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Non-fungible tokens and blockchain technology are changing the way we buy and sell works of art

By Chadd Scott

 

You have surely read or heard something recently about “NFTs,” “non-fungible tokens.” An artist with two million Instagram followers and no presence in the traditional gallery/museum world, who goes by the name Beeple, sold an NFT artwork through the Christie’s auction house for $69.3 million earlier in March of 2021. 

The sale represented global news covered by almost every major media outlet. It made Beeple the third most expensive living artist behind only Jeff Koons and David Hockney. 

 

So, what the heck are “NFTs?”

Non-fungible tokens are “cryptographic assets on blockchain with unique identification codes and metadata that distinguish them from each other.”

Got all that? 

Me neither. 

Let’s break it down.

NFTs are digital certificates of authenticity attached to digital items. They accompany assets which exist digitally like a jpg (picture) or MP3 (audio) file. You can’t touch, hold or feel them any more than you can touch or hold or feel the pictures on your smartphone or the songs in your iPod.

Unlike jpg files or MP3s, however, each digital asset associated with its corresponding NFT is a unique item because of the “unique identification codes and metadata” that accompany them. Every NFT-certified artwork is an original, 1-of-1 object, like an original painting. 

While the NFT image may be endlessly reproduced, like van Gogh’s Starry Night, there is only one original, authentic, signature NFT, like there is only one original, authentic, signature Starry Night. 

The NFT has the value, not the image, because the NFT is unique, not the image. 

In “traditional” art, the value is in the object, because that’s the original. Anyone can make copies of the “certificate of authenticity” of an artwork, but making copies of the artwork is more difficult, and illegal, if you try to sell it. In digital art, that relationship is reversed. It’s the NFT that has value because it is unique, not the image, which can be endlessly duplicated.

The value is with the proof of ownership, not the “asset.”

Another way to think of this is like a copyright with music. 

There’s one “master” copy of the Beatles’ “Abby Road” record. That has huge value because it’s the original and can be legally reproduced for sale or sold to someone else. I can own a reproduction of “Abby Road” and play it, but I don’t own the “master” copy or the intellectual property behind it and can’t legally reproduce and sell my copy of the record.

Each NFT artwork is a “master” copy.

 

NFT 1

Amir Fallah NFT artwork, 'Immortal,' courtesy of the artist

 

What is “blockchain?”

Blockchain is a type of database. Blockchains store digital data in “blocks” that are then “chained” together. Massive, galactic, unimaginably large amounts of data.

This data is stored on a decentralized network consisting of thousands of computers worldwide.

Blockchains are primarily used to store cryptocurrency transactions.

For comparison, imagine if there was a database somewhere housing a record of every piece of hard currency ever produced. Every dollar bill, every quarter, every penny, and every piece of currency used by every other country in the world, and that database further recorded every transaction of that piece of currency. Every time it was used. Every person who used it.

Imagine how much data that would be? That is the information stored on the blockchain for cryptocurrency.

All of these transactions are searchable and viewable by any computer on the blockchain to provide legitimacy and transparency.

NFTs – the “certificate of authenticity” behind the digital asset – similarly, are stored on a blockchain.

 

What is cryptocurrency?

Bitcoin is a cryptocurrency. There are others.

Cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.”

Cryptocurrency has value because people assign value to it and have faith that it has value. A $100 bill is just paper. Its materials are worthless. It’s the same size, weight, shape, color as a $1 bill, but we assign greater value to it based on the faith we have in it as a currency, backed by the U.S. Federal Government, to mean something and accepted universally to buy things.

Cryptocurrencies are not backed by any central government or any centralized organization, but they have value because a large community of people have assigned value to them, have faith in it as currency to buy things and exchange for goods.

Like our paper money which has a multitude of security measures built into its manufacture to prevent counterfeiting, cryptocurrencies are “encrypted” to be difficult to counterfeit. 

Cryptocurrencies appeal to certain people because they exist outside of traditional financial institutions like banks, credit cards and governments, and worry other people for the same reasons. 

