In August 2021 someone paid $1.3 million for a digital picture of a clip art rock.
He had bought it only 19 days beforehand for $5,000.
In this episode we'll discuss the craze of Non-Fungible Tokens (NFTs) and digital art, asking ourselves why it has become so popular, who benefits (and why), and what the future might hold.
[00:00:00] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:22] I'm Alastair Budge, and today we are going to be talking about non-fungible tokens, otherwise known as NFTs, and Digital Art.
[00:00:33] In late August someone sold a digital picture of a clip art rock, a simple digital drawing of a rock, for $1.3 million dollars. He had bought it only 19 days before for $5,000.
[00:00:48] The rock was what is called a non-fungible token, an NFT, and this sale was the latest example in this boom in this new technology.
[00:00:58] So, in this episode we are going to take a deep dive into the weird world of NFTs and digital art. We’re going to explain what an NFT actually is, how they work, why someone might want a digital picture that anyone can download for free, why the prices have been rising so fast, why some people think it is all a giant bubble, a house of cards, and what the future might hold for this technology.
[00:01:29] Let’s jump right into it.
[00:01:32] Let’s start by asking ourselves a few questions.
[00:01:35] Why is art worth anything?
[00:01:38] What makes Salvator Mundi, a painting supposedly done by Leonardo Da Vinci, sell for $450 million, while a painting my son might do probably wouldn't even sell for $1.
[00:01:53] It is, on one level, a stupid question.
[00:01:56] Leonardo Da Vinci is one of the most famous artists in the world, Salvator Mundi is an interesting and enjoyable painting to look at. There will never be another Salvator Mundi by Leonardo Da Vinci, because he died over 500 years ago. And it will likely continue to be worth a lot of money, perhaps it will even become more valuable with time.
[00:02:19] My son, on the other hand, isn’t even two years old.
[00:02:23] Perhaps he might turn out to be a great artist, but his paintings at the moment are not particularly impressive to anyone other than his parents. He will, I hope, continue to do paintings for many years to come, paintings that one would hope might be more visually pleasing to look at than the ones he does now. But perhaps not, and there’s no guarantee that his paintings will go up in value with time.
[00:02:49] So, yes it is a silly comparison, but I use it to illustrate some of the factors that go into the value we place on art.
[00:03:01] The beauty of the artwork.
[00:03:03] The reputation of the artist.
[00:03:06] The scarcity of the piece, how rare it is.
[00:03:10] The consequent pride that the owner has in being able to say that they own that piece of art.
[00:03:19] And the fact that some people think they can buy a piece of art and then sell it later for a profit.
[00:03:27] With the example of Salvator Mundi, it was bought by Mohammed Bin Salman, the crown prince of Saudi Arabia.
[00:03:35] One can only hazard a guess at his motivations for buying it, but whatever they were, they were enough for him to part with $450 million dollars, the most anyone has ever paid for a piece of art.
[00:03:51] Buying Salvator Mundi, Bin Salman actually has physical ownership of it. He can take it anywhere he wants. Nobody can physically see it without his permission. He could choose to hang it in a gallery, or he could choose to keep it in his bedroom, away from the world.
[00:04:10] When it comes to digital art, however, it is a completely different story.
[00:04:16] With the example of this picture of a rock that sold for $1.3 million dollars, I can see it, you can see it, anyone can see it on their screen, it’s freely available to view on the internet.
[00:04:31] In fact, the owner of the rock sees exactly what you or I see.
[00:04:36] And it would be very hard to say that they are beautiful rocks. They are very simple, and created using a very simple cartoon rock.
[00:04:47] Why would anyone pay over a million dollars just to say that they are an owner of one of these rocks?
[00:04:56] The answer to this question is a combination of speculation, of thinking that the price will go up, and publicly displaying your wealth.
[00:05:06] And this is all enabled by NFTs, non-fungible tokens.
[00:05:11] So, what actually is a non-fungible token, and how do they work?
[00:05:17] Let’s just start by defining what “fungible” means. It means interchangeable, that it can be equally changed for something else.
[00:05:26] A 10 euro note is fungible, it can be changed for another 10 euro note, they have exactly the same value. A bitcoin is fungible. One bitcoin is the same as another bitcoin, they also have exactly the same value.
[00:05:43] A painting, on the other hand, is non-fungible. Each one is slightly different, and there are no two that are exactly the same.
[00:05:54] So, if something is a non-fungible token, it is a unique digital asset. It could be a picture of a rock, it could be a certificate, it could be linked to something that actually exists in the physical world, like a house or a car.
