NFTs in the art market.
In the first quarter of this year, NFTs have been a hot topic - emerging from the cryptocurrency ecosystem into the mainstream. It is, however, a relatively new technology. As a result, a level of confusion can be forgiven - the relationship between consumers, NFTs, cryptocurrencies, and the blockchain is complex. A further level of complexity is added when the technology is applied to the art market, allowing collectors to purchase works in a completely new way.
Digital collage of 5,000 images by graphic designer Beeple
What is an NFT?
Before we examine the impact that NFTs have on the art market, it's probably wise to outline exactly what an NFT is, how they're created, purchased, and secured. An NFT, or non-fungible token, is a unique, irreplaceable token that is applied to a digital asset in order to certify its ownership. Think of them as an ownership record tied to a specific file that can't be edited or changed due to blockchain technology. Most NFTs exist on the Etherum blockchain, tied to the cryptocurrency, and in return - most NFTs are purchased using cryptocurrency.
Grimes ' War Nymph' Collection.
NFTs in digital art
NFTs have been used to sell all kinds of digital assets, from music to files, tweets, digital trading cards, avatars, in-game accessories, and much more. However, most of the hype surrounds the application to digital art. Recent sales in the space have included $390,000 for a video clip by the musician Grimes, $6.6 million for a video made by the artist Beeple and $69m for a static work called 'The First 5000 Days' also by Beeple. The latter was sold by Christie's, surpassing the sale price of works by seminal artists such as Monet, Banksy, and Basquiat. As Beeple told The Verge, "I do view this as the next chapter of art history, now there is a way to collect digital art."
Why buy NFTs?
It's a good question, there isn't anything to stop someone from simply saving a version of the digital file and owning the same work. In the cases above, the buyer is granted an mp4, mov, or JPEG file after purchase. The files themselves aren't necessarily unique but the ownership entry on the blockchain ledger tied to the NFT is. For collectors, the chance to own a slice of history in the digital art space is appealing - there may also be online applications for the NFTs in the future: use in digital galleries, VR spaces, or even within video games.
There is also the consideration that NFTs are valuable in the same way as any other speculative asset, even physical art, many collectors are buying up NFTs in the hope that their value will rise in the future - as an investment.
For fans of digital art, it clears a pathway to support their favourite creators whilst retaining a clear ownership trail that was impossible to verify before this point. NFTs, on the whole, are more affordable than prints, limited editions and original physical works - allowing buyers to develop a significant digital collection. During the auction process, the artist may confer certain rights to the successful bidder such as permission to print one physical copy, the right to display the work in certain digital spaces (social networks for example) or even the ability to profit from future sales of any associated physical work. The work can even be fractionalised, with the buyer selling off small ownership percentages, verified by the blockchain.
Lotus Train by deadmau5 and Mad Dog Jones
Are there any downsides?
If you have read up until this point, you might be wondering why you wouldn't buy an NFT - a burgeoning class of speculative assets within the art market. There are a few things worth considering ahead of buying your first NFT.
The first is that, as with any new technology, we may be witnessing a bubble. Cryptocurrencies themselves faced this fate in 2017, with many coins ceasing to exist. It was at this point that a lot of money poured into Ethereum, which underpins the ownership trail for NFTs. Much of this money came from questionable sources, drawn to the lack of security and oversight in the crypto space. Even Beeple's record-breaking NFT sale with Christie's has come under scrutiny. As per The Art Newspaper: "It also emerged that the pseudonymous buyer, Metakovan, was Vignesh Sundaresan, a long-time cryptocurrency entrepreneur who owns the NFT index fund Metapurse (of which Beeple himself has a 2% stake) and, yes, raised $47.5m in an ICO in 2017. That company's token, the Lendroid Support Token, now effectively has no value." It may be the case that much of the initial momentum may dissipate, leaving regular NFT owners holding the bag.
In order to mint an NFT, artists have to invest in ether (the cryptocurrency affiliated with the Ethereum blockchain). This process can be expensive, with many artists losing money on each NFT if they don't already have a committed following of potential buyers. If the work doesn't sell at auction for more than the cost of minting the NFT then the artist is out of pocket. Investing in cryptocurrency isn't for everyone, and the process can be confusing for artists not familiar with the system. It's also worth noting that most works sell in ether, meaning the artist would have to exchange their ether for another currency or continue to hold it in a digital wallet. At any time, the value of ether may swing drastically, allowing for both significant gains or losses.
The process of minting an NFT is also incredibly environmentally taxing. French artist Joanie Lemercier led his life as an artist in a manner as environmentally friendly as possible - vowing to reduce his energy consumption by 10% each year after realising the impact that his studio and international flights were having on the planet. He was dismayed to find out that all of his hard work was undermined in a short space of time by minting a series of NFTs. As per an article by Wired: "The works were placed for auction on a website called Nifty Gateway, where they sold out in 10 seconds for thousands of dollars. The sale also consumed 8.7 megawatt-hours of energy, as he later learned from a website called Cryptoart.WTF. That figure was equivalent to two years of energy use in Lemercier's studio. Since then, the art has been resold, requiring another year's worth of energy."
NFTs and the art market
There is no doubt that NFTs are emerging as a considerable new force in the art market, engaging a younger subsection of collectors; allowing digital artists to sell their work with a clear, permanent ownership record on the blockchain. As is the way with all new technologies, there will be teething issues - that the platforms are vowing to resolve. Environmental issues are currently being considered by various auction sites, which are reducing their impact through tree planting, carbon capture and various other methods. It is true however that, for the time being, the market is volatile and risky - resulting in the potential for both massive gains and considerable losses in the long term. We will continue to watch this space and update our readers as the NFT market continues to come into focus.
The D'Stassi Art team.