Non-fungible tokens, widely known as NFTs, first stepped onto the digital scene in 2012 but are currently enjoying a renaissance of sorts.

Most recently, American digital artist Mike Winkelmann, who goes by Beeple, sold an NFT for a collage of 5,000 images collated over more than 13 years for US$69 million through an online auction on Christie's, positioning him as one of the top three most valuable living artists.

This follows recent sales of a 10-second video by the same artist for US$6.6 million and the 10-year-old Nyan Cat meme, which sold for nearly US$600,000.

So what's behind this willingness to shell out thousands—and millions—of dollars on items that can be accessed for free on the internet?

While concrete academic studies on the psychology of NFT valuations are a few years away, Utpal Dholakia says there are explanations—based on informed opinion and observations of previous phenomena—for this recent frenzy, which he refers to as 'Niftymania.'

Dholakia is a professor of marketing and the George R. Brown Chair of Marketing at Rice University in Houston. He also runs a popular blog on Psychology Today called The Science Behind Behaviour, where he focuses on pricing psychology and consumer behaviour.

"I think a lot of people are getting tired of the pandemic lifestyle and this kind of gives a diversion to people," Dholakia told Spark host Nora Young.

There's also a certain level of herd behaviour that is drumming up interest and consequently, driving up prices, he says, akin to the Dutch tulipmania during the 17th century, when the plague helped sales soar because people had more money to spend, having inherited funds from family members who had died from the disease.

He says speculation is what tends to fuel events like that of the Dutch golden age, the housing bubble and recent dramatic increases in stock prices.

"In the early parts of the process, a lot of people make a lot of money by speculating. The problem is that the process runs itself out, and then whoever is left holding the bag, so to speak, is going to lose a lot of money."

Dholakia says the current interest in NFTs is likely part of a short term bubble. "So at the moment, if you think of this as a game of musical chairs, we are in the middle of the game and everyone is kind of doing really well. So the game will continue on until someone is left out at the end," he says.

He says the long term value of the technology is questionable. "It's really hard to say anything conclusive about this technology at this moment in time."

He notes that there are other issues around this technology that need to be resolved. "Many of these cryptocurrency and blockchain based technologies consume a lot of natural resources, including electricity. And so one has to question the net cost benefit of this technology after considering those types of things as well."

Beyond purchasing memes and basketball videos, Dholakia says the actual benefit of NFTs lies in authentication.

"One example people have presented is that NFTs are really good for slowing down or removing fraud, and establishing for sure that some piece of work or digital asset is authentic or not authentic. Now, again, this is not very meaningful when we are talking about tweets or basketball clips, but it is certainly meaningful when we are talking about artwork, something which is created by artists," he says.

Conversations about how blockchain, more broadly, could disrupt the artworld were unfolding in places like Art Basel, going back to 2018. In particular, what the blockchain might mean with respect to things like provenance— establishing ownership and authenticity. But while these discussions were taking place, the actual impact of this technology was not yet clear.

Although NFTs are in their own infancy now, longtime blockchain researcher Amy Whitaker says they do present some benefits beyond provenance since they have the potential to disrupt the art market.

Whitaker is an assistant professor of visual arts administration at NYU's Steinhardt School of Culture, Education, and Human Development. She's worked in the art market for years, studying the friction between art and business and coming up with new ways to support economic sustainability for artists.

"I love blockchain, I am fascinated by it. I think it's as interesting a form as democracy itself," says Amy Whitaker. And what's interesting about NFTs is that a lot of the artists who are designing them are people who have been excluded by the traditional art market.

She says this technology can create opportunities for artists to develop systems that might lead to economic sustainability for their work and help develop equitable structures for emerging artists, so they can participate in art markets and take control of their sales.

"And they might do that themselves. They might do that in cooperative groups of people, they might be able to get access to support to make work before they sell it to cover their own R&D expenses. And that I think, is tremendously exciting."

As someone who teaches business to artists, she sees promise in NFTs helping shift the economics of being an artist. Basically, by putting artists in the centre of the art market and letting them keep an equity stake in the art they sell.

Whitaker points to a case involving American painter Robert Rauschenberg, who sold a work in 1959 for $900. He earned $450 from the sale. The collectors, Robert and Ethel Scull, resold the work in 1973 for $85,000. Rauschenberg didn't receive any of the proceeds. She says this is atypical compared with how other people are paid for creative work.

"If you're a book writer and your third book does well, people can go back and buy your first book. And for artists, they end up having to store their earlier art, which is a burden in order to perhaps hold them back in case it would help them make money later. Scull resells one work, but you have another one in your storage."

Some artists, like Sarah Ludy, who's an artist represented by bitforms gallery in New York, are using digital token-like art sales to redistribute money to art workers. Ludy recently announced that 35 per cent of the price of her work would go to her gallery, but not just to her dealer, also in shares to all of the people who work at the gallery. "There's a whole history of that with people who use what's called the artists contract or resale royalties, where they exist by legislation, where when a work resells, an artist receives, say, 15 per cent of the proceeds from the resale," said Whitaker.

"To me, it's a very basic idea, not of making the artist a neoliberal actor, but of designing a structure that has some sense of balance and equity in sharing proceeds with the artists that the artist helped to create," she says.

For instance, last year, curator Destinee Ross-Sutton hosted an exhibition called "Say It Loud (I'm Black and Proud)" featuring art by 22 Black artists, whose work was being flipped in markets. For the show, Ross-Sutton came up with a contract that collectors had to sign when buying works, pledging to hold the art for five years, requiring them to give artists right of first refusal if they decided to sell and in the event of a sale, pay a resale royalty to the artist.

"Those things are very close to being able to move over into an NFT or blockchain world where what's important about blockchain in that instance, is that it's a provenance record, and a title registry. And it codifies everything, so that there's a public shared record of who owns the shares. And that to me is economically democratizing if we let it be."

While skepticism is normal with emerging technologies, Whitaker says the best thing to do is stay open minded and to watch it evolve and "to support, essentially, a meta level art project, as if we're all in the art studio at two in the afternoon, not sure if the painting is going really well or really poorly."

She says it's important to keep an eye on the most pressing questions of equity and inclusion in the arts. "And being honest with ourselves, especially after a pandemic year of how much the arts writ large is what has probably saved a lot of us up to and including breathtaking, creative scientific progress."