February 23, 2021

NFT Art: Non-fungible Token Art

What it is and what it means for the future of the art world
Published in
Opinion

With the recent announcement that Christie’s would be featuring an NFT piece of art by the artist Beeple at auction, I’ve been getting flooded with questions from friends and followers about my opinions on NFT art. Although I do like to keep my work separate from my hobbies (for the most part), since I do work in tech, I feel like I can give a decent overview of NFT art for those that may not know anything about it, as well as my opinions on how it will influence the art world in the short and long term. 

I've also created a video walking through what I'm describing below if you'd rather consume information in that format.

So what is NFT art? 

Let’s start with a basic overview of the space.  I’ll try to draw parallels to the traditional banking system as often as I can. The main parts of cryptocurrency that you need to understand in order to understand NFT art are the asset, the marketplace, and blockchain. 

Blockchain 101

Let’s start with blockchain because that’s probably one of the most difficult of the three to understand. 

You can think about blockchain as a giant database (or excel spreadsheet if that’s easier) that is really hard to hack and impossible to change. If you’re wondering why it’s called blockchain, that’s referencing how data is entered. Data is entered in a block, that’s linked (or chained) to a previous block entry. This is important to note because it means that information is pieced together in chronological order. 

One of the most important things about blockchain is that it’s not owned by any, one authority like a government or company. So who owns it? In order to understand this, it's important to understand at a high level how the internet works. Behind the thing we like to think of as the internet - there are servers. These are physical computers that are kept in a location and paid for by a company (usually). These servers are just like the computers we use, but they don’t have a monitor or a screen like we do. These servers keep and compute information, sending it to your local computer over networks (like the internet). Depending on the size of the company, they may have their own servers or use a company like Amazon’s (Amazon Web Services) servers as a host. 

However, with blockchain, there’s no one company or government that owns all of the servers that host information. The blockchain is made up of many different individuals, all over the world, called nodes. Since each piece of information is linked together, if one individual takes their server offline then it doesn’t matter, because each node has its own copy of the blockchain. 

Non-fungible vs. fungible assets

So now that we’ve covered (high level) the ecosystem that supports things like NFT’s and cryptocurrencies, let’s dive into what these assets are and what makes them different. Both NFT’s and various types of cryptocurrencies rely on Blockchain to exist, but the way their information is stored is different because they’re two very different types of assets. Cryptocurrencies like Bitcoin are what we call a ‘fungible’ asset. What makes them fungible is that they’re not unique. A Bitcoin is a bitcoin, they’re all alike. Similarly, take a $100 bill. One $100 bill is equal to any other $100 bill, there’s nothing special about any given bill other than that it’s worth $100. That’s why certain brokerages (eg. Robinhood, Cash App) allow for the buying and selling of partial bitcoins. For example, you can buy $100 worth of bitcoin instead of having to drop $50k dollars to buy a ‘whole’ bitcoin. A brokerage is different from an exchange (like Coinbase) because doesn’t allow you to download your cryptocurrency to a wallet. 

So if cryptocurrencies are a ‘fungible’ asset. What’s a ‘non-fungible’ asset? A ‘non-fungible’ asset is a unique non-interchangeable asset. That’s what NFT stands for Non-fungible Token. Non-fungible Tokens are used for unique digital collectibles. This can range from anything from digital art to sneakers to card collections, but for the sake of this overview, we’re focusing purely on art. 

So how does an NFT work with digital art? A non-fungible token can be assigned to a digital artwork, which you can think of as a unique identifier. Anytime there’s a change in ownership of this token it’s captured as a block within the blockchain, so there’s data about historical ownership as well as an easy way to verify that the artwork is an original. This has SO many benefits for multiple reasons. 

The art world has struggled forever with the issue of scarcity and ownership surrounding digital assets like photography or videos. It’s very hard to protect an original artwork when there’s potential to multiply and distribute the original. I predict this is why these mediums fetch far lower prices historically than their painting or sculpture counterparts. 

Another point of friction that the art world deals with on a regular basis is authentication. Auction houses and galleries consist of large numbers of staff whose entire job is to organize and investigate the provenance of an artwork in order to determine the authenticity of an artwork. So if an art object’s entire ownership history and verification information are available on the blockchain that would immediately put a collector’s mind at ease when it comes to concerns of scarcity.

One of the biggest benefits of NTF art is the ability for artists to earn royalties from each resale. This is something that must be stipulated when the NFT art is minted (we’ll get into that in a bit), but it’s easy to include - and it means that artist always gets a cut, no matter how inflated the price of the works become. Meanwhile, auction houses can resell a painting for millions of dollars and the original artist can not see a dime of that. 

Buying, selling & making NFT art

So now that you know what NFT Art is, how do you buy it? And once you’ve bought it how do you sell it? Also, how do you make it? I personally find understanding how to make it very insightful into understanding what it is, so if you’re still a little confused after the explanation above, read more below. 

