseudonym MetaKovan, later revealed to be a Singapore-based cryptocurrency entrepreneur.

Suddenly, everyone wanted in. Celebrities launched NFT collections. Musicians sold albums as tokens. Sports leagues partnered with blockchain companies. The NBA created a platform called Top Shot where fans could buy video highlights—essentially digital trading cards of memorable moments.

A platform called OpenSea, which had launched quietly in 2017 to capitalize on the CryptoKitties craze, grew to a valuation of 1.4 billion dollars. It became the eBay of NFTs, a marketplace where anyone could buy, sell, or create tokens.

The Bust

By May 2022, it was over.

The Wall Street Journal reported that the NFT market was "collapsing." Daily sales had dropped ninety-two percent from their peak. The number of active buyers and sellers had fallen eighty-eight percent.

Rising interest rates made speculative investments less attractive. Cryptocurrency prices crashed. And people started asking uncomfortable questions about what they'd actually bought.

A report from September 2023 delivered the final verdict: ninety-five percent of NFT collections had fallen to zero monetary value. Seventy-nine percent had never sold at all.

All those cartoon apes, pixelated punks, and clipart rocks? Most were now worth nothing. The digital certificates still existed, immutable on the blockchain. But no one wanted to buy them anymore.

The Problem of Proof

One of the fundamental selling points of NFTs was authentication. In a world where digital files can be copied infinitely, NFTs supposedly provided proof of ownership and authenticity.

But this promise had a fatal flaw: there was no centralized way to verify that the person minting an NFT actually had the right to do so.

Artists found their work stolen and sold as NFTs without their permission. Scammers created tokens claiming to represent famous artworks. Someone could screenshot a Beeple piece, mint it as their own NFT, and there was no technical mechanism to stop them.

The blockchain could prove that you owned a particular token. But it couldn't prove that the token was legitimate in the first place. The certificate was unforgeable, but the connection between the certificate and any real-world rights was purely social—a matter of trust and reputation, not technology.

This led to an absurd situation where the supposed solution to the problem of digital authenticity actually made the problem worse. More fake art was being sold than ever, just with fancy cryptographic wrapping.

The Environmental Cost

Creating and trading NFTs on blockchains like Ethereum consumed enormous amounts of energy. The technical reason involves something called "proof of work"—a system where computers compete to solve mathematical puzzles to verify transactions. This competition requires vast computational power, which means vast electricity consumption.

At its peak, the Ethereum network used as much electricity as some medium-sized countries. Critics argued that this environmental cost was unconscionable, especially for something as frivolous as trading pictures of cartoon animals.

Ethereum has since switched to a different system called "proof of stake" that uses far less energy. But the environmental criticism had already done significant damage to NFTs' reputation.

What Was Actually Happening?

Looking back, the NFT boom looks less like a revolution in art and ownership, and more like a classic speculative bubble with some unique digital characteristics.

Many buyers weren't purchasing art because they loved it. They were buying tokens they hoped to sell to someone else for more money—the same dynamic that drives all speculative manias, from tulip bulbs in seventeenth-century Holland to Beanie Babies in 1990s America.

The technology enabled new kinds of scams and fraud, from wash trading (selling to yourself to inflate prices) to rug pulls (creators abandoning projects after collecting money). The lack of regulation meant buyers had almost no protection.

Some compared the market to a Ponzi scheme, where early participants profit only if they can find later participants to buy in at higher prices. When the new buyers stopped coming, the whole edifice collapsed.

The Connection to Real Money

Understanding the NFT phenomenon requires understanding the broader cryptocurrency culture from which it emerged.

The people who made fortunes in early Bitcoin and Ethereum suddenly had vast amounts of digital wealth—but spending that wealth meant converting it to traditional money and potentially paying significant taxes. NFTs offered a way to spend cryptocurrency on status symbols while staying within the crypto ecosystem.

A person might hesitate to cash out a million dollars in Bitcoin, triggering capital gains taxes and the headache of traditional banking. But spending that same Bitcoin on a rare digital artwork? That felt different. You were staying in the family, supporting the ecosystem, acquiring something that might appreciate in value.

This explains why NFT prices seemed to bear no relationship to any traditional measure of artistic value. The prices weren't really about the art. They were about moving cryptocurrency around, about status within a particular community, about speculation on future prices.

What Remains

Despite the collapse, NFTs haven't entirely disappeared. The technology still exists. New projects continue to launch, though with far less fanfare and far lower prices than the 2021 peak.

In December 2022, a programmer named Casey Rodarmor introduced a way to add NFTs to the Bitcoin blockchain through something called "ordinals." These are essentially NFTs inscribed directly onto Bitcoin, the oldest and most established cryptocurrency. By early 2023, ordinals had become popular enough to increase Bitcoin transaction fees significantly.

Some advocates argue that the speculation had to burn off before the real use cases could emerge. They point to potential applications in ticketing, in certifying ownership of physical items, in managing rights to creative works. Perhaps NFTs will find their genuine purpose once the cartoon apes are forgotten.

Others are more skeptical. They argue that NFTs solve a problem that doesn't really exist—that existing systems for proving ownership and authenticity, while imperfect, work well enough that a blockchain-based alternative isn't needed.

The Lessons

The NFT bubble offers several lessons about technology, speculation, and human nature.

First: the technology behind something speculative can be real even when the speculation is insane. Blockchains genuinely do provide immutable, decentralized records. NFTs genuinely do create unique, verifiable digital tokens. These technical capabilities didn't make paying millions of dollars for clipart rocks a good idea.

Second: the promise of solving a problem is not the same as actually solving it. NFTs promised to authenticate digital art and protect artists' rights. In practice, they often did the opposite, enabling new forms of theft and fraud.

Third: when the only reason to buy something is the hope that someone else will pay more later, you're not investing—you're gambling. And in gambling, most people lose.

The person who burned the Banksy and sold the video as an NFT was engaged in a kind of performance art, even if they didn't fully realize it. They were demonstrating something true about this strange moment: that value had become so disconnected from physical reality that destroying a valuable object could create even more value.

For a brief, bewildering period, that logic seemed to make sense. Then the music stopped, and ninety-five percent of everyone who was dancing discovered their tickets were worthless.

The blockchain still remembers, though. Somewhere in an immutable digital ledger, the records persist—proof that once, briefly, the world went a little bit mad over cartoon apes and pictures of rocks.