Is Blockchain NFT really an Art Gallery of Modern Times?
My take on how NFTs are disrupting the digital art space and its future implications
NFT sales hit record numbers in 2021, a jump from 13.7 million in the first quarter of 2020 to 2.5 billion in the second quarter this year. NFTs growing popularity substantiates wide scale acceptance of blockchain technology by millennials even if the boomers are still skeptical. I believe we have passed the point when people saw blockchain and cryptos as nothing but a bubble like dotcom. But what’s so lucrative about NFTs that its collectors are pushing in so much money?
What is an NFT?
Any asset which is digital in nature such as Art, Music, In-gaming objects can be represented as a data unit over the blockchain considered as NFT.
This data unit on the blockchain certifies its uniqueness and ensures that it is not interchangeable with other assets at any point of time. NFT itself stands for Non-Fungible Token, which by definition makes it nonexchangeable and thus maintains its uniqueness.
How does NFT works?
A unique NFT is created by the process called as minting, that is a one time event performed by the curator when he is ready to publish his digital work on the blockchain platform, commonly Ethereum. When curator publishes his work, a digital copy of artwork is stored on the distributed file system and all of its metadata like Name, Curator, Wallet Id, Copyright Regulations, Protocol etc. are stored on the blockchain which ties back to the NFT wallet/account to uniquely identify the curator.
For Nerds this is an excellent paper to read, layman can continue…
For a buyer also referred as Art Collector, in order to buy the digital art work has to purchase the NFT token to get the ownership of the digital asset. This payment is usually done using cryptos and altcoins based on platform where the asset is sold. While making such payments the art collector is ensured the authenticity of the work and if required can verify that it originates from the intended curator.
Any subsequent change of hands just adds the new owner information providing complete traceability to the original creator.
The most commonly used marketplaces for digital art are:
NFTs for Art Governance
Before NFTs seeped into the digital space it was completely impossible to identify the creator of the art. Also, an artist wouldn’t know his artwork has been shared and replicated to hundreds and thousands of users on multiple platforms. With such scale it’s very easy for any one knowingly or unknowingly to replicate the marital and use it for their purposes digitally without the consent of the artist. Even if an artist wants to take any legal action, it is impossible as there is no means to prove that the claimer is actually the original artist.
With all these issues NFT really benefits the artists. Since NFTs are immutable and traceable back to the original creator, artists can now prove the authenticity of their work and can claim commissions and credits with every changing hands of the art work.
One more add-on benefit is now artists in digital space have freedom of choosing a sell price of their art work, which is still governed by the art galleries in the physical space and author Logan Kugler suggests that sometimes these commissions are as high as 50%.
There is sense of security that has been created by the blockchain based NFT platforms which has attracted a lot of general mass, but at the same time there are some ungoverned areas of NFT that creates a honey trap for the genuine collectors, one such example is using NFTs as trading assets.
It might sound surprising, but with trading apps supporting crypto currency and coming handy, all the retailer investors now controlling the market which was once influenced by the institutions. This has opened up a new paradigm of trading NFT artwork rather than traditionally auctioning.
In olden times a collector will bid for the artwork and keep it in his collection for a while now a modern day trader bids and resells the acquired NFTs for instant gains.
This trend of NFT trade does more harm to the industry than the potential it brings to the table. In NFT trading a price of an artwork shoots up based on demand and price action of what the collector is ready to pay at that time, ignoring the underlying value of the artwork itself. This poses high risk for investors as items collected today can have no value tomorrow. This is untrue for the physical artworks, a collector pays what it’s worth and its value usually increases over time.
It’s not just trading, a recent controversy that arose around Beeple’s Auctions has raised concerns over the overall process of NFT auctioning and its impact over the collectors. Auction terms sometimes are not transparent to the collector, for example in this case the artist had 100 editions of the same artwork and sold them to the top 100 bidders (Ranked Auction). Such practices, helps the platform and artists but not the collectors who at the end are ones spending their hard earned money.
Takeaway
With time we will know if NFT is really a bubble, but for now it seems odds of being one are high. The scientists have argued that NFT is nothing but a receipt of an asset that is not physical and the value being paid by the collectors is for the receipt and not for the underlying value of the artwork.
Realization of the artwork, which is creating physical copies of the work is still possible and this disconnect between the digital space and physical space also termed as “last mile” by MIT professor Christian Catalini is very huge.
Additionally, the carbon footprint created by blockchain is alarming and concerning, for instance Ethereum, currently uses about the same energy as the country Zimbabwe. For now, in quest of solving problems, more problems are being created.
