There is a lot of mist surrounding what exactly an NFT is. First, the simple in-name definition of NFT, a non-fungible token. Cryptocurrencies like Ethereum are fungible meaning that one ETH is equal to one ETH anywhere else. The United States dollar itself is fungible as well, as is the nature of the currency.
The “non-fungible” in NFT means that each NFT is unique and its value is set by the highest bidder. They are a perfect medium for art in the digital world.
NFTs are digital tokens linked to items that can be bought and sold. More specifically, NFTs are something “between a proof of ownership and authenticity” according to Time Magazine.
To sell an artwork as an NFT, artists first need to go on an NFT marketplace and create a digital token by going through a process on the blockchain, estimated to cost between $50 and $200. Once the token tied to their artwork has been created, the artist can auction it off.
This new medium can be traced back to the 8 page paper published in 2008 by Satoshi Nakamoto, the same paper that introduced the world to Bitcoin.
While the paper introduced the elements that eventually lead to the creation of non-fungible tokens, Frieze, a network for contemporary art and culture, asserts that the innovation really came from the work of blockchain enthusiasts who wanted to develop a process for authenticating unique assets.
When someone buys an NFT, they are in actuality buying something akin to a certificate of authenticity. More specifically, a certificate of authenticity of ownership. That’s what the token itself is! Instead of being a piece of paper that a collector might be able to receive in the physical world, it’s developed by an incredibly sophisticated blockchain mechanism.
In addition, the blockchain keeps a record of ownership for non-fungible tokens. This record cannot be tampered with in any way and is available for anybody to see on the blockchain. This is a really useful feature of this technology to help in record keeping and understanding how tokens and digital art moves hands.
The caveat is that while that person may have received an authentic certificate of ownership of the digital asset that the NFT is tied to, the actual digital item, whether it may be a PNG or GIF, is still as copyable as it was before. Anybody can still just take a screenshot or whatever of the art work. The point of scarcity for the “true” owner of that digital asset is that they are the only ones in the possession of that token. It might seem like an unconventional way of thinking about ownership, but everything about non-fungible tokens itself is unconventional.
One interesting application of the underlying technology is that artists can use NFTs to include clauses that get them paid a royalty each time that the token is traded. By creating tokens that can programmatically work for them, artists are introduced to the phenomenon of “smart contracts”.
The terms of the smart contracts would take effect immediately and trigger without any further input. In addition, the smart contract would be protected from tampering by the intricacies of the blockchain and protect the interests of its developer. These smart contracts and their future applications have a lot of potential to further empower artists to capture the full value of their production efforts.
NFTs are empowering many digital artists to be able to get paid for their digital work. One issue of digital art is that it’s incredibly replicable and accessible. Feeling like you “own” a digital artwork can be as easy as right clicking and selecting “Save as an image”. For digital artists, profiting from their work has historically been difficult to achieve.
When anyone can take their work without paying for it, capturing the full value of their production is a pretty difficult feat. For artists, the internet age has given them incredible platforms to develop and disseminate art in ways not possible anytime before in history.
Their art can reach millions of people in seconds but monetizing that value has been relatively inefficient. So to have such a promising compensation vehicle in NFT is incredibly exciting. NFTs help create scarcity that makes art works so valuable in the physical world.
What are artists saying about NFT?
One artist, with the online handle “BLACKSNEAKERS”, welcomes the NFT era and has enjoyed a good amount of success in selling non fungible tokens of their work, saying to insert “to see digital art being bought at these prices, it’s pretty astounding. It’s given me the courage to keep going.”
Many other artists are embracing NFT and the new opportunities and horizons that it introduces. Many artists who had previously not been present in the digital space have started to produce digital works of their own. This influx of digital artistry is providing considerable enjoyment for lovers of digital art. Indeed, traditional art stakeholders are embracing NFT and digital art formats. This is bringing the somewhat fragmented art community closer and creating new hybrid communities.
The NFT Boom
Collectors spent $250M on NFTs in 2020, collectors spent more than $200 million in just one month of 2021. This doesn’t even include the record $69M that digital artist Beeple managed to sell his NFT digital piece at Christie’s auction house earlier this year in March.
According to the Verge, this is only the third highest price that a “piece” of art has sold for by a living person. Beeple has enjoyed great success marketing his art in the NFT medium, selling a collection of artwork for $3.5M last year in December. A piece he sold last year for just under $70K re-sold for $6.6M this year! NFT isn’t a simple trend anymore, it’s an economic movement. It’s definitely an understatement to say that NFT is experiencing a boom.