[00:06:13] The idea is that it is a secure way of proving ownership of something, and defining certain rules for what should happen to that thing in the future.
[00:06:24] It all works on something called the blockchain, which is a subject for another day, but in essence creates a secure way for ownership of anything, both digital and non-digital, to be transferred from one party to another.
[00:06:41] This is called a smart contract.
[00:06:43] Now, this might sound overly technical, but let’s explain it in another way, which I hope will help you understand some of the attraction of this new technology.
[00:06:56] Let’s say that you are a young artist. You have a growing following on social media. People are starting to buy your works. Perhaps you have even got a gallery to host an exhibition of your latest collection.
[00:07:11] Great, well done. Life is looking promising.
[00:07:16] There are, however, lots of people waiting to take a proportion of your sales.
[00:07:22] The art gallery will typically take around 50%, so if one of your paintings is sold for €1,000, then you, the artist, will get €500.
[00:07:34] Let’s say that your fame continues to grow, and instead of selling paintings for a thousand euros, you can now sell them for 50,000 euros.
[00:07:46] A gallery would still want its commission. It might be a little bit less than 50% now, but let’s say you negotiated well you might get €30,000.
[00:07:58] Your early fans, people who believed in you from the beginning, can sell your early works for 50,000 euros. They make a profit of 49,000 euros and you make a profit of, well, nothing on the resale, only the original 500 euros you received when you first sold the painting.
[00:08:20] You see the problem here.
[00:08:24] For artists they often get a raw deal, and don’t get much financial reward when their works are re-sold.
[00:08:33] And let’s take a look at it from the perspective of the buyer.
[00:08:38] They might have a beautiful piece of art that they can have in their living room, it might bring them great joy, and they might think that they can sell it for more money in a few years time.
[00:08:50] Their friends admire it when they come for dinner, and other people might know that they have it, but most people probably don’t know.
[00:09:00] Then let’s imagine this situation in a world of NFTs, a digital world.
[00:09:06] You, the young artist, still have the same fans. They passionately believe in you, and think that you are going to go on to great things. They want to support you, but they also think that you are a good investment.
[00:09:22] You decide to offer a limited edition of 100 digital copies of your favourite painting. They are all slightly different, perhaps they use slightly different colours, or perhaps they are numbered, like limited edition prints.
[00:09:37] You offer these for sale directly to your fans. There is no gallery taking 50%. Perhaps you sell it through a marketplace, which might take 15% or something like that, but you get to keep the majority of the sale price.
[00:09:55] What’s more, because each transaction is made with a smart contract, you can decide beforehand that you, the artist, should receive, let's say, 10% of the future sale price if it is sold, allowing you to also make money if it is resold for a profit.
[00:10:14] Again, let’s explain this with a working example.
[00:10:18] Instead of selling one painting for €1,000 and getting €500, you could sell 100 slightly different digital versions of it for €500 each, meaning that you now get more like €50,000 instead of €500.
[00:10:36] What’s more, if you continue to grow as an artist and be more in demand, any time one of these digital prints is sold you would get 10%, because that is already programmed into the smart contract.
[00:10:50] And even better, you now have 100 fans who also have a financial interest in the value of your works increasing, so they are more likely to promote your work on social media, and encourage other people to invest in you.
[00:11:06] As you can see, for many artists it can be a much more attractive economic proposition.
[00:11:14] But I know what you might be thinking: “this is a ridiculous example - surely there wouldn’t be 100 people who would be prepared to pay €500 for a digital print, something they can see online for free?”
[00:11:28] Well, let’s take a look at it from the perspective of the buyer.
[00:11:33] They might only have a digital version of the artwork, but instead of putting it on their living room wall, they use it as their profile picture in the online world, it is their avatar, their public face on a social network like Twitter. Instead of their immediate family and friends seeing it, it can be seen by anyone on the internet.
[00:11:55] It sends a strong signal about who you are. Not just that you are the kind of person who can afford a certain work of art, but about your taste, about the kind of friends you have, the idea is that it is an effective way of telling people what kind of person you are.
[00:12:17] One of the most successful of these kinds of projects is called Bored Ape Yacht Club, and is a collection of 10,000 slightly different pictures of monkeys looking bored.
[00:12:31] In certain circles of Twitter you 11will see people with these images as their profile pictures, and it’s a way of signalling that they are in this exclusive club, that they own assets that are now worth hundreds of thousands of dollars.
[00:12:47] To go back to the example of Mohammed Bin Salman and the $450 million purchase of Leonardo Da Vinci’s Salvator Mundi, would he have bought it if nobody knew that he owned it?
[00:13:01] In all likelihood, no.
