WTF is an NFT? Why I Paid $12,000 for a Sharpie Doodle

DISCLAIMER: I am not an investment adviser and these are just my opinions. There are serious risks involved in placing any investment in securities including NFTs and other blockchain projects -especially cryptocurrencies- given their ongoing volatility. None of the information in the below article is intended to form the basis of any offer or recommendation or have any regard to the investment objectives, financial situation, or needs of any specific person reading this. Any investments in and around blockchain are highly speculative.

I do not actually own the original of this frog doodle rendered in green-colored Sharpie on matte 8 x 11 printer paper. Instead, I own one of seventeen digital copies that are indistinguishable from a .jpeg file of the identical image that may sit on anyone’s computer, a webpage, or in a mobile phone’s photo album. You might be scratching your head by now and questioning why this screenshot of a doodle, which was drawn in under one minute by someone that no circle of artists has ever hard of, has any value at all, let alone $12,000. This piece I purchased is my first NFT, which stands for Non-Fungible Token. I’m going to do my best with unpacking all of this, so let’s start with this funky word “fungible.” Fungible is defined as mutually interchangeable. An example of this would be money. If you gave me a two tens for a twenty dollar bill, we’d be even-steven. Or if we traded twenty dollar bills, neither of us would really care which one the other had. They appear to be the same and even if one is worse for the wear, their values are still identical.

Conversely, non-fungible means one-of-a-kind. So how is #6 of 17 digital issues of my frog doodle non-fungible? This is where things get interesting, and where the “token” part of NFT enters the story. This token is attached to the digital asset and resides on a decentralized ledger called a blockchain, that not only certifies the authenticity of the asset, but makes its uniqueness and ownership mathematically indisputable. Okay, that was a really rough sentence to take in and your Bitcoin PTSD might be spooling up upon reading “blockchain,” but stay with me here. Yes, it is the same kind of decentralized data cryptography and ledger technology that cryptocurrency runs on, but with one big difference. Like the twenty dollar bills, I couldn’t care less which Bitcoin I have in my account. We could swap them back and forth by scanning codes on our phones, and I’d still have $60,000 USD per indistinguishable coin in my account- or $50,000 after a single careless Tweet from Elon Musk. For a bit more on the blockchain, cryptocurrencies, and decentralized ledgers, check out my Crypto FAQs from 2017.

So stitching together these first two attributes, an NFT is inherently unique, and presented as some kind of digital asset -e.g. a piece of digital art, a photo, a video, music, etc. Putting one of these digital assets on the blockchain (most commonly on the Ethereum project) is what is referred to as “minting.” Could you technically mint any digital asset that you own and make it an NFT? Sure. But that does not mean it has any agreed upon value, and this is where we can go back to the fundamentals of why Bitcoin’s market cap is now larger than the three biggest banks in the US — combined. This concept is not so strange when you consider how many other things with no inherent utility we already agree upon having a value as part of our social contract. For starters, there’s our government issued fiat currency, gold, fine art, not to mention baseball cards, comic books and so many other collectibles.

Banksy’s “Love is in the Air”

Before going on to the most interesting attribute of NFTs, let us pause and examine them as being analogous to rare art. A common question about an NFT is “Why would someone pay anything at all, let alone thousands or tens of millions for something that they could just view an identical version of on their computer?” It’s a great question and the same could be asked of why somebody just paid $12.9 million for Banksy’s painting “Love is in the Air.” After all, I could mount and frame an identical print of this simple stencil-based street art to hang in my living room, and not a single person would be able to distinguish it from the original. Original or not, I can appreciate it all the same on my wall — and hey, I love me some Banksy. But my print is not the original and even though I cannot fathom spending $12.9 million on this stencil art, many others in the Sotheby auction felt differently. For some folks, hanging an original Bansky in their home is pretty weighty social currency that is worth millions. Incidentally, this was also the first time Sotheby’s accepted cryptocurrency as a form of payment for physical art.

However, it’s not just about the social currency of hanging expensive art in your home; contemporary art as an asset class has had an average return of 7.5% over the last 35 years, outperforming the average return of real estate in the US over the same period of time. When you begin to think about NFTs as a collectible and a store of value like valuable art, even the purely digital transactions begin to feel less foreign. After all, the Geneva Free Port has 1.2 million pieces of art including an estimated 1,000 Picasso pieces, that never see the light of day. This prison-like secure facility is providing the niche service of keeping extremely valuable physical assets in a safe place, where ownership is often transferred, but the art is never physically handled, let alone viewed.

