Weighing in on Non-Fungible Tokens – NFTs within the art market, don’t know where you stand? Let’s figure it out together.
Everywhere I look opinions on NFTs are flowing, invitations to join webinars or events are circulating and new platforms launching. I even joined a live webinar hosted by Sotheby’s from my bed earlier this week, I know, the hype is very much real and I’m on the merry-go-round. So here we go with the Why’s. What is an NFT? Why are we talking about them? Why have they split opinion where some even refute NFTs as art?
Before we dive in, let’s quickly cover the basic’s. For those of you who don’t know, NFT stands for non-fungible token. What does this mean? Non-fungible tokens are one-of-a-kind assets in the digital world, they can be bought and sold like any other piece of property, and are a trading entity that is part of a blockchainplatform for example Ethereum. It’s a unit of data stored on a digital ledger, called a blockchain, which is the certificate authority to validate a digital asset as unique and therefore not interchangeable. Ethereum is an open-source, blockchain-based, decentralised software platform supporting its own cryptocurrency and capable of storing computer code – applications – such as smart contracts like NFTs.
Confusingly, the digital artwork and NFT are separate entities, it is best to clarify that before we go on. Digital artworks with NFTs just like traditional artworks have an official owner at any one time, such as myself or an ownership group, the difference being the NFT secures the ownership by the Ethereum blockchain and no-one can modify, steal or replicate the ownership record. This is the Golden Ticket Willy Wonka bar moment for non-art market people – it’s their entry pass into the art market. In-case anyone’s wondering NFTs are not exclusive to the art market. Anyone can create an NFT – artists, producers and entrepreneurs, well anyone who has a crypto wallet can create an NFT. The fact anyone can be a creator poses a threat to institutional validation – the ecosystem of the art market. And here lies one of the barriers.
Let’s address the elephant in the room, digital art – what is it? Essentially digital art is work made by digital technology or presented on digital technology, it includes computer-generated images, sounds and motion or hand-drawn images scanned into the computer and finished using a software programme like Adobe Illustrator. Contemporary artists have adopted and embraced technology as an augmentative tool to create new mediums for consumption. So why is digital art a threat to the art market? It isn’t. The distinction is between digital art and digital artists, who largely fall outside of the art market and produce virtual work that you can only experience online, there is no physical entity to the work. Then you have NFT digital artists producing cryptoart – rare digital artworks that live from creation on the blockchain, which is transformative and in theory it isn’t susceptible to counterfeit the way art and collectibles typically are. Mic drop moment.
How does it work? You sign-up to an NFT marketplace to “mint” their token(s), this is the uploading and validation of information about the digital artwork onto the blockchain before they can list it for auction, it’s similar to eBay. You might be wondering why I haven’t compared it to auction house gatekeepers – Christies, Sotheby’s or Bonhams? Right now crypto-art is under the microscope – it’s too soon. We are living the emergence of whether it will be accepted as an art form – or won’t? There are no rules set, principles or standards accepted which are fundamental to measure them against. The art market is hashing it out on Zoom, Clubhouse app, Instagram live etc.
Why is everyone in a spin – what happened? Until last month crypto-art hadn’t been sold on an institutionally recognised art platform. Christies managed to steal the show, they secured established digital artist Mike Winklemann, aka Beeple, to mint his digital collage Everyday: the first 5000 days, exclusively for sale on the 11th of March earlier this year. A collage of 5000 single digital pictures posted daily from the 1st of May 2007 over a period of 13 ½ years. The auction house made history marking many industry firsts, the first to offer an intangible digital NFT work and to accept cryptocurrency as payment, in this case Ether. This was the watershed moment, the big-bang, when an institutional player backed crypto-art. The work held huge interest with 22 million people reported to be watching the online sale live, with numerous eye-watering bids and finally having fetched an impressive figure it sold for $69.4 million.
The most exciting moment of my goldfish pandemic existence – what did we learn and who is buying crypto-art? It’s safe to say when average price nears 6 figures it isn’t Joe Blogs. What do we know about the pool of buyers for Beeple’s Everyday piece? Of the 33 registered bidder’s interested, 91% were Millennials and Snowflakes – generation Y and Z, or more simply put the internet generations. The main players were all investors in the cryptocurrency marketplace, including the pseudonymous buyer Metakovan, aka Vignesh Sundaresan, owner of NFT index fund Metapurse. It’s no surprise the work was bought by a stakeholder of the“crypto bros”clubhouse – those who have bought into the Ethereum network. The question is will it attract art collector veterans?
Do NFTs hold great potential for the art market or is the jury still out? Theoretically it offers transparency and security of authentication for crypto-collectibles. The purpose of the technology prevents duplication and theft, yet there’s nothing inherent – no gatekeeper, to verify what’s uploaded and here lies one fundamental flaw. The NFT creator could be a catfish which is a reality for many digital artists. There’s no difference when it comes to copyright for artists, where there is opportunity for art theft and forgery art thieves strike. If you’re wondering whether to invest in crypto-art? The cryptocurrency ecosystem itself is the main source of vulnerability for crypto-collectibles and its owners. In the UK crypto-assets were accepted as property in 2020 but there’s no specific cryptocurrency laws and cryptocurrencies are not recognised as legal tender. If the platform itself crashes, or is compromised – there are rising claims of theft, or goes bust, will you lose it all? You might!
It certainly attracts new entrants both talent and consumer. The fact an NFT enables digital art to be bought, sold and traded, because it validates provenance is a gamechanger and why the art market is finding ways to adopt it. The value is in the smart contract – the owner can sell and the viewer cannot. And this is why established and emerging artists are now entering the NFT marketplace because they can profit from crypto-art more easily than ever before. The Christies sale was momentous because for the first time traditional and digital artists can co-exist in the art market. Will I be buying crypto-art? I’ll let you know if I do.
“ The bad artists imitate, the great artists steal.” – Banksy