The singer Eminem is reported to have recently paid $450,000 (about £334,00) for a single digital image of the highly fashionable NFT ‘art’ brand the Bored Ape. The Bored Ape’s digital image NFTs, including one with gold fur that fetched $3.4m at Sotheby’s in October, are more than just playthings for the wealthy; they are tokens of things to come on the internet.
To understand how such values are attributed to these NFTs, we must first understand the concept of a replaceable and an irreplaceable product: A replaceable product is a product that can be perfectly replaced with another product at the same level and appearance.
If I exchange a £50 note for another £50 note, there will be no real difference between them and I will not care which one I hold. The main thing is that for me the two notes are equal. As long as I have one of them, I am indifferent to which one will be in my possession. In other words, the £50 note can be exchanged without a problem, since there is no difference between it and any other £50 note.
What is ‘irreplaceable’?
Something irreplaceable is created by a combination of three different factors and by doing so these factors give a certain value to the product. Here are the factors:
• A special product whose authenticity can be verified.
• There is a known shortage of product (single product or small quantity).
• The product is indivisible.
For example, the famous sunflowers painting signed by the artist Van Gogh is an irreplaceable product. This is the only such original picture in the world. In addition, no more of this image can be produced, since Van Gogh died many years ago.
From this we understand the concept of ‘irreplaceable’ and its value: The painting is special and can be verified if it is fake or not because there is only one such painting in the world. It is impossible to produce another such painting. The painting is not divisible- if it is torn to pieces it will drop in value and people will not want to invest in the torn painting.
Of course, many people have copied Van Gogh’s art, but there will only ever be one true original.
Here comes the NFT…
In the case of a digital product such as an image, it is always possible to make a copy paste of the image and thus create a cheap digital imitation that fits the original perfectly. That way no one could tell if it was a fake or not.
This is exactly where the NFT comes in that can solve the problem of copying and duplication in the digital world. This is how digital collectibles such as computerised artwork can be created on blockchain networks. With the help of the NFT protocol it is not possible to forge or change digital assets, and whenever you want to check who it belongs to and all the other information that interests you, you can see this through the blockchain on which the NFT is created. In this way it is possible to verify to whom the original digital asset always belongs and know that it is not the fake and is indeed the original.
Back to the Bored Ape collection, the creators played with digital scarcity. NFTs gain their value from not being identical (or fungible) in the way that bitcoins are. They use similar blockchain technology to cryptocurrencies, but each NFT is identified by its own string of code. The Bored Apes are a limited edition, with various expressions, clothing and accessories. As the makers put it, in a play on George Orwell’s Animal Farm, “All apes are dope but some are rarer than others.” That puts a premium on traits such as golden fur and laser eyes, which fewer than one per cent possess.
Gibraltar too has jumped on the NFT bandwagon and last May, Her Majesty’s Government of Gibraltar and the Gibraltar Philatelic Bureau Limited have issued a limited edition 2021 commemorative ‘Cryptocurrency’ postage stamp tied to the release of a blockchain based Digital Collectible, or non-fungible token (“NFT”) counterpart, exclusively produced by Coinsilium. The NFT collectible counterpart include 22 individual exclusively commissioned iconic images of Gibraltar, at 5 different levels of scarcity.
Moreover, Gibraltar’s pioneering position in the world, in terms of Distributed Ledger Technology regulations and its crypto-friendly ecosystem, is attracting NFT businesses looking to capitalise on this growing trend. Such businesses may need to register as Virtual Asset Service Providers under the GFSC’s recent guidelines, and Benefit Business Solutions Ltd can advise and accompany throughout this process.