Nyan Cat, a meme which was sold as a non-fungible token in 2021 (Image: Supplied)

What are nonfungible tokens (NFTs), and when did they come into existence?

The key to understanding nonfungible tokens is the definition of the term “fungible”. A good or asset is fungible when it is interchangeable with a good or asset of the same type; it is not unique. Currency — from dollar bills to bitcoins — is fungible. Therefore, nonfungible goods are those that are unique. An original work of art is a clear example of a nonfungible good. NFTs in their current form represent a collision of these two forms: currency, specifically cryptocurrency, and art. According to an article tracing the history of NFTs, they emerged in their current form around 2014, although there are competing timelines and origin stories that would trace their emergence to 2012. Of course, the current mania for them is much more recent—emerging pretty much within the last year.

The final key component that allows both cryptocurrency and NFTs to function is a technology that records who owns what: the blockchain. This digital ledger is a decentralized system that, because it is distributed across users and not subject to centralized control, indelibly records transactions. This permanence of digital record-keeping is critical to understanding the interaction between the art market and NFTs.

Why is permanent record-keeping so crucial for the art market?

In his 1935 landmark essay “The Work of Art in the Age of Mechanical Reproduction”, the philosopher and cultural critic Walter Benjamin describes the importance of the aura of an original, authentic work of art. While Benjamin was commenting on the proliferation of photomechanical and photographic reproductions of works of fine art, his insistence on the importance of an original — be it a painting, drawing, or sculpture — remains central to both the aesthetic and financial values of the art world.