[00:13:03] A large part of the value that anyone places on anything is being able to show it off to other people.
[00:13:10] For people who buy an expensive watch or an expensive car, are they doing that because they are much better ways of keeping the time, or much better modes of transport?
[00:13:21] No, they might look pretty, and be fun to drive, but a large part of the reason that someone pays hundreds of thousands of euros for a watch or a car is because they want other people to see them with it and know that they have it.
[00:13:39] If everyone knows that these digital artworks are worth a certain amount of money, then showing them to the world is like being able to show that you are part of a very expensive, and therefore exclusive club, and of displaying your wealth to others.
[00:13:55] Now, in 2021, and especially in the past few weeks before this episode, the price for and interest in NFTs has exploded, it has gone through the roof.
[00:14:08] Companies have even got in on the action, and embraced this new trend.
[00:14:13] Christie’s, the auction house, sold an NFT of 10,000 individual works of art for $69 million in March of 2021.
[00:14:25] Visa, the payments company, paid $150,000 for an NFT in late August.
[00:14:33] Naturally, people have seen prices rising and looked for an opportunity to jump in and make a quick buck, to make some money. Some people have made a huge amount of money, such as the English guy who made $1.3 million in 19 days from selling the clip art rock.
[00:14:52] And the more money people make, the more likely they are to try to encourage others to participate, especially if the more people who buy them, the more the price increases.
[00:15:04] But the critics say surely the prices can’t keep on going up forever.
[00:15:10] Much like any bubble that has come before, there will be a top of the market, and no doubt lots of people will lose lots of money as they pay far too much for NFTs which will be worthless in the future.
[00:15:25] So, you might be thinking, what’s the point of it all?
[00:15:29] When there are so many more pressing problems in the world, isn’t it a bit ridiculous that people are diving into the world of selling digital cartoon monkeys?
[00:15:39] That’s a valid question, and perhaps we will look back on this time as truly bizarre, a craze that made absolutely no sense.
[00:15:49] But to the proponents of NFTs, it is just the beginning.
[00:15:53] To your or my grandchildren owning a piece of digital art will be completely normal. Indeed, perhaps it would be even more desirable than owning a physical piece of art. After all, physical pieces of art can also be copied, even if it’s a bit harder than just simply downloading an image.
[00:16:14] And with a physical work of art, it’s much harder to show them off, to display them to the world.
[00:16:21] In a digital world, whether that is a world of virtual or augmented reality, or if it is just the world of intense technology usage that we all already live in today, digital art will be the art of the future, a way of showing your taste and projecting your identity to anyone who sees you.
[00:16:42] And to people who believe that, the world of NFTs and digital art is only just getting started.
[00:16:52] OK then, that is it for today's episode on NFTs.
[00:16:57] I hope it's been an interesting one, that you've learnt something new, and that if you have heard or read something about NFTs over the past few weeks, well this has been a useful new perspective.
[00:17:10] As always, I would love to know what you thought of this episode.
[00:17:14] Would you ever consider buying a piece of digital art?
[00:17:17] If so, what would make you do it?
[00:17:20] And if not, why not?
[00:17:22] Let’s get the discussion started - the place for that is community.leonardoenglish.com.
[00:17:28] You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:17:33] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[END OF EPISODE]
[00:00:00] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:22] I'm Alastair Budge, and today we are going to be talking about non-fungible tokens, otherwise known as NFTs, and Digital Art.
[00:00:33] In late August someone sold a digital picture of a clip art rock, a simple digital drawing of a rock, for $1.3 million dollars. He had bought it only 19 days before for $5,000.
[00:00:48] The rock was what is called a non-fungible token, an NFT, and this sale was the latest example in this boom in this new technology.
[00:00:58] So, in this episode we are going to take a deep dive into the weird world of NFTs and digital art. We’re going to explain what an NFT actually is, how they work, why someone might want a digital picture that anyone can download for free, why the prices have been rising so fast, why some people think it is all a giant bubble, a house of cards, and what the future might hold for this technology.
[00:01:29] Let’s jump right into it.
[00:01:32] Let’s start by asking ourselves a few questions.
[00:01:35] Why is art worth anything?
[00:01:38] What makes Salvator Mundi, a painting supposedly done by Leonardo Da Vinci, sell for $450 million, while a painting my son might do probably wouldn't even sell for $1.
[00:01:53] It is, on one level, a stupid question.
[00:01:56] Leonardo Da Vinci is one of the most famous artists in the world, Salvator Mundi is an interesting and enjoyable painting to look at. There will never be another Salvator Mundi by Leonardo Da Vinci, because he died over 500 years ago. And it will likely continue to be worth a lot of money, perhaps it will even become more valuable with time.
