NFTs and Art – the new polemic
We all know by now that NFTs have taken over the world.
Non-fungible tokens may seem like a passing craze, but with over $10 billion traded in the third quarter of 2021 alone, it’s become clear that this emerging technology — a blockchain-based tool that enables anyone to monetize digital content — is growing into a major industry.
Recently, NFT works have now permeated pop culture, with celebrities constantly talking about it, and there are now hundreds of millions of dollars of NFT sales each week.
The rapper Drake has launched his latest album with a cover album as an NFT made especially for him by British artist Damien Hirst. In March 2021, Everydays: The First 5000 Days, a collage of previous artworks by a 40-year-old American named Mike Winkelmann, better known as Beeple, sold for $69.3m at Christie’s New York.
After that, Kate Moss sold a gif of herself for more than $17,000. Jack Dorsey, CEO of Twitter, sold an image of the first ever tweet for $2.9m. A Brooklyn film director managed to sell an audio file of his own farts for $85.
Firstly, it would be worth recapping what NFTs actually entail and how this buzz around art took off. A non-fungible token (NFT) is an electronic record corresponding to an image that lives entirely in the digital world.
Thus, the question merits being asked – why are such products worth any money at all, if their sole purpose is to represent ownership/status of an online image, that you could download for free, make a screenshot of, or buy online at a meagre price.
As this Harvard Business Review piece recounts, “it’s easy to see why NFTs inspire both excitement and deep scepticism: They’re a completely novel asset class, and we don’t see new asset classes appear that often”.
Traditional works of art such as paintings are valuable precisely because they are one of a kind. But digital files can be easily and endlessly duplicated. With NFTs, artwork can be “tokenised” to create a digital certificate of ownership that can be bought and sold.
Thus, NFTs are not only changing the framework by which we understand how a market for digital assets functions, but they have created an agreement by which people understand the main value of this market – property rights.
By giving parties something they can agree represents ownership, the novelty of NFTs is able to build markets around new types of transactions.
However, the issue of ownership, veracity and property rights becomes a problem, when art and an uncontrollable market come into play. In recent months, works from artists, like Sir Anish Kapoor and David Baley have been photographed and sold as NFTs without their consent. Some images have sold for millions of pounds.
However, the NFTs, the world of digital art and collectibles do bring an added value: they are transforming the art market for novice buyers, by essentially reconceptualising value, property and money.
With proof of ownership being recorded on a block chain and art sellers opening up Swiss-based cryptocurrencies, in order to facilitate trades on the platform, this novel process is rethinking the entire ecosystem of how art is being traded, valued, consumed and appreciated.
As with crypto-currency, a record of who owns what is stored on a shared ledger known as the blockchain. The records cannot be forged because the ledger is maintained by thousands of computers around the world. NFTs can also contain smart contracts that may give the artist, for example, a cut of any future sale of the token.
In economics, a fungible asset is something with units that can be readily interchanged – like money. With money, you can swap a £10 note for two £5 notes and it will have the same value. However, if something is non-fungible, this is impossible – it means it has unique properties so it can’t be interchanged with something else.
“A selling point of NFT funds is the reassurance they give to those investors who are prepared to trust blockchain in principle. Encrypted, and thus essentially indelible, they cannot themselves be lost, destroyed by fire or faked. It is still possible, of course, that the underlying artwork turns out to be fake — here the buyers must trust the gallery and its authenticators, as they must with conventional art funds. But if they are sure of the authentication, investors who trust bitcoin will have faith in the value of the NFT” reports the FT.
However, in the wider art market, there are NFTs who exist only in the digital world.
Just to give an example, in March 2021, a work called Everyday: The First 5000 Days sold for $69 million at Christie’s Auction House. But why would someone pay almoust $70 million for a picture on the Internet?
Many in the art world, and beyond, have criticised this new addition as a get rich quick scheme masquerading as culture.
„Unlike the commercial gallery business model, NFTs are designed to cut out the need for art dealers, enabling artists to trade directly online, typically via specialist auction sites. Crucially, in contrast to the contemporary art world, there is no “vetting” of collectors – a practice intended to stop the most speculative buyers flipping artworks by quickly reselling them at a profit. Anybody can buy an NFT, and prices, so often a thing of mystery in high-end commercial galleries, are listed as a matter of public record. Every time an NFT is resold, its creator also makes a profit – an inbuilt royalty system missing from the physical art world, where artists often feel as if they have been shafted when their work is resold on the secondary market”, explains The Guardian.
While NFTs are still a burgeoning industry, they have demonstrated the potential to be highly lucrative, creating real value for both buyers and sellers. They may have started out as a science endeavour, but non-fungible tokens are now rapidly entering the mainstream.
For other True Story Project analyses on NFTs, please click here.
Photo source: Getty Images