A Recent History on Digital Art
The meteoric rise in the monetization of digital art can be traced back to 2017, when CryptoKitties launched and people went crazy over digital graphic images of cats. Cats have long been the object of adulation on the internet.
Video games have been another mecca for digital art, with gamers spending freely on in-game digital assets such as “skins” for their profiles and characters.
NFT marketplaces such as Opensea, the world’s first “NFT unicorn”, capture more than $1.5B in monthly volume. These marketplaces are growing at breakneck speed and have captured the interest of everyone from VCs to professional athletes to A list celebrities.
Everybody is rushing to capture the incredible value on display by NFTs. It has proven to be an incredibly lucrative investment vehicle for institutional investors and crypto maniacs alike. With NFT assets re-selling for a multiples of 10x, speculation can’t keep up with reality. And as more capital floods in and gains, a positive feedback loop of growth is being created for NFT.
Even large institutions like the National Basketball Assocation have launched platforms; NBA Top Shot has amassed nearly $400M in revenue since launching last year. Other sports organizations and personalities have followed suit and seen incredible success as well.
The entertainment industry has naturally found a special space in the NFT marketplace with everyone from musicians to actors marketing their iconic moments. We’re headed towards a future where every moment can be captured and sold as an NFT.
Artists themselves have found incredibly innovative ways to develop NFT art work, pushing the boundaries of what’s possible as artists have always done. Indeed, the avant-garde can be found in the digital space today thanks to NFT frenzy.
What about the old gatekeepers of Art?
As demonstrated by the massive success story of Mike Winkelmann at Christie’s auction house, there are traditional gatekeepers of art that are embracing NFT. As a major auction house, Christie’s endorsement of the medium is huge for NFT being accepted as a legitimate form of art dissemination and collection.
Beyond that, many other traditional art stakeholders and gatekeepers are moving to adopt NFT. One important identity of art has always been that it will push boundaries and reflect shifts in convention. Besides negative speculation from pockets of people here and there about the pragmatism of non-fungible tokens, nothing seems to be in the way of the advent of NFT.
Potential Hiccups with NFT
While NFT does create a new vehicle for artists to profit from their work, it does introduce new barriers to entry. It’s relatively expensive to mint an NFT and not readily accessible for people not comfortable with new technology. For those that are already marginalized in traditional art, NFT doesn’t readily include them which could create further disparities.
Beyond that, there are sustainability concerns with NFT production. Creating an NFT on the blockchain consumes a not insignificant amount of electricity. Mass migration to the NFT medium poses environmental risks in trying to satisfy the electrical demands of producing non-fungible tokens at high volumes.
However with NFT and blockchain technology rapidly transforming, new environmentally friendly forms of creating NFT are being researched and developed. For people that want to find a way to be mindful of energy consumption, a way is always possible.
NFT technology is disrupting how we understand art and interact with it. NFT is a novel technology that is at it’s foundation, supported by the even more nebulous and potential filled technology of blockchain. It’s usecase increases each day and we see innovative applications that disrupt their respective fields. We, at M Accelerator, look forward to how these technologies transform and impact our world.
Young People are Driving NFT Adoption
There’s all sorts of individuals moving into the NFT space. While the primary shakers and movers highlighted are whales and uber wealthy investors like Mark Cuban, the individuals that have been driving NFT’s rapid market growth are regular young people.
These young tech enthusiasts are the early adopters that are carving out and defining what the NFT landscape looks like. They’ve also gotten pretty wealthy in the process. And they’re only re-investing into the market that has helped them acquire their new wealth. They choose to go long and lead the communities that they’ve fostered into doing so as well. The influence of these young stakeholders is not to be underestimated and worth keeping an eye out for from here on out.
New Traditions
While traditional institutions throw money into the NFT art market to expand their portfolios, some individuals are leaving traditional institutions entirely to join it. Amrita Sethi is an ex-banker, who worked for firms such as HSBC and Barclays, that has embraced NFT for letting her stand at the intersection of two fields that have long been dear to her, art and investment.
She believes in a future where NFT will bring incredible instances of innovation to art and how we can consume it. She told Forbes, “It also democratises art; in the past, galleries have acted as gatekeepers and there is some value to that, but if you don’t have the keys, you get left out – this gives artists a voice.”
Imagining the future of NFT
It’s not hard to imagine a future where non-fungible tokens are ubiquitous and pervasive. Just as art exists as an entire sector in everyday society, NFT digital art will occupy a similar space in our digital society. It will be a world where NFT is incredibly accessible and everybody of all ages and backgrounds will casually own collections of non-fungible tokens. Our understanding of digital ownership will fundamentally shift and non fungible tokens will be a driving force for it.
