In 2021, NFTs took the Internet by storm. Buyers paid $2.9 million to own the first tweet and $5.4 million for the original source code behind the World Wide Web. Even the “disaster girl” meme fetched a cool $500,000.
The market for non fungible tokens — digital collectibles marked with a unique and inimitable string of code — has been growing fast, particularly in the art and music worlds. Companies from Coinbase to GameStop are expanding into NFT marketplaces, along with celebrities like Tom Brady and Reese Witherspoon.
But the popularity of NFTs begs many questions, starting with how do you keep them? A line of code isn’t quite like a painting or a baseball card, after all. Do these purchases need to be monitored? Or possibly, protected?
At least one Massachusetts entrepreneur thinks so.
“When collectors ask, ‘Are my NFTs safe?’” Jason Bailey said, “the answer is actually no.”
That’s why Bailey launched Club NFT in October. With $3.8 million in seed funding, the Framingham startup is crafting a tool that lets NFT owners back up the file they bought, rather than have it live solely in the nebulous inner workings of the web.
Each NFT is linked to a token on a virtual cryptocurrency ledger called a blockchain. The token does not house the data that makes the NFT look like what we see. Instead, the marketplace that sold the NFT stores that information on a web-based file-sharing system for a fee — a process called “pinning.” If an NFT marketplace shuts down and the fee is not paid, the file vanishes, leaving you with just a worthless token.
“It’s not a perfect system,” Bailey said. “So don’t trust the marketplace. Don’t trust us. Don’t even trust the storage solution. ... Keep track of it yourself.”
But backing up the file at home is an arduous, challenging, and time-consuming task, reserved for a slim sect of high-profile buyers, Bailey added. He intends to have Club NFT do that work for everyday customers, and over 2,000 early registrants find the prospect intriguing.
More than half have given Club NFT the address to their cryptocurrency wallet, which directs users to their digital assets. In November, the startup began scanning buyers’ portfolios. And on Valentine’s Day, Club NFT sent 20 terabytes of downloadable links to collectors via e-mail — for free.
The concept fascinates Martin Lukas Ostachowski, an artist from Montreal who signed up for an early trial.
His 400- to 500-piece NFT collection mostly comprises digital art from small creators — pieces he likes to revisit and admire. It dates to 2018, but Ostachuowski said he has not always done his “due diligence” and lost several early files. The startup’s technology could ensure the safety of his NFTs, both as works of art and as investments, he said.
“The blockchain is something that is constantly evolving, and it is intangible,” Ostachuowski said. “A lot of people don’t consider that the whole space is very fragile. It could disappear. I want my NFTs to still be mine if that happens.”
But Bailey said protecting NFTs “is just the first problem” his startup will solve. With the help of cofounder Chris King, Club NFT hopes to create a one-stop platform for buyers to inventory, analyze, and download their portfolios.
It’s a vague plan, but one with enough opportunity to appease Club NFT’s venture capital investors: Galaxy Digital, Galaxy Interactive, and a handful more.
And right now, the opportunity looks enormous. Nearly $11 billion worth of NFTs traded hands in the third quarter of 2021, according to a report from the analytics firm DappRadar. That’s seven times as much as the three months prior. That meteoric growth suggests that even if there’s no path to monetize Club NFT immediately, options could open up down the line, said Richard Kim, a general partner in Galaxy Interactive.
Really, the New York-based venture capital firm is “100 percent investing” in Bailey, Kim said. “There’s very few people who can bridge the traditional art world — its history, its social context, and the critical evaluation of the space — together with NFTs.”
Of course, that is Bailey’s specialty.
A “black sheep born to a family of engineers,” he pursued art in childhood and college, then hopped from startup to startup. Four years ago, Bailey launched Artnome, his blog on the intersection of art and technology. There, he’s started a database of contemporary artwork — something that otherwise exists only in physical fragments. And when cryptoart first surfaced in 2017, Bailey authored a post on the blockchain art movement.
“I strongly suggest artists and art collectors take blockchain seriously,” he wrote.
His NFT portfolio is stocked with early, sought-after artists, including XCOPY, who sold a $3.9 million piece to Snoop Dogg this September. So much so that this summer, Bailey moved from Ashland to a West Brookfield house he bought with money he made “selling JPEGs,” as he put it.
Among financial experts, skepticism still prevails about the lifetime and value of the NFT industry. Mark Williams, a master lecturer in finance at Boston University, said Club NFT faces a myriad of obstacles.
Only higher-end customers will find the startup valuable, Williams said, since 90 percent of NFTs are almost worthless within six months of the purchase date, according to a Bloomberg report. And the demand for NFTs could vanish as quickly as it appeared.
“It’s too early to say whether it’s a trend,” Williams said. “But it’s also equally unfair to say it’s just a fad.”
Last year, Bailey saw the application of Club NFT in real-time. Hic et Nunc, one of the largest NFT marketplaces in the world, shut down with no notice, leaving 500,000 NFTs in a state of limbo. Club NFT reached out to pay the marketplace’s storage fee on Infura — as much as $10,000 a month — until the startup can retrieve all the metadata.
Eventually, other users opened an alternative replica of the Hic et Nunc site, too, meaning the pieces are mostly safe.
“But this kind of scenario,” Bailey said, “this is why we exist.”