Is it crazy to buy art that doesn’t physically exist?

Investing in collectables is nothing new. It ranges from traditional investments such as paintings and fine wines to more outlandish Beanie Baby toys and even tulip bulbs. 

Until now, collectables have been physical objects, but the latest craze is virtual-based. 

Investors are collecting non-fungible tokens (NFTs), which are essentially digital receipts that prove they own something digital, such as a piece of art, a song, or even a tweet. 

Modern art: The artist Beeple became one of the richest living artists after an NFT for his art, above, was sold by Christie’s

The NFT is not the digital art or song itself, it is the receipt that proves ownership, comprising a long, unique combination of letters and numbers. 

Recent events make it hard to dismiss NFTs out of hand. There’s big money in them and even established institutions are becoming interested. An NFT was sold by auction house Christie’s in March for £50million – breaking all records. The sale of the associated digital art made its creator Beeple – real name Mike Winkelmann – one of the world’s richest living artists. 

The owner of this digital artwork has not bought something they can put on their wall. They don’t even get an artwork that they alone can look at on a screen. Instead, they own a digital receipt which says they are the owner of the artwork. Anyone else can look at it online, or even print off a copy and stick it on their wall. 

The sale by Beeple is not a one-off. In February, an animated online image of Nyan Cat, a grey cat with a pop tart for a body, sold for around £425,000. The following month, the artist Grimes sold a collection of digital artworks for around ten times that sum. 

NFTs are not just art works. In March, Twitter boss Jack Dorsey sold his first tweet – which said: ‘Just setting up my twttr’ – as an NFT for more than £2million. A French winemaker, Chateau Darius, is selling online images of wine bottles as NFTs for hundreds of pounds. 

Holly Mackay, of straight-talking investment website BoringMoney, agrees the NFT craze is strange, but adds: ‘Maybe, it’s not that weird.’ She explains: ‘Buying and selling art as a mere commodity to store value has been going on for centuries. And actually, the notion that a brown scrap of polymer with the Queen’s face on it is somehow a fair exchange for anything worth £10 is quite odd, too.’ 

An NFT is like a proof of ownership receipt. It is stored on a virtual ledger known as blockchain. This is the same technology that cryptocurrencies such as Bitcoin use. 

The advantage of blockchain is that the ledger is not overseen by any one party. Instead, it is stored by multiple parties. 

Susannah Streeter is senior investment and markets analyst at wealth manager Hargreaves Lansdown. She explains: ‘Each unique token is recorded on a digital ledger shared on the network, and once it has been logged it can’t be deleted. This can reduce fraud as it increases transparency of the transactions and helps with verifying the authenticity of assets.’

NFTs can use any blockchain. However, most tend to use the ethereum blockchain, which is the second-largest cryptocurrency by market value after Bitcoin. The rising popularity of NFTs has helped drive the value of ethereum to new record highs – and its value has risen from $205 to $3,266 in the last year alone. 

Tom Selby, senior analyst at wealth platform AJ Bell, believes that if you are thinking about buying an NFT, you should consider what it is worth to you – rather than its value to future investors. He says: ‘As with any purchase, consumers should think about whether they are getting value for money in terms of what the NFT is worth to them. But it would be foolish to buy an NFT on the assumption it will go up in value as this simply cannot be guaranteed. That doesn’t definitely mean you won’t be able to make a profit, but that shouldn’t be your primary motivation.’ 

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