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By Ralph Jones
hen Everydays: The First 5000 Days sold at Christie's in March for $69.3 million, it would have been extraordinary under any circumstances. It is the third largest sum of money for any painting by a living artist, and joined the ranks of the most expensive works of art sold at auction. But this wasn't an ordinary painting. It was a digital file. A painting with no physical presence. An NFT – a non-fungible token.
The work, by Mike Winkelmann – better known as Beeple – catapulted NFTs into the news in a way that astronomical sums of money have a habit of doing. The world suddenly had to decipher exactly what an NFT is. This isn't all that easy and can feel as elusive as trying to grasp the intricacies of quantum physics.
Each non-fungible token is, practically speaking, a digital file along with the proof that the file is unique to the person who purchased it. The way it works is comparable to the deed of a house: the deed of a house proves that you own the property so that, if someone were to waltz into the house and claim it as theirs, you could point to the deed and say, “Get the hell out of my house.” Technically speaking, the NFT is the deed – a cryptographic signature – and the NFT artwork is the house.
The 'non-fungible' quality of an NFT means that it works exactly like a work of fine art. Its value is unique, determined by the highest bidder. As a non-fungible token, an NFT cannot be traded like for like in the way that a unit of currency can.
NFTs are head-scratching because they immediately beg the question: why would someone pay $69.3 million for a computer file? These images are also in the public domain and can be downloaded by anyone on the planet. It might help to imagine the original copy of Macbeth, signed by William Shakespeare. Though the script has been reproduced countless times physically and digitally, only the first, signed by the author, would be the true original. These originals are what buyers want to get their hands on.
The NFT trading market, worth $12 million in December 2020, is now valued at more than $500 million. The whole enterprise is tied inextricably to cryptocurrency. NFTs, like any cryptocurrency, must exist on something called a blockchain: a community-maintained ledger of digital transactions. The vast majority of NFTs can only be purchased using the cryptocurrency, Ethereum.
On 12 April, the rapper and visual artist MIA sold an NFT artwork called KALA COYN; headlines reported that it had sold for $52,000 but this was because the true price – 25 Ethereum – would have made no sense to most readers.
Melanie Ashley, a core team member on MIA's NFT projects and a long time creative collaborator of the artist, points out that the value of Ethereum is rising: several days after MIA's sale, the NFT was worth almost $10,000 more.
High-profile artists are capitalising on the development and using it as another source of revenue. On a marketplace called Foundation, which puts NFTs on to the blockchain and takes a 15% sales cut in return,
Kate Moss has auctioned three NFTs, one of which – a GIF of her stirring in her sleep – sold for 5.1699 Ethereum (more than £9,000). Moss calls NFTs “a new medium for art that I can participate in directly and be in control of my image. It gives you the artistic licence to just go out there and do it.”
Although you may not have $69.3 million, you might be considering the world of NFTs from either a buyer's or a seller's perspective. Here are some pros and cons.
‘Artists are capitalising on NFTs and using them as another source of revenue.’
The Pros of NFTs
They are an investment opportunity
If investment is your thing, NFTs are exciting. No one knows whether or not they will appreciate in value but they are being compared to commodities such as wine and baseball playing cards. If this kind of game is for you, there are aspects of NFTs that look encouraging: by definition, the data in an NFT is unique, so should always be demonstrably authentic (more easily than a work of physical art).
“It’s like investing in anything,” says Nelson Jordan, who is one of 12,000 members of a community forum based on the social currency $whale, which is backed by NFTs. “I think it will provide a good return on my money as NFTs get more popular and the valuations increase.”
They can be great for artists
One advantage to NFTs is the potentially revolutionary impact they may have on the creative industries. If you are an artist looking to sell your work, you can now (try to) monetise it in a relatively straightforward way. It's “surprisingly uncomplicated” to create an NFT, says Ashley, but it does involve a familiarity with blockchain.
Artists choose a marketplace (Foundation is one example, along with Mintable or Nifty Gateway, where Grimes sold millions of pounds worth of NFTs); they validate their NFT on the Ethereum blockchain for a fee that can range from about £30 to £150; and they put the item up for sale.
As Jordan says, “NFTs are a good way of funding artists directly without a middleman.” The apparent democratisation that NFTs represent is appealing to artists.
Elena Silenok, a US-based tech entrepreneur and e-commerce expert, says of the current status quo: “Why is it that you have to go through gatekeepers? Why is it that you can't just connect directly with your audience?”
An NFT contract, Silenok explains, can easily be arranged so that, with each subsequent sale, the artist receives a percentage of the sale – something that generally is not the case in the world of traditional art.
Musicians, already battered by streaming and now unable to play live gigs, have dipped their toes in the NFT water in the hope of gaining some control over their livelihood.
They’re making cryptocurrencies more valuable
Ashley, meanwhile, says that she wouldn't be investing in NFTs but would be using the opportunity to invest in cryptocurrency.
“If you put £1,000 into Ethereum, you can watch it move and, over time, this kind of thing can give you a return,” she says, with the caveat that she doesn't want to dispense trading advice. If NFTs are a step too technical for you, you can buy cryptocurrency and hope to ride the wave that this strange new development has created.
The Cons of NFTs
They pollute the environment
One of the most-publicised disadvantages of NFTs is that, in being inseparable from cryptocurrency, they are bad for the environment. The energy costs in mining Ethereum are substantial and will only grow as the currency does.
Annually, Ethereum uses as much electricity as a small country, which even the inventor of Ethereum has described as “a huge waste of resources''. Although we are contributing to climate change in innumerable other ways – and some claim that NFTs' digital existence is less harmful than these products all being physically manufactured – steering clear of NFTs and Ethereum would be a positive step for the planet.
‘Annually, Ethereum uses as much electricity as a small country, which even its inventor has described as a huge waste of resources.’
They are not 100% safe
Unfortunately, NFTs might not be as secure as people think. As IT expert Jonty Wareing pointed out in a rather technical thread, you could lose your NFT forever if the company which sold it to you goes out of business. Scammers are also creating fake versions of NFTs and selling them as authentic.
But Silenok is right to point out that this type of forgery isn't unique to NFTs. “I think stealing something and then selling it for profit is probably as old as the world itself,” she says.
They’re a male-dominated interest
Like trading and banking, this is an area with poor female representation. Kate Moss, MIA, and digital artist Krista Kim, who sold an NFT house for more than $500,000, are great examples of women who have made NFTs work for them. But the enormous sums of money – John Watkinson and Matt Hall's cartoon characters fetching millions of dollars each, for example – have typically been made by men.
“I do think a lot of it is being made by men and being made for a man's brain,” says Ashley. “And women's brains would design these things differently.”
The space may be a hostile one for women but you could argue that this is a reason for women to get involved – to balance the scales and change the narrative.
Header image: Artist prepares video graphics at a public broadcasting TV station, ClassicStock / Alamy
NFTs present investment opportunities and a new way for artists to monetise their work – but the environmental impact and potential for fraud or financial loss should not be ignored.
By Ralph Jones