[00:02:19] My son, on the other hand, isn’t even two years old.
[00:02:23] Perhaps he might turn out to be a great artist, but his paintings at the moment are not particularly impressive to anyone other than his parents. He will, I hope, continue to do paintings for many years to come, paintings that one would hope might be more visually pleasing to look at than the ones he does now. But perhaps not, and there’s no guarantee that his paintings will go up in value with time.
[00:02:49] So, yes it is a silly comparison, but I use it to illustrate some of the factors that go into the value we place on art.
[00:03:01] The beauty of the artwork.
[00:03:03] The reputation of the artist.
[00:03:06] The scarcity of the piece, how rare it is.
[00:03:10] The consequent pride that the owner has in being able to say that they own that piece of art.
[00:03:19] And the fact that some people think they can buy a piece of art and then sell it later for a profit.
[00:03:27] With the example of Salvator Mundi, it was bought by Mohammed Bin Salman, the crown prince of Saudi Arabia.
[00:03:35] One can only hazard a guess at his motivations for buying it, but whatever they were, they were enough for him to part with $450 million dollars, the most anyone has ever paid for a piece of art.
[00:03:51] Buying Salvator Mundi, Bin Salman actually has physical ownership of it. He can take it anywhere he wants. Nobody can physically see it without his permission. He could choose to hang it in a gallery, or he could choose to keep it in his bedroom, away from the world.
[00:04:10] When it comes to digital art, however, it is a completely different story.
[00:04:16] With the example of this picture of a rock that sold for $1.3 million dollars, I can see it, you can see it, anyone can see it on their screen, it’s freely available to view on the internet.
[00:04:31] In fact, the owner of the rock sees exactly what you or I see.
[00:04:36] And it would be very hard to say that they are beautiful rocks. They are very simple, and created using a very simple cartoon rock.
[00:04:47] Why would anyone pay over a million dollars just to say that they are an owner of one of these rocks?
[00:04:56] The answer to this question is a combination of speculation, of thinking that the price will go up, and publicly displaying your wealth.
[00:05:06] And this is all enabled by NFTs, non-fungible tokens.
[00:05:11] So, what actually is a non-fungible token, and how do they work?
[00:05:17] Let’s just start by defining what “fungible” means. It means interchangeable, that it can be equally changed for something else.
[00:05:26] A 10 euro note is fungible, it can be changed for another 10 euro note, they have exactly the same value. A bitcoin is fungible. One bitcoin is the same as another bitcoin, they also have exactly the same value.
[00:05:43] A painting, on the other hand, is non-fungible. Each one is slightly different, and there are no two that are exactly the same.
[00:05:54] So, if something is a non-fungible token, it is a unique digital asset. It could be a picture of a rock, it could be a certificate, it could be linked to something that actually exists in the physical world, like a house or a car.
[00:06:13] The idea is that it is a secure way of proving ownership of something, and defining certain rules for what should happen to that thing in the future.
[00:06:24] It all works on something called the blockchain, which is a subject for another day, but in essence creates a secure way for ownership of anything, both digital and non-digital, to be transferred from one party to another.
[00:06:41] This is called a smart contract.
[00:06:43] Now, this might sound overly technical, but let’s explain it in another way, which I hope will help you understand some of the attraction of this new technology.
[00:06:56] Let’s say that you are a young artist. You have a growing following on social media. People are starting to buy your works. Perhaps you have even got a gallery to host an exhibition of your latest collection.
[00:07:11] Great, well done. Life is looking promising.
[00:07:16] There are, however, lots of people waiting to take a proportion of your sales.
[00:07:22] The art gallery will typically take around 50%, so if one of your paintings is sold for €1,000, then you, the artist, will get €500.
[00:07:34] Let’s say that your fame continues to grow, and instead of selling paintings for a thousand euros, you can now sell them for 50,000 euros.
[00:07:46] A gallery would still want its commission. It might be a little bit less than 50% now, but let’s say you negotiated well you might get €30,000.
[00:07:58] Your early fans, people who believed in you from the beginning, can sell your early works for 50,000 euros. They make a profit of 49,000 euros and you make a profit of, well, nothing on the resale, only the original 500 euros you received when you first sold the painting.
[00:08:20] You see the problem here.
[00:08:24] For artists they often get a raw deal, and don’t get much financial reward when their works are re-sold.
[00:08:33] And let’s take a look at it from the perspective of the buyer.
