What are NFTs? Explaining non-fungible tokens, from Bored Apes to CryptoKitties and beyond
Non-fungible tokens, part of the fast-evolving digital frontier, are gaining traction on Long Island.
NFTs, as they are called, have made headlines through the sale of digital kittens, sneakers, and basketball dunk videos. Also notable: the March 2021 sale of a digital collage NFT by an artist known as Beeple for $69.3 million.
On Long Island, NFTs are being bought, sold, and used as marketing tools by artists, musicians, the New York Islanders, AriZona Iced Tea and others. One of Long Island's largest public companies is monitoring potential uses for NFTs in financial services.
All the while, many onlookers are mystified.
Why, they ask, are investors bidding to own digital images that could be copied with a few clicks of a mouse?
To begin, NFTs are one-of-a-kind digital certificates stored on a public online ledger known as a blockchain. Those certificates underlie and create ownership rights to the digital creations.
While the digital image of an NFT kitten can be copied, the underlying blockchain database provides strong security. The NFT's owner gets exclusive proprietorship of the original image — plus any digital cachet.
Is ownership of the original superior?
Consider someone who buys a print of Picasso's "Guernica" at The Museum of Modern Art. They may get a high-quality copy that looks strikingly like "Guernica," but collectors would say that owning the original would be far more valuable.
Another parallel: collecting baseball cards, once considered a pastime for kids. Yet last year, a Topps Mickey Mantle card from 1952 sold for the decidedly adult price of $5.2 million, enough to buy 10 median-priced houses in Suffolk County.
Of course, those headline prices for baseball cards and NFTs are outliers. NFT marketplaces list thousands of items — many for just a few dollars.
In the end, value is in the eye of the beholder.
Buying NFTs is "all about bragging, showing off and sharing," said David Broome, president of Los Angeles-based NFT company Orange Comet. "You want to show it off and share it on your social media... I'm looking at NFTs as the next form of digital entertainment."
Orange Comet, co-founded by singer Gloria Estefan, former NFL quarterback Kurt Warner and others, in November announced a multi-year deal to be the exclusive NFT provider of the New York Islanders and UBS Arena.
Broome, a veteran Hollywood producer who worked for the Islanders at Nassau Coliseum during his days as a Hofstra University student, said the first "drop" of short, limited-edition Islander videos in November yielded several hundred thousand dollars on the sale of about 3,300 NFTs.
Many fans wear Islander jerseys to identify with the team, he said. NFTs provide a way to extend that fanbase engagement into the digital realm.
Fans of the undead can take part, too. Earlier this month, Orange Comet announced a deal to provide NFTs of the characters on AMC's zombie apocalypse series "The Walking Dead."
For all the headlines, a survey by Morning Consult, a global data intelligence company, conducted in March 2021 suggests that the market is in its early stages.
Almost two-thirds of U.S. adults said they are "not familiar at all" with NFTs, more than double the percentage that were unfamiliar with cryptocurrency, according to the survey.
The poll of 2,000 adults also found that men were more than three times as likely to collect NFTs as women.
On Long Island, artist Sean Fredrick Keane, who goes by Fredrick in the online world, is converting years of art production — including 120- by 120-pixel photos from a Casio wristwatch camera — into NFTs. He's posting them for sale on OpenSea.io, a popular NFT marketplace.
Portrait of artist Sean Fredrick Keane, who just goes by the name "Fredrick," in his Mt. Sinai studio with some of his works. Credit: Newsday/Thomas A. Ferrara
One of his digital creations, "Head made on Palm Pilot," was recently priced at $2,604.91.
Creators are able to set floor prices for NFTs listed on marketplaces, but in this bewildering digital bazaar, value is largely assigned by buyers' demand.
Keane, who is circulating a proposal for a book that guides artists through the NFT process, also leads a new NFT Meetup group.
"I'm reaching out to my artist friends," he said. "People don't know how to do it."
Corporate America is using NFTs as a way to get in touch with the zeitgeist of a new generation:
- Italian automaker Alfa Romeo announced earlier this month that every Tonale SUV sold will come with an NFT to provide a "non-corruptible record" of the vehicle's repair history.
- In August, Woodbury-based AriZona Beverages USA, maker of AriZona Iced Tea, tweeted out its purchase of one of the popular Bored Ape Yacht Club digital cartoon NFTs: "BIG NEWS, ZONIE'S! AriZona APED into the @BoredApeYC."
The brand later showed up in a Bored Ape NFT comic book, whose web site describes it as a community project not "directly affiliated" with the Bored Ape Yacht Club.
BIG NEWS, ZONIE'S! AriZona APED into the @BoredApeYC - We're stoked to introduce our Bored Ape #NFT & have some huge things planned!
— AriZona Iced Tea (@DrinkAriZona) August 20, 2021
Shout out to @BoredApeComic & check out https://t.co/dIYyQOZEWT Issue #1 for a huge surprise reveal. #NFTcommunity #BAYC #BoredApeYC #NFT pic.twitter.com/qs3CVNCGl3
- Credit card payments processor Visa Inc. last year disclosed that it paid about $150,000 in the cryptocurrency Ether for an NFT in the CyberPunk series.