Fine Art Inside the Geneva Free Port

But what are some of the messier attributes of rare art? Well, that whole Swiss cold-storage scenario sounds unpleasant, but is a much better option than being the target of theft. Every year, $6-$8 billion of art is stolen. There’s also the problem of forgery. Ten years ago, Wolfgang Beltracchi was sentenced to prison after the German forgery pedaler made over $100 million with fakes. Due to the blockchain cryptography of NFTs, they are mathematically impossible to forge. Because it is built on a decentralized platform, it cannot be destroyed, something even the Geneva Port cannot 100% guarantee because it resides in a centralized physical location. Consider the equivalent collectible or rare piece of art that you could keep protected in your Swiss safe haven, but simultaneously display in your living room, social media, or any other place a screen exists. That is an NFT.

By the time the internet really took hold in the early 90s, a decade hadn’t passed before having an email address was as expected as having a phone number. For the information age, email provided a much faster and more efficient solution for written communication compared to snail mail. Downloadable media replaced removable media (CDs, DVDs, etc), and now streaming media has all but replaced most locally-stored media. Netflix is the movie theatre of the internet. Cryptocurrency is quickly becoming the money of the internet, and NFTs will follow suit becoming the collectibles of the internet.

If it still bothers you that this asset does not physically exist in the real world as you know it, consider what’s coming next in the lineage of the “____ of the internet” and the ongoing disruption of our traditional norms. Last week, my seven-year-old son cried and begged incessantly because he needed my thumbprint for an in-app purchase of a weapons and armor upgrade in his favorite game. One such weapon was $1,000, conveniently accepted through Apple Pay on iOS. Yes, you read that correctly; he wanted a completely virtual blaster that cost ONE THOUSAND DOLLARS. He would have done anything for it, which made me feel a little bad while laughing at him after I saw the price. But then I stopped, realizing that it was priced as such because people were buying it. This virtual photon blaster in a random iPad game that you have absolutely never heard of, that nobody will ever get to display on their wall or take down actual invading aliens with, still had an agreed upon value of $1,000. For my son, he’d be a god in that game with that weapon. Virtual Reality is not coming — it’s already here.

I will now circle back to the third, and what I personally find the most intriguing attribute of NFTs. The majority of the NFTs being minted, sold, and purchased are on the Ethereum blockchain. Ethereum is different than Bitcoin in that in addition to being a currency and a store of value, it is also a utility platform to do other things on the blockchain, like creating these non-fungible tokens, and possibly more importantly, smart contracts. A smart contract can retain all of the promises delivered by a paper contract, less the wet signatures, notary fees, management fees, broker fees, and potential disputes. With a smart contract, the transfer of funds or assets might be milliseconds after a “signature.” The promises of a service in the real world are still subject to the trustworthiness of the provider, but if you substitute concert ticket, backstage pass, or meet-and-greet with “contract,” you will begin to get a sense as to where this is heading.

Back to my $12,000 frog doodle. This was purchased off the VeeFriends project, created by the outspoken entrepreneur Gary Vaynerchuk. Gary immigrated from Russia at the age of three, and spent his early years in Queens living with eight other family members in a studio apartment. His father went to work in a liquor store stockroom and saved every penny to eventually open his own store in New Jersey. Gary joined the family liquor store business at 14, and after college put it online in spite of everyone around him being very vocal about what a dumb idea it was. Five years later, after a very early start on YouTube with his show “Wine Library,” and the wider adoption of e-commerce, he had grown the family business from $3MM to $60MM. Enamored with the internet, he went on to become an early investor in Twitter, Tumblr, Facebook, Uber, and Snapchat. In 2009 he founded the digital agency Vayner Media, which was grossing $100MM in revenue by 2016.

Gary Vaynerchuk, CEO Vayner Media & Creator of VeeFriends

What makes Gary stand apart from other tech moguls is his brash Jersey candor, peppered with half a dozen f-bombs per sentence. That, and his love for the game. He started his entrepreneurial journey as a kid by scaling a single lemonade stand into a neighborhood franchise, and simply never stopped selling. This now multi-millionaire continues to go garage-saling just for the thrill of finding an undervalued collectible that he can flip on eBay. For as long as I’ve been following him, he’s been obsessed with baseball cards and other collectibles simply because he loves the concept of their exchangeable cultural value. He also seems to equally love sharing his experiences and insights with as many people as possible to the point of having a full-time employee follow him throughout the day, solely for the purpose of his social media content.