[00:08:38] They might have a beautiful piece of art that they can have in their living room, it might bring them great joy, and they might think that they can sell it for more money in a few years time.
[00:08:50] Their friends admire it when they come for dinner, and other people might know that they have it, but most people probably don’t know.
[00:09:00] Then let’s imagine this situation in a world of NFTs, a digital world.
[00:09:06] You, the young artist, still have the same fans. They passionately believe in you, and think that you are going to go on to great things. They want to support you, but they also think that you are a good investment.
[00:09:22] You decide to offer a limited edition of 100 digital copies of your favourite painting. They are all slightly different, perhaps they use slightly different colours, or perhaps they are numbered, like limited edition prints.
[00:09:37] You offer these for sale directly to your fans. There is no gallery taking 50%. Perhaps you sell it through a marketplace, which might take 15% or something like that, but you get to keep the majority of the sale price.
[00:09:55] What’s more, because each transaction is made with a smart contract, you can decide beforehand that you, the artist, should receive, let's say, 10% of the future sale price if it is sold, allowing you to also make money if it is resold for a profit.
[00:10:14] Again, let’s explain this with a working example.
[00:10:18] Instead of selling one painting for €1,000 and getting €500, you could sell 100 slightly different digital versions of it for €500 each, meaning that you now get more like €50,000 instead of €500.
[00:10:36] What’s more, if you continue to grow as an artist and be more in demand, any time one of these digital prints is sold you would get 10%, because that is already programmed into the smart contract.
[00:10:50] And even better, you now have 100 fans who also have a financial interest in the value of your works increasing, so they are more likely to promote your work on social media, and encourage other people to invest in you.
[00:11:06] As you can see, for many artists it can be a much more attractive economic proposition.
[00:11:14] But I know what you might be thinking: “this is a ridiculous example - surely there wouldn’t be 100 people who would be prepared to pay €500 for a digital print, something they can see online for free?”
[00:11:28] Well, let’s take a look at it from the perspective of the buyer.
[00:11:33] They might only have a digital version of the artwork, but instead of putting it on their living room wall, they use it as their profile picture in the online world, it is their avatar, their public face on a social network like Twitter. Instead of their immediate family and friends seeing it, it can be seen by anyone on the internet.
[00:11:55] It sends a strong signal about who you are. Not just that you are the kind of person who can afford a certain work of art, but about your taste, about the kind of friends you have, the idea is that it is an effective way of telling people what kind of person you are.
[00:12:17] One of the most successful of these kinds of projects is called Bored Ape Yacht Club, and is a collection of 10,000 slightly different pictures of monkeys looking bored.
[00:12:31] In certain circles of Twitter you 11will see people with these images as their profile pictures, and it’s a way of signalling that they are in this exclusive club, that they own assets that are now worth hundreds of thousands of dollars.
[00:12:47] To go back to the example of Mohammed Bin Salman and the $450 million purchase of Leonardo Da Vinci’s Salvator Mundi, would he have bought it if nobody knew that he owned it?
[00:13:01] In all likelihood, no.
[00:13:03] A large part of the value that anyone places on anything is being able to show it off to other people.
[00:13:10] For people who buy an expensive watch or an expensive car, are they doing that because they are much better ways of keeping the time, or much better modes of transport?
[00:13:21] No, they might look pretty, and be fun to drive, but a large part of the reason that someone pays hundreds of thousands of euros for a watch or a car is because they want other people to see them with it and know that they have it.
[00:13:39] If everyone knows that these digital artworks are worth a certain amount of money, then showing them to the world is like being able to show that you are part of a very expensive, and therefore exclusive club, and of displaying your wealth to others.
[00:13:55] Now, in 2021, and especially in the past few weeks before this episode, the price for and interest in NFTs has exploded, it has gone through the roof.
[00:14:08] Companies have even got in on the action, and embraced this new trend.
[00:14:13] Christie’s, the auction house, sold an NFT of 10,000 individual works of art for $69 million in March of 2021.
[00:14:25] Visa, the payments company, paid $150,000 for an NFT in late August.
[00:14:33] Naturally, people have seen prices rising and looked for an opportunity to jump in and make a quick buck, to make some money. Some people have made a huge amount of money, such as the English guy who made $1.3 million in 19 days from selling the clip art rock.
[00:14:52] And the more money people make, the more likely they are to try to encourage others to participate, especially if the more people who buy them, the more the price increases.
[00:15:04] But the critics say surely the prices can’t keep on going up forever.
[00:15:10] Much like any bubble that has come before, there will be a top of the market, and no doubt lots of people will lose lots of money as they pay far too much for NFTs which will be worthless in the future.
