On October 15 2021, the following simple tweet came out
Someone had just offered $9.6m (2.5k Ethereum) to the above owner of the Cryptopunk #6046. The US Dollar value of the offer would have made it the highest sum paid for a Cryptopunk. This is for a pixelated jpeg image that re-defines the dictionary definition of art, while making investors salivate.
Early-adopting investors realise this “artpiece”, alongside 9,999 other unique Crypotpunks, were simply given away for free back in 2017. They were, however, part of one of the first documented experiments to mint NFTs, when NFT based technology was in its infancy — presenting a culturally significant moment in time for the crypto-art movement, producing the returns investment managers can only dream of.
When I have the pleasure of relaying this story at NFT conferences,or on NFT panels and to people who are just embarking on their NFT journey they give me quizzical looks. These looks usually then morph into nervous smugness, as their eyes process both both the enormity and ridiculousness of the situation. The eyes simply say “WTF ? $9.6m for a pixelated jpeg!” Almost looking around for nervous affirmation, they cross their arms in defiance.
“…but I can right-click the Cryptopunk image, and save it to my computer — so I’m rich, right??”
“Yes, you can…” I reply with professional courtesy.… and here is the same saved image.
My next reply is as simple as it is courteous:
“…but can you sell yours for $9.6m?”
This simple reply earmarks the beginning of so many people’s journey down the NFT Rabbithole…
By any stretch of the artistic imagination, $9.6m is a serious sum of money — for a dysfunctional, pixelated jpeg that is worth more than so many iconic pieces by established historic artists like Andy Warhol and Mark Rothco. While we can all save the same image valued at $9.6m to our digital devices, we do not own the original. So how do we prove ownership of a digital file when we can all right click and save? This is the breakthrough power of the technologies associated with NFTs.
Using the underlying cryptographic technology of NFTs you can prove the ownership of any digital file e.g. a digital art piece, a 3D movie or a word document. You can create a unique digital fingerprint of a digital file, called a cryptographic “hash”, which is a string of 64 items of text and numbers.
While we won’t explore the technicalities of a hash, the importance of having a unique digital fingerprint should not be overlooked. If you change the original digital file by one pixel, one frame or one full-stop, its digital fingerprint will change. In other words every digital file has a unique digital fingerprint. Now, history shows us how powerful fingerprints can be.
Back in 1894, Scientific American magazine announced that the chances of finding two human fingerprints to be the same was 1 in 64 trillion. In a similar way, when cryptography produces unique digital fingerprints, there are 2 to the power of 256 different combinations — that’s more combinations than the estimated number as of grains of sand on the planet. You can see how these hashes are produced in real-time by using the online demonstration, shown below.
By inputting a sentence into the online application, it automatically produces the cryptographic hash associated with that sentence. This exact technology (called SHA 256 for those that wish to google this further) is used to cryptographically hash digital files in the same way.
Once you have created your unique digital fingerprint , you can now lock this into a block of data on to a publicly-viewable blockchain. Without getting too deep into Blockchain technology at this stage, Blockchains permanently store data — where the data can never be deleted; instead it can only be added to or updated. You can see how the digital fingerprint (hash) fits into blocks of data below.
This means at a very high level with the technology underpinning NFTs you can assign:
- a unique digital fingerprint to a digital file and
- permanently store the record of that unique digital fingerprint that anyone can view.
Once you begin to understand these basic concepts, you will understand the elixir that powers NFTs — and early investors know this.
The earliest-adopting investors in NFTs tend to be crypto-native. They understand the technology and have seen it prove itself many times over. Many have been working with the technology since its inception with Bitcoin back in 2009 and subsequently with the launch of Ethereum’s smart contract platform back in 2014. It is this latter creation of smart contracts that opens up expansive commercial and financial opportunities.
Smart contracts enable funds, in the form of cryptocurrencies, to be programmed. This enables, for example, the ability to automatically transfer the confirmed digital fingerprint to someone else once payment has been received.
To show this in practice, let’s look at the Cryptopunk #6046’s provenance on Open Sea — the largest global NFT marketplace that currently accounts for around 90% of all NFT transactions.
The above image diagram showcases the current status of Cryptopunk #6046 — it is not for sale currently.
By scrolling down the page, however, to the “item activity” you can see the details of the provenance of Cryptopunk #6046. Here can see the current owner, Richerd, bought the piece from an account called moineau for 45 Ethereum. You can also see the subsequent bid for 2,500 Ethereum on October 15 2021. The really powerful nature of NFTs is that the data is transparent — and it gets even better…
By clicking on the upwards arrow in a box (shown in red box above) you can access the real-time source data from the transaction that has been registered permanently on the public blockchain. This confirms the bid of 2,500 ETH that was made (shown in the red box below)
This access to transparent data enables the provenance of any digital file, and its unique digital signature to be established and tracked — from the original creator, e.g. the creators of the CryptoPunks to subsequent purchasers and owners through a chain of data that is linked together.
So, you can see from the transparent and permanent data shown above, how powerful this technology can be and there are 9.6 million reasons, all of them green, as to why investors understand how powerful NFTs will be in the future. Not only do they understand the power, but they are backing that power … and this is just the beginning of where the whole NFT space is heading…
So, the next time you hear of a Cryptopunk being offered for $9.6m, you can say
“I have a copy but I am looking forward, in time, to owning the original!”
Over the coming weeks, we will be producing 3–4 articles a week and are currently developing email courses to help guide you on your journey to understanding NFTs — all in plain English.
In the next article, we will explore what is happening in the NFT marketplace by analysing the open and transparent data that underpins the entire marketplace and how you can capitalise on this transparency.
About the author
Tim Lea (@timothylea2 on twitter) is author of the book Down the RabbitHole, a book on the blockchain in plain English, an international keynote speaker on the strategic application of the blockchain, and an investor in NTFs and the cryptocurrency space. He is the Chief Cryptocurrency Officer of a new Social Impact project Walking Between Worlds (@WBWNFTS on twitter) whose mission is to energise global Indigenous communities to amplify First Nations powerful voices through NFTs