So where can you buy NFT Art? Just like with anything, there are online marketplaces where you can buy and sell NFT art. The Nifty Marketplace is owned by Gemini (remember the Winklevoss twins from The Social Network) and is a marketplace where you can buy and sell NFT art. From the looks of it, they have regular drops. I will say they have one of the better-looking websites (not that that’s saying a lot). Other places you can sell NFT’s are Opensea, Knownorigin, and Makersplace (and I’m sure there are others). 

If you want to understand more about the prices of NFT art and the market around it, there are sites dedicated to overviews of the market. Cryptoart.io is a good site for investigating the artists out there that have created NFT art and more interestingly, what it sells for.  Nonfungible.com has a particularly horrendous website, but they do have some good market overviews if you want to get into trading NFTs. 

When it comes to actually making NFT Art I was pleasantly surprised to see how simple it is (granted you’ll have to pay a small fee). If you want to go the non-coding route you can use sites like rarible.com. Just like with an original or print you can determine if it’s an original or if it will have multiples and you can specify how many. You upload a .jpg, .png, or .gif, you name it, you can add how much you’d like in royalties (for example 20%), and the overall price (soure). In a matter of minutes, you can have an NFT piece of art (or pieces) created and online for sale. 

NFT art & the traditional art world

So what does all of this mean for the traditional art world? Will this technology make physical galleries and auction houses obsolete? And will dealers be put out of business? The short answer - no. 

In the short term

I think it’s healthy to look at some of the immediate impacts of NFT art on the traditional art world before we get into more long-term predictions. 

In simple terms NFT art is the scale the art world needs but doesn’t have currently. It’s no secret that despite desperate attempts by companies to bring the art world online’ and mirror traditional e-commerce models - it’s not profitable, and the reason is that traditional art doesn’t scale. There’s so much overhead involved in doing research around provenance, organizing logistics around shipping and insurance as well as payment transfers. There aren’t enough transactions to make the time put into the business worthwhile. The only place art can scale enough to make e-commerce worthwhile is when dealing in prints and multiples. 

Prints & Multiples as an increased income source for artists 

Prints and multiples are already a great income stream to artists because although they’re less expensive, artists can produce more of them with little to no effort. NFT art could take the prints & multiples market to the next level, putting more money directly into the pockets of artists. 

Take Counter Editions, for example, Katherine Bernhardt wouldn’t have to work with them to create a print, digitize it, create multiple editions and distribute it, only receiving a small percentage one time from the sold works. She could digitize her own work, sell a certain set of copies of it and receive a commission every time the artwork was sold. While the buyer could have it printed and framed. The overhead is erased, but the value and authenticity are preserved. 

Increased prices for art that can be in digital form

Another way NFTs can change the traditional art world in the future is to increase the prices for photographs and video art. Because of the difficulty around control of the distribution of these types of art, prices are typically far lower than their painting counterparts. With an ability to ensure authentication as well as a history of sales (rock-solid provenance) collectors can feel safer purchasing this type of artwork and may pay higher prices than they have in the past because of this security. I predict (if they’re smart) that the mega galleries like Pace, David Zwirner, Gagosian, and Hauser create NFT’s for any digital art that they have. 

More digital galleries / marketplaces 

When you browse the galleries I have listed above it’s pretty apparent that NFT Art still lives in the gaming, cyber-community space. And there’s absolutely nothing wrong with that. However, as more people learn about NFT’s I think we’ll start to see more niche marketplaces cropping up in the same way we see department stores or galleries. The more digital art that floods the market the more important it’ll be to have an element of curation so consumers don’t have to sort through thousands of things to find something they like. So I do only see this market getting bigger and bigger. 

That being said - do I see this being the death of traditional auction houses and galleries? Absolutely not. People buy art for a number of reasons that NFT art can’t satisfy. People buy art for tax purposes, for contributing to culture, to for bragging rights, for the love of it. Art is an extremely risky asset when it comes to investments and if you're buying art with the sole intention of making money one day there are other investments with a much higher probability of return, so I wouldn't recommend doing this.

Time is our greatest asset, and curation is of such value in an age of information, because it gives us time back. Society always needs to be told why something matters, and that’s something that machines can’t do. Galleries and auction houses are simply curated marketplaces, and the need for them will never go away. They may look different over time, but their core function and purpose will remain the same. 

In the long term 

In the long term, I can see a huge increase in the demand for digital assets, especially as we start living more in the digital space. What I mean by that is, we (in the most developed countries at least) already spend the majority of our time on screens, our phones, computers, televisions, etc. Thanks to the pandemic we’re already seeing society spread from cities to rural areas as companies ease up on preferences for in-person office spaces and embrace remote work. Humans still crave connection and turn to the internet for social interaction. This will only continue to grow. 

I predict that as technology improves and we’re able to have more social experiences in real-time online, we’ll start to crave the same type of home base and possessions we have in our physical homes in our online homes. I imagine we’ll want to decorate our VR homes with digital versions of Jonas Wood paintings we’ve purchased that we can show off to our friends when we host virtual wine tastings. Don’t believe me? Think about how we spent money on music ring tones for our cell phones school, or how much money gamers spend on skins in Fortnite. As the digital world becomes more of a home in which we interact with others, the desire to fill that world with culture will be just as real as it is in the physical world today.

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