[00:15:25] So, you might be thinking, what’s the point of it all?
[00:15:29] When there are so many more pressing problems in the world, isn’t it a bit ridiculous that people are diving into the world of selling digital cartoon monkeys?
[00:15:39] That’s a valid question, and perhaps we will look back on this time as truly bizarre, a craze that made absolutely no sense.
[00:15:49] But to the proponents of NFTs, it is just the beginning.
[00:15:53] To your or my grandchildren owning a piece of digital art will be completely normal. Indeed, perhaps it would be even more desirable than owning a physical piece of art. After all, physical pieces of art can also be copied, even if it’s a bit harder than just simply downloading an image.
[00:16:14] And with a physical work of art, it’s much harder to show them off, to display them to the world.
[00:16:21] In a digital world, whether that is a world of virtual or augmented reality, or if it is just the world of intense technology usage that we all already live in today, digital art will be the art of the future, a way of showing your taste and projecting your identity to anyone who sees you.
[00:16:42] And to people who believe that, the world of NFTs and digital art is only just getting started.
[00:16:52] OK then, that is it for today's episode on NFTs.
[00:16:57] I hope it's been an interesting one, that you've learnt something new, and that if you have heard or read something about NFTs over the past few weeks, well this has been a useful new perspective.
[00:17:10] As always, I would love to know what you thought of this episode.
[00:17:14] Would you ever consider buying a piece of digital art?
[00:17:17] If so, what would make you do it?
[00:17:20] And if not, why not?
[00:17:22] Let’s get the discussion started - the place for that is community.leonardoenglish.com.
[00:17:28] You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:17:33] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[END OF EPISODE]
[00:00:00] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:12] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:22] I'm Alastair Budge, and today we are going to be talking about non-fungible tokens, otherwise known as NFTs, and Digital Art.
[00:00:33] In late August someone sold a digital picture of a clip art rock, a simple digital drawing of a rock, for $1.3 million dollars. He had bought it only 19 days before for $5,000.
[00:00:48] The rock was what is called a non-fungible token, an NFT, and this sale was the latest example in this boom in this new technology.
[00:00:58] So, in this episode we are going to take a deep dive into the weird world of NFTs and digital art. We’re going to explain what an NFT actually is, how they work, why someone might want a digital picture that anyone can download for free, why the prices have been rising so fast, why some people think it is all a giant bubble, a house of cards, and what the future might hold for this technology.
[00:01:29] Let’s jump right into it.
[00:01:32] Let’s start by asking ourselves a few questions.
[00:01:35] Why is art worth anything?
[00:01:38] What makes Salvator Mundi, a painting supposedly done by Leonardo Da Vinci, sell for $450 million, while a painting my son might do probably wouldn't even sell for $1.
[00:01:53] It is, on one level, a stupid question.
[00:01:56] Leonardo Da Vinci is one of the most famous artists in the world, Salvator Mundi is an interesting and enjoyable painting to look at. There will never be another Salvator Mundi by Leonardo Da Vinci, because he died over 500 years ago. And it will likely continue to be worth a lot of money, perhaps it will even become more valuable with time.
[00:02:19] My son, on the other hand, isn’t even two years old.
[00:02:23] Perhaps he might turn out to be a great artist, but his paintings at the moment are not particularly impressive to anyone other than his parents. He will, I hope, continue to do paintings for many years to come, paintings that one would hope might be more visually pleasing to look at than the ones he does now. But perhaps not, and there’s no guarantee that his paintings will go up in value with time.
[00:02:49] So, yes it is a silly comparison, but I use it to illustrate some of the factors that go into the value we place on art.
[00:03:01] The beauty of the artwork.
[00:03:03] The reputation of the artist.
[00:03:06] The scarcity of the piece, how rare it is.
[00:03:10] The consequent pride that the owner has in being able to say that they own that piece of art.
[00:03:19] And the fact that some people think they can buy a piece of art and then sell it later for a profit.
[00:03:27] With the example of Salvator Mundi, it was bought by Mohammed Bin Salman, the crown prince of Saudi Arabia.
[00:03:35] One can only hazard a guess at his motivations for buying it, but whatever they were, they were enough for him to part with $450 million dollars, the most anyone has ever paid for a piece of art.
[00:03:51] Buying Salvator Mundi, Bin Salman actually has physical ownership of it. He can take it anywhere he wants. Nobody can physically see it without his permission. He could choose to hang it in a gallery, or he could choose to keep it in his bedroom, away from the world.
[00:04:10] When it comes to digital art, however, it is a completely different story.
