A year ago, a work of art was sold for 69 million dollars by the prestigious auction house Christie’s. He was not a lost Matisse or a rarely seen Van Gogh. Instead, it was a composite collection of digital art by then relatively unknown artist Beeple. What makes the coin – Everydays: The First 5000 Days – truly remarkable is that it was sold as a non-fungible token (“NFT”). In the year since that sale, NFTs have gone from a relatively obscure technological phenomenon into the mainstream. NFTs are digital tokens that exist on a secure system of record called blockchain. These tokens are like certificates of ownership that a gallery might give to an art collector, but for digital objects.
For collectors, NFTs are arguably a digital extension of the benign activities of hobbyists. Over the past few generations, collectors may have sought out rare Magic The Gathering cards or obscure stamps. Today, those who crave rare items are drawn to a world where rarity can be transparently recorded and easily verified. For creators, NFTs offer a clear path to monetization. Artists have always struggled to continue making money from their work, but NFTs can be sold under terms that provide creators (and potentially brands) with royalties.
The right-click approach
Despite their growing popularity, NFTs still confuse most people because we’re not really used to the concept of owning digital art. After all, anyone can just right-click and save an image to their computer. This, of course, misses the point. As with all currencies, NFTs have value because of the meaning a community assigns to them. In the online culture that NFTs belong to, “on-chain” blockchain elements are significant – and some are more valuable than others.
The feature missed by the right-click perspective is that when you own an item on the blockchain, it is verifiable and anyone in your community can see the recorded transaction. This can translate into prestige, for example, when extremely wealthy entrepreneurs bid on rare NFT items, like Beeple’s work or a rare cryptopunk — and when owners of the Bored Ape Yacht Club turn their social media icons into a picture of their monkey. Yet owning an NFT may simply be a sign to other members of the community that you belong.
NFTs are attracting mainstream attention
Popular attention is not always positive. As NFTs grow, so does the proliferation of cash grabs and scams, especially from social media influencers. YouTubers, such as Logan and Jake Paul, for example, are notorious for their litany of shoddy NFT “mat shots”. when a crypto project is abandoned by their creators once the money has been paid. Melania Trump, to take another example, has released several NFT projects. However, blockchain analysts were able to uncover how one of these projects was bought by none other than the creator of the NFTs. This practice, known as wash trading, sees NFT creators buying their own works either to save face for lack of interest, or to generate hype around an influencer or artist and drive up the price of the next sale.
As NFTs have become mainstream, another capability for these tokens has emerged: their fundraising potential. In what started out as a meme, ConstitutionDAO was created by a group of cryptocurrency enthusiasts to purchase one of 13 surviving copies of the US constitution that was being auctioned off at Sotheby’s. This group – a decentralized autonomous organization – sold governance tokens (called $PEOPLE tokens) in exchange for Ether which was then used to bid on the constitution. In one week, ConstitutionDAO raised $47 million. And while that wasn’t enough to win the auction, it did reveal just how financially powerful this corner of the web has become. (Also note: In August 2021, Wyoming became the first U.S. state to grant legal corporation status to DAOs that operate on a blockchain, provided they are organized as a Wyoming LLC.)
NFT: failure or future?
Some of the harshest criticisms of NFTs come from the socially conscious art world that sees the infrastructure of NFTs as a problem. NFTs primarily exist on the Ethereum blockchain, which relies on vast computational resources to operate, and can generate a huge carbon footprint. Ethereum is transitioning from its current mechanism to another, which will hopefully alleviate this concern. Perhaps the most subtle defense of NFTs lies in how they push the medium of digital art in interesting directions. The Currency by Damien Hirst playfully challenges the collector to choose whether to keep the NFT (the digital token) or exchange it later for a physical work of art. This forces the collector to make a bet on the future: physical or digital, which retains the most value?
This puts NFTs in a curious place. They emerge as both a benign pursuit for hobbyists, a way to valorize and make money from rare digital art, a cash grab for unscrupulous influencers and celebrities, a new fundraising mechanism funds online and a path explored for legitimate art. However you see them, NFTs have fully entered the mainstream and as such deserve attention.
Paul Dylan Ennis is a Senior Lecturer/Assistant Professor in Management Information Systems at University College Dublin. (This article was originally published by The Conversation.)