For Gary, the birth of NFTs felt like a culmination of this life’s work. This is Jordon’s first championship game or Jobs willing the iPhone into existence. This isn’t about the art, it’s about the entire promise of what these NFT projects could be. For starters, for the last several years, Gary has been planning the mother of all business conventions. The next SXSW. The Coachella for entrepreneurs and digital marketers. But instead of selling tickets, the ownership of one of his NFTs will serve as admission for the first three years of VeeCon. Gary did 268 of these Sharpie doodles, many created in the spirit of his core business values like Accountable Ant, Brave Bison, and Empathy Elf. Each of these characters has a varying number of copies, like the 17 copies of the one frog I purchased, with the complete number of tokens (varying numbers of copies of the 268 characters) at 10,255.

But wait, there’s more. While every one of these 10,255 tokens will grant one person access to VeeCon for three years, many of the tokens with fewer copies provide additional experiences. Brunch Bear will also grant you two 90-minute brunches with Gary over the next two years. As of this writing, that will set you back 10 ETH, or $40,000 USD at today’s price. Then there’s Basketball Butterfly, Video Game Vulture, Garage Sale Yale — you get the picture. He’ll also be sending six mystery gifts over the next six years to the 555 holders of the Gift Goat NFTs. As all the pieces of this project come together, some people might think it sounds like a hustle. But for anyone who has followed his work, it becomes very evident that the project was designed with his audience in mind. He spent months talking about NFTs nonstop, educating as many people as he could reach about how this was going to change everything. Weeks before the release, he begged his followers to get at least 1 Ethereum coin into a non-custodial wallet, because he “had something huge coming.” This project is going to be a masterclass in overdelivering. That might come by the way of how spectacular the event will be, the surprise gifts that get sent out, or perhaps by means of the sheer increase in value realized by the holders of these NFTs. Whatever it ends up looking like, my feeling is that he would personally go to zero before letting down anyone in his audience with this project. This is his legacy.

This post was written to inform while also being completely transparent with my intention around this purchase. Here is my line of thinking:

  • The only way to get into VeeCon is being in possession of one of these NFTs. There are no other tickets being sold. Admission to a business conference? That’s a deductible business marketing expense. But yes, also a collectible asset subject to short term capital gains tax if sold for a profit in under a year. But regardless, it’s not a personal expense and my CPA can sort through the rest.
  • My frog doodle is actually “FaceTime Frog.” In addition to providing me admission to the first three years of VeeCon, this token also gets me a 5–10 minute one-on-one video chat with Gary, once a year over the next three years.
  • For a one minute pre-show advertisement read on a business podcast (the part most people tap the 30-second skip button through) that doesn’t even crack the top 100 on Apple, it is common to pay upward of $25,000.
  • Gary has an audience of roughly 11 million people and has a history of repurposing his appearances on other people’s channels back into his own social networks.
  • Our agency recently started a podcast and social media marketing campaigns, so three one-on-one video calls with Gary Vaynerchuk for a $12,000 “ad spend” is a no-brainer. That ten minute video could be a mini-podcast episode on its own, and may also yield ten clips for social channels with a huge potential for reach. Not only that, this project itself could catapult him into an even larger audience in which each subsequent one-on-one video call becomes exponentially more valuable.
  • Oh, and there’s the three years of the conference admission which could yield all sorts of business opportunities.
  • Almost forgot one of the most interesting parts about these NFTs: it’s pretty simple to sell them whenever you want through another auction site. Maybe I decide to go to one year of VeeCon and cash in on one of these FaceTime calls, and then sell the token to someone else who can redeem the remaining four experiences on the token. In the spirit of Gary’s love of garage sales, he even encourages this. Or I hang on to it for the next eight years, use all the experiences, and then sell the exhausted token which still has its inherent “collectible value” for…..who knows how much?

One of the earlier experimental NFT projects called CryptoPunks went up in June of 2017 with 10,000 unique punks; 8-bit style cartoon characters of punk rockers. The were given away by the artists for free, and a bidding marketplace was born. In March 2021, one sold for $7.58 million. That same month, the digital artist Mike Winkelmann, aka “Beeple” sold an NFT of his collective work through a Christie’s art auction for $69 million. Will Beeple be the next Paul Cézanne a century from now, or just evaporate into obscurity? Nobody knows. If anything, this entire space of blockchain projects is entirely fascinating and has all the qualities of being huge. Huge like Apple. Huge like Amazon. Possibly even huge like the internet.

Elijah Szasz
SPARK6

Elijah runs a LA/SLC creative agency focused on the good side of technology. He’s also a mediocre athlete, father, and entrepreneur. https://www.spark6.com/

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