[00:04:16] With the example of this picture of a rock that sold for $1.3 million dollars, I can see it, you can see it, anyone can see it on their screen, it’s freely available to view on the internet.
[00:04:31] In fact, the owner of the rock sees exactly what you or I see.
[00:04:36] And it would be very hard to say that they are beautiful rocks. They are very simple, and created using a very simple cartoon rock.
[00:04:47] Why would anyone pay over a million dollars just to say that they are an owner of one of these rocks?
[00:04:56] The answer to this question is a combination of speculation, of thinking that the price will go up, and publicly displaying your wealth.
[00:05:06] And this is all enabled by NFTs, non-fungible tokens.
[00:05:11] So, what actually is a non-fungible token, and how do they work?
[00:05:17] Let’s just start by defining what “fungible” means. It means interchangeable, that it can be equally changed for something else.
[00:05:26] A 10 euro note is fungible, it can be changed for another 10 euro note, they have exactly the same value. A bitcoin is fungible. One bitcoin is the same as another bitcoin, they also have exactly the same value.
[00:05:43] A painting, on the other hand, is non-fungible. Each one is slightly different, and there are no two that are exactly the same.
[00:05:54] So, if something is a non-fungible token, it is a unique digital asset. It could be a picture of a rock, it could be a certificate, it could be linked to something that actually exists in the physical world, like a house or a car.
[00:06:13] The idea is that it is a secure way of proving ownership of something, and defining certain rules for what should happen to that thing in the future.
[00:06:24] It all works on something called the blockchain, which is a subject for another day, but in essence creates a secure way for ownership of anything, both digital and non-digital, to be transferred from one party to another.
[00:06:41] This is called a smart contract.
[00:06:43] Now, this might sound overly technical, but let’s explain it in another way, which I hope will help you understand some of the attraction of this new technology.
[00:06:56] Let’s say that you are a young artist. You have a growing following on social media. People are starting to buy your works. Perhaps you have even got a gallery to host an exhibition of your latest collection.
[00:07:11] Great, well done. Life is looking promising.
[00:07:16] There are, however, lots of people waiting to take a proportion of your sales.
[00:07:22] The art gallery will typically take around 50%, so if one of your paintings is sold for €1,000, then you, the artist, will get €500.
[00:07:34] Let’s say that your fame continues to grow, and instead of selling paintings for a thousand euros, you can now sell them for 50,000 euros.
[00:07:46] A gallery would still want its commission. It might be a little bit less than 50% now, but let’s say you negotiated well you might get €30,000.
[00:07:58] Your early fans, people who believed in you from the beginning, can sell your early works for 50,000 euros. They make a profit of 49,000 euros and you make a profit of, well, nothing on the resale, only the original 500 euros you received when you first sold the painting.
[00:08:20] You see the problem here.
[00:08:24] For artists they often get a raw deal, and don’t get much financial reward when their works are re-sold.
[00:08:33] And let’s take a look at it from the perspective of the buyer.
[00:08:38] They might have a beautiful piece of art that they can have in their living room, it might bring them great joy, and they might think that they can sell it for more money in a few years time.
[00:08:50] Their friends admire it when they come for dinner, and other people might know that they have it, but most people probably don’t know.
[00:09:00] Then let’s imagine this situation in a world of NFTs, a digital world.
[00:09:06] You, the young artist, still have the same fans. They passionately believe in you, and think that you are going to go on to great things. They want to support you, but they also think that you are a good investment.
[00:09:22] You decide to offer a limited edition of 100 digital copies of your favourite painting. They are all slightly different, perhaps they use slightly different colours, or perhaps they are numbered, like limited edition prints.
[00:09:37] You offer these for sale directly to your fans. There is no gallery taking 50%. Perhaps you sell it through a marketplace, which might take 15% or something like that, but you get to keep the majority of the sale price.
[00:09:55] What’s more, because each transaction is made with a smart contract, you can decide beforehand that you, the artist, should receive, let's say, 10% of the future sale price if it is sold, allowing you to also make money if it is resold for a profit.
[00:10:14] Again, let’s explain this with a working example.
[00:10:18] Instead of selling one painting for €1,000 and getting €500, you could sell 100 slightly different digital versions of it for €500 each, meaning that you now get more like €50,000 instead of €500.
[00:10:36] What’s more, if you continue to grow as an artist and be more in demand, any time one of these digital prints is sold you would get 10%, because that is already programmed into the smart contract.
[00:10:50] And even better, you now have 100 fans who also have a financial interest in the value of your works increasing, so they are more likely to promote your work on social media, and encourage other people to invest in you.
[00:11:06] As you can see, for many artists it can be a much more attractive economic proposition.