Person-to-person transactions benefit from using cryptocurrencies because banking and transaction fees are avoided.

 

Why would anyone want to buy/collect NFTs?

Why would anyone want to buy or collect paintings? Pottery? Baseball cards? Sneakers? Stamps?

Think of it this way. What if you spent your entire life online? You know nothing of a non-digital world; you are a “digital native” as the term defines. You were born with a screen in your crib and you love that.

If you communicate with your social network digitally, if you do your business digitally, if you live your life on screens and you validate your self-worth and identify by how you present yourself digitally, you may want digital artwork as a signifier of your personal tastes, ambitions and success in the same way a traditional art collector may want to signify their personal tastes, ambitions and success with an Ed Mell painting or Maria Martinez pottery.

Remember, just because you’re not into something, doesn’t mean no one else is, and everyone else’s lived experience and value systems are not yours.

People who wait in line three days for the new iPhone release, that’s the person who would want to buy and collect NFTs.

To this point, the marketplace for NFTs are predominantly millennial, white, male, upper-middle to upper class – “tech bros” – to use a slightly derogatory term. 

The people who want to live their lives digitally, want to buy digital art.

 

What makes NFTs special, what gives them value?

The “unique identification codes and metadata.” It’s the “certificate of authenticity” signifying it is the original. 

A million Starry Night posters and coffee mugs and mousepads and tote bags, one original, signature painting. 

NFTs also derive value from their community. 

Why would anyone want to collect or pay money for Beanie Babies, Pokéman Go cards, Cabbage Patch Kids dolls, Kachinas, Navajo rugs, abstract art?

Same reason. 

A community of people think they’re cool or fun or interesting – and some think they can make money from them – and value begins to be ascribed to these objects.

In addition to digital artwork, digital sports highlights – particularly from the NBA – have been made into NFTs and found a strong marketplace. Remember, an NFT doesn’t necessarily mean a piece of art, it only means a “unique digital asset.” That could be a piece of art, it could be a Lebron James dunk.

 

Who is making NFTs as artwork?

In addition to Beeple, based on his success and the relative lack of artistry required – to this point – to enter the NFT art market, more artists enter every day. Hundreds, by now. Hundreds more by the end of the year – maybe thousands – as an NFT “gold rush” is on.

Former professional baseball player-turned contemporary artist Micah Johnson, who does have real, “traditional,” artistic talent, was one of the first to generate big money in the space. Mega-rich and famous contemporary artist Damien Hirst is getting into the game. A contemporary artist I have great respect for, Amir Fallah, has produced an NFT. Jonathan Thunder (Ojibwe) is the first Native American artist I could find producing NFTs. More and more artists join this marketplace everyday seeing this as an opportunity to take their work direct to consumers bypassing the gallery hierarchy. 

 

NFT 1

Jonathan Thunder NFT artwork, courtesy of the artist

 

Where can I buy NFTs?

After the success of Christie’s, Sotheby’s is joining the frenzy in April. 

An increasing number of digital-only artwork/collectible/NFT platforms like SuperRare are Nifty Gateway are emerging to serve this marketplace.

 

Why are NFTs so bad for the environment? 

You know all that data on the blockchain? Storing, processing and managing all that data requires computers. 

Powerful computers. 

Thousands of powerful computers. 

Computer farms.

Giant warehouses of powerful computers running full speed 24/7/365 producing so much heat they need to be specially cooled. 

All those computers and all that computing and all that cooling requires huge amounts of energy.

Ethereum 2.0 and Hedera Hashgraph are two platforms aiming to remedy this problem.

 

Are NFTs here to stay/are they a good investment?

“While many art pundits are declaring NFT art as a bubble or fad, in my mind NFT's speak to a new generation of future collectors,” Mark Sublette, owner of Medicine Man Gallery, said. “As an art dealer with thirty years experience, it is my job to help our gallery artists navigate this new paradigm.”

 

 

 

Watch Chadd Scott on Art Dealer Diaries Podcast Episode 133

 

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