NFTs are now looking towards crypto

But this column is about NFTs. Before Twitter’s takeover, Jack Dorsey, founder and former CEO, sold his first tweet (also the first ever tweet) as an NFT for more than $2.9 million. Meanwhile, the creators of the Bored Ape Yacht Club (BAYC) created an NFT collection of cartoon images of monkeys depicted in various states of ennui. A popular digital artist, Mike Winkelmann (known online as Beeple) sold a single NFT for nearly $70 million.

So, what exactly are NFTs? While most media coverage of them is about selling artwork, NFTs can be anything digital. Jack Dorsey’s tweet, for example, is not art. ‘Non-fungible’ simply means that the item cannot be replaced by anything else; it is unique. In contrast, money is fungible; one ₹The 500 note can be exchanged for another ₹500 note. And one Bitcoin is the same as another. Also, money and cryptocurrency are not inexhaustible.

A painting or a song or any other work is not fungible. You cannot exchange any of the Raja Ravi Varma paintings hanging in Vadodara with those in Mysuru. Cassidy and Sugaree by The Grateful Dead are not interchangeable songs. They are non-fungible. Their origins are also known. We know that Ravi Varma was commissioned by Sir T. Madhavrao, Regent of Baroda, for many commissions there, all of which are recorded, thereby establishing the origin of these works.

However, the advent of the digital age means that any number of copies of music or songs can be made in MP3 or other formats, and any number of high-quality digital art or photographs can be copied without loss of fidelity to the original. Therefore, they are inexhaustible, since, unlike money, you can create any number of exact facsimiles yourself. Lawsuits and government action over Napster’s software that allowed peer-to-peer sharing of song files forced the company to shut down in 2001, after a clumsy system of “digital rights management” under the US Digital Millennium Copyright Act was enforced. Current law is still clumsy when it comes to copying and sharing digital content.

Enter NFT. Using blockchain technology, which most readers should be familiar with by now, NFTs create a digital non-fungible “token” for each original digital artwork or creative work (like a Bored Ape comic), which is now forever the only original it is. All the others are just copies of that original. Currently, most of these NFTs are on the Ethereum blockchain.

NFTs exploit an insight into human nature: the need to “own” things. Jack Dorsey’s tweet has been freely available on the internet, even for those without a Twitter account. However, his tweet is now “owned” by someone. NFT simply certifies with a computer code that the tweet is owned by a specific entity/person. Aside from the bragging rights it provides, presumably the ability to sell ownership of the original increases as its popularity increases across the internet. For a speculator, NFTs will hopefully act as ownership of any rare creative work, such as a Raja Ravi Varma painting.

But accusations of shady dealings find their way wherever there is trade. For example, the Hollywood Reporter has reported that Jimmy Fallon and several other celebrities such as Gwyneth Paltrow, Justin Bieber and Madonna who have spent a lot of time convincing people that Beeple’s ugly monkey pictures were both fashionable and lucrative, are now being sued. The case is brought by Adonis Real and Adam Titcher, two Ape buyers who lost money on their purchases, and who hope to develop a class action against everyone involved. Their targets include BAYC’s parent company Yuga Labs, several celebrity promoters (called “Promoter Defendants”), and well-known music industry executive Guy Oseary, who is accused of setting up low-key payments through a company called MoonPay to pay celebrities for their endorsements.

Citing a November 2021 ‘Tonight Show’ interview with Matt ‘Beeple’ Winkelmann (who is allegedly in business with Oseary and is also a named defendant), the suit accuses Fallon of being paid to promote the brand through MoonPay. It says that “Fallon did not disclose that he had a financial interest in MoonPay or that he was likewise financially interested, directly or indirectly, in the increased sales and popularity of Yuga Papers.”

Yuga Labs has responded, calling the allegations “opportunistic and parasitic. We strongly believe they are without merit and look forward to proving as much.”

That being said, the global NFT market seems to be headed in the same direction as crypto. Trading of Bored Ape NFTs has reportedly fallen by 93% since launch. And BAYC is trading at 66.45 ETH, down from 153.70 ETH on May 1, according to CoinGecko.

My opinion? If you have invested in NFTs, swallow your losses and get out.

Siddharth Pai is the co-founder of Siana Capital