[00:11:14] But I know what you might be thinking: “this is a ridiculous example - surely there wouldn’t be 100 people who would be prepared to pay €500 for a digital print, something they can see online for free?”
[00:11:28] Well, let’s take a look at it from the perspective of the buyer.
[00:11:33] They might only have a digital version of the artwork, but instead of putting it on their living room wall, they use it as their profile picture in the online world, it is their avatar, their public face on a social network like Twitter. Instead of their immediate family and friends seeing it, it can be seen by anyone on the internet.
[00:11:55] It sends a strong signal about who you are. Not just that you are the kind of person who can afford a certain work of art, but about your taste, about the kind of friends you have, the idea is that it is an effective way of telling people what kind of person you are.
[00:12:17] One of the most successful of these kinds of projects is called Bored Ape Yacht Club, and is a collection of 10,000 slightly different pictures of monkeys looking bored.
[00:12:31] In certain circles of Twitter you 11will see people with these images as their profile pictures, and it’s a way of signalling that they are in this exclusive club, that they own assets that are now worth hundreds of thousands of dollars.
[00:12:47] To go back to the example of Mohammed Bin Salman and the $450 million purchase of Leonardo Da Vinci’s Salvator Mundi, would he have bought it if nobody knew that he owned it?
[00:13:01] In all likelihood, no.
[00:13:03] A large part of the value that anyone places on anything is being able to show it off to other people.
[00:13:10] For people who buy an expensive watch or an expensive car, are they doing that because they are much better ways of keeping the time, or much better modes of transport?
[00:13:21] No, they might look pretty, and be fun to drive, but a large part of the reason that someone pays hundreds of thousands of euros for a watch or a car is because they want other people to see them with it and know that they have it.
[00:13:39] If everyone knows that these digital artworks are worth a certain amount of money, then showing them to the world is like being able to show that you are part of a very expensive, and therefore exclusive club, and of displaying your wealth to others.
[00:13:55] Now, in 2021, and especially in the past few weeks before this episode, the price for and interest in NFTs has exploded, it has gone through the roof.
[00:14:08] Companies have even got in on the action, and embraced this new trend.
[00:14:13] Christie’s, the auction house, sold an NFT of 10,000 individual works of art for $69 million in March of 2021.
[00:14:25] Visa, the payments company, paid $150,000 for an NFT in late August.
[00:14:33] Naturally, people have seen prices rising and looked for an opportunity to jump in and make a quick buck, to make some money. Some people have made a huge amount of money, such as the English guy who made $1.3 million in 19 days from selling the clip art rock.
[00:14:52] And the more money people make, the more likely they are to try to encourage others to participate, especially if the more people who buy them, the more the price increases.
[00:15:04] But the critics say surely the prices can’t keep on going up forever.
[00:15:10] Much like any bubble that has come before, there will be a top of the market, and no doubt lots of people will lose lots of money as they pay far too much for NFTs which will be worthless in the future.
[00:15:25] So, you might be thinking, what’s the point of it all?
[00:15:29] When there are so many more pressing problems in the world, isn’t it a bit ridiculous that people are diving into the world of selling digital cartoon monkeys?
[00:15:39] That’s a valid question, and perhaps we will look back on this time as truly bizarre, a craze that made absolutely no sense.
[00:15:49] But to the proponents of NFTs, it is just the beginning.
[00:15:53] To your or my grandchildren owning a piece of digital art will be completely normal. Indeed, perhaps it would be even more desirable than owning a physical piece of art. After all, physical pieces of art can also be copied, even if it’s a bit harder than just simply downloading an image.
[00:16:14] And with a physical work of art, it’s much harder to show them off, to display them to the world.
[00:16:21] In a digital world, whether that is a world of virtual or augmented reality, or if it is just the world of intense technology usage that we all already live in today, digital art will be the art of the future, a way of showing your taste and projecting your identity to anyone who sees you.
[00:16:42] And to people who believe that, the world of NFTs and digital art is only just getting started.
[00:16:52] OK then, that is it for today's episode on NFTs.
[00:16:57] I hope it's been an interesting one, that you've learnt something new, and that if you have heard or read something about NFTs over the past few weeks, well this has been a useful new perspective.
[00:17:10] As always, I would love to know what you thought of this episode.
[00:17:14] Would you ever consider buying a piece of digital art?
[00:17:17] If so, what would make you do it?
[00:17:20] And if not, why not?
[00:17:22] Let’s get the discussion started - the place for that is community.leonardoenglish.com.
[00:17:28] You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:17:33] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[END OF EPISODE]