- Burger chain White Castle partnered in December to create "Sliderverse" NFTs to mark its hundredth birthday.
- Retailing giant Walmart Inc. filed for trademarks with the U.S. Patent and Trademark Office in December, hinting that it plans to mint NFTs.
- Toy maker Mattel Inc. is seeking to extend its franchise by issuing themed NFTs for Barbie (who at 63 is eligible to collect Social Security) and longtime companion Ken. Mattel also launched NFTs for its Hot Wheels toys.
Hype and price tags aside, experts say NFTs' potential has barely been scratched. NFTs, they say, eventually could be accepted in establishing ownership, or facilitating the sale, of everything from financial securities to physical assets such as art, wine and real estate.
Broadridge Financial Solutions Inc., which provides backoffice and communications services to Wall Street, is monitoring the NFT marketplace.
"You can see why people are excited," said German Soto Sanchez, senior vice president of corporate strategy at Lake Success-based Broadridge. "Assets can be fractionalized and traded," creating the potential to combine debt obligations into one security that could be divided and marketed to investors.
In this scenario, known as decentralized finance, or DeFi, NFTs could be put in escrow accounts as collateral for loans in peer-to-peer transactions that cut out Wall Street middlemen. NFTs also could be used to represent bonds or insurance contracts that could be traded on secondary markets.
Likewise, the digital framework could be used to "tokenize" and "fractionalize ownership" of artworks or real estate, Sanchez said, though broad regulatory recognition of NFT-based transactions remains uncertain.
Not all NFT projects bring immediate riches.
In January, freight logistics company Sino-Global Shipping America Ltd. changed its name to Singularity Future Technology Ltd. The publicly traded Great Neck company last year announced plans for an NFT marketplace, but a company spokesperson texted that no NFT business had been launched.
In the quarter ended Dec. 31, Singularity posted a net loss of $8.9 million on sales of $1 million.
Jefferies LLC analyst Stephanie Wissink said that the most receptive audiences for NFTs initially will be fans of gaming and collectibles who already have the "muscle memory" to buy digital goods.
Eventually, Wissink said, NFTs could filter down to the neighborhood pizza parlor as a marketing tool. For example, NFTs could be distributed like lottery tickets with one lucky holder getting free pizza for a year.
"That local pizza joint becomes a viral sensation," Wissink said.
Nick Selvaggio of East Islip and Craig Rudes of Dix Hills have formed a company, LI Blockchain LLC, whose projects include creating NFTs for rock keyboardist and Grammy nominee Jordan Rudess.
The NFTs combine animation with music from Rudess.
Rudes acknowledged that the volume of new NFTs makes it difficult to stand out.
"There are literally tens of thousands of NFTs now," he said. "Most are not going to be successful."
In some cases, NFT creators recruit celebrities and "successful people" to help coalesce and motivate buyers, Rudes said. "You see how ["The Tonight Show" host] Jimmy Fallon has one," which helps to build momentum.
Among the celebrities who have embraced NFTs is Snoop Dogg. Snoop Dogg, who appeared in the Super Bowl halftime show, reportedly plans to release artists' music from his Death Row Records via NFTs.
Selvaggio acknowledged that at first he did not grasp why an early NFT series known as CryptoPunks would attract buyers.
"Then the price skyrocketed," he said. The excitement made Selvaggio reconsider how he thinks about NFTs.
"I'm starting to realize that it's not the image of the Bored Ape Yacht Club. It's about being part of the community."
What's more, unlike physical artworks displayed on a living room wall, NFTs can be displayed on social media.
"It's got worldwide reach," Selvaggio said.
For now, the NFT market is "the wild, wild west," said Wissink. "Not all of the companies will survive. It's an open and fertile field."
Selvaggio said the future will belong to a generation that has grown up with the digital economy.
"I have two young kids, 11 and 9," he said. "They're already in the metaverse. They play Roblox all the time."
Roblox, which lets players create their own online games and virtual worlds, has attracted millions of tween users in the United States and global markets.
"These are examples of digital worlds that have economies," Selvaggio said. "Children today are being primed for that future. I think it's going to be natural for them to say, 'I do value that NFT.'"
Ken Schachter covers corporate news, including technology and aerospace, and other business topics for Newsday. He has also worked at The Miami Herald and The Jerusalem Post.
Sarra Sounds Off, Ep.16: From Island to island, how football helped overcome tragedy Newsday's Gregg Sarra talks to Carey football player James McGrath about how he has persevered after losing his parents at a young age, and to the Lahainaluna (Hawaii) High School football coach about how his team persevered after the Maui wildfires of 2023, plus a behind-the-scenes look at the All-Long Island teams photo shoot.
Sarra Sounds Off, Ep.16: From Island to island, how football helped overcome tragedy Newsday's Gregg Sarra talks to Carey football player James McGrath about how he has persevered after losing his parents at a young age, and to the Lahainaluna (Hawaii) High School football coach about how his team persevered after the Maui wildfires of 2023, plus a behind-the-scenes look at the All-Long Island teams photo shoot.
