Vanessa Silvera dives into the strange and complex world of NFTs, and why you should pay them some attention
Beeple’s digital collage Everdays: The First 5000 Days; Image(s): The Washington Post
When I first read on the news that someone paid a record-shattering 69 million USD for an NFT at auction at Christie’s, I was stunned, but most of all, baffled. Prior to this historic sale, its creator, American digital artist Mike Winklemann, who goes by the moniker Beeple, was unknown to the artworld. Not only was his piece, a digital collage called ‘Everydays: The First 5000 Days’, the third most expensive work to be sold at auction by a living artist, but the first entirely digital artwork sold by a major auction house. How did this happen and why are NFTs suddenly everywhere you look? What on earth are NFTs in the first place and are they just another fad or are they here to stay? This article aims to explore some of these pressing questions as well as the benefits and drawbacks of this new development that’s taking the artworld by storm.
NFTs, also known as non-fungible tokens, are essentially one-of-a-kind digital assets. Since they are non-fungible, they cannot be replaced by something else of equal value (i.e. one bitcoin for another). Think of them as the digital counterpart of physical collector’s items, like a rare, limited edition book or painting, but with a clear, verifiable ownership history. These tokens can assume the form of images, gifs, audio files, video, or even a tweet. Yup, Twitter CEO Jack Dorsey got in on the action and auctioned off his first tweet as an NFT, which sold for 2.9 million USD. Other big names include musician Grimes, who sold 6 million USD worth of digital art, and Kings of Leon, who became the first band to release an album as an NFT. In short, anything that can be uploaded as a file could be ‘minted’ as an NFT.
Digital artworks and files have been around since the dawn of the Internet age, so why is this a big deal? Embedded in the NFT is a statement of provenance, or a certificate of authenticity. Replacing the printed certificate is a unique string of characters connected to the blockchain, which is a big encrypted ledger. If you’re familiar with cryptocurrencies, then you at least have a vague idea of how the blockchain works. Rather than having one entity such as a bank keep a record of transactions, the blockchain consists of a decentralized, vast network of computers holding a shared public record. All parties involved in any single transaction receive a copy, increasing transparency and accountability. Furthermore, datasets are immutable and time-stamped, producing a secure and unchangeable document. This system is a great solution for NFTs because now there is a way to trace its origin and transaction history, not possible before the advent of the blockchain.
CryptoPunks; Image(s): Larva Labs
However, NFTs have actually been around for a few years now. In June 2017, the Ethereum blockchain released one of its first NFTs, CryptoPunks, a series of pixelated avatars, which can cost anywhere between 2,000 to 20,000 USD. Its emergence into the mainstream from relative obscurity is largely a result of a growing interest in the blockchain. For many individual and institutional investors, they are another means to capitalize on the rise of digital currencies more generally. Their acceptance by the art, entertainment, and media industries only continue to validate and normalize them. According to a recent report by the site NonFungible, the NFT market in 2020 quadrupled in size to over 250 million USD. There’s also been speculation that the ongoing pandemic has probably accelerated that process now that more time is being spent behind screens. With the closure of galleries and other exhibition spaces, NFTs can provide an additional source of income to artists during these trying times.
This leads us into our next question: what benefits can this market offer its users? For digital artists, NFTs are a game-changer. The blockchain with its provision of a transaction history resolves problems regarding ownership of the item. Moreover, artists are entitled to royalties from secondary market sales, which is highly unusual in the artworld. To sell an NFT, collaboration with a prominent global auction house is certainly not necessary. The majority can be found in specialized marketplaces including OpenSea, Rarible, Mintable, Nifty Gateway, and KnownOrigin. These spaces have incredible potential to level the playing field since anyone can open an account and upload their work for sale. Buyers range from multi-millionaire tech investors who made their fortunes on crypto to ordinary people who want a collector’s item.
For novices, in most cases, acquiring an NFT is easier said than done. First, users must purchase Ethereum (ETH), a denomination of cryptocurrency, which is a complicated process in its own right. Once you transfer the currency into a digital wallet, you are ready to buy, but there’s a catch. At check out, there are ‘gas’ and other hidden fees, which can add up quickly. It’s expected though that buying experience will improve overtime and begin to resemble traditional online shopping. Another major drawback are concerns about their environmental impact. Mining and transferring NFTs require an immense amount of electricity. By some accounts, one crypto transaction consumes more power than the average U.S. household in one day. As a result of this heightened scrutiny, Ethereum has pledged to cut back on their energy consumption by 99 percent, but it remains unclear when or how.
NFT; Image(s): Angela Gonzalez
Unsurprisingly, NFTs have their fair share of skeptics who doubt their longevity. They assert this is just another fad and once the novelty passes, there will be major losses for investors. While no one can say with complete certainty whether NFTs are here to stay or fade into oblivion, we can make predictions based on corporate activity. For instance, within the artworld, Christie’s archrival Sotheby’s is currently collaborating with digital artist Pak on its first sale of NFTs set for April 2021. Besides auctioneers, tech companies are doubling down on NFTs and crypto. Earlier this year Tesla made headlines for investing 1.5 billion in Bitcoin and will start accepting it as payment, setting an interesting precedent. In addition, there’s been a boom in crypto startups such as NFTfi, which allows people to use their NFTs as collateral for loans. The more institutions embrace them, the more legitimate they become.
You might be thinking, why pay? Couldn’t I just download one for free? You could, but that’s missing the point. It’s about ownership and bragging rights. It’s the difference between owning a print reproduction of the Mona Lisa versus owning the Mona Lisa. Although creators maintain all intellectual and copyright rights to their works, buyers acquire ownership rights after purchase, differentiating their NFT as the ‘original’, which can carry a certain prestige and appeal. What’s more is that people can directly support the artist and become a patron, a very exciting prospect for those who want to get into collecting. On a sentimental level, it’s the feeling of owning something one-of-a-kind that you will be able to cherish for years to come from the convenience of your desktop. Should you buy an NFT? Possibly. If the work really speaks to you and is within your price point, I say go for it. You could possibly be the next owner of your favourite gif.