The fascination of the art market for non-fungible tokens (NFTs) has reached a climax. In March 2021, a piece of Non-Fungible Token (NFT) artwork sold for over $ 69 million at Christie’s. The work, DAILY: THE FIRST 5000 DAYSis a collage of purely digital works of art that the digital artist Beeple created over 5,000 days. You can’t hang it on your wall. It’s just a bunch of pixels.
This sale marked many significant changes in the art industry. It was the first major auction of a fully digital work of art with a unique NFT. It was the first auction to accept cryptocurrency as the standard payment method. The sale positions Beeple in the top three most valuable living artists behind Jeff Koons and David Hockney.
How did that happen and what are the further effects on the creative economy and the art market in general?
Quickie introduction for the unconscious, NFTs or non-fungible tokens, are unique digital assets on a blockchain that can be bought and sold, but have no tangible form of their own. While bitcoin or a standard banknote is fungible, swap them out for one another and you have exactly the same thing. Each NFT can represent a single digital object, so they are not interchangeable. You are one of one.
Traditionally, singularity is what adds to the value of a work of art, while digital assets can be duplicated quickly and easily. But NFTs “tokenize” works of art and create a digital certificate of ownership. Blockchain has long been touted as the potential future of traceability, from baby food to voting. As seen with cryptocurrencies like Bitcoin or Ethereum, a record of legal ownership and authenticity is stored on a shared blockchain.
The interesting thing is that the traditional art world hasn’t seen a way to monetize digital art for a long time because you couldn’t hold onto it or prove ownership. This infrastructure now enables the property to be validated.
In October, Beeple independently sold a 10-second video artwork that he could have viewed online for free as NFT for $ 66,666.66. By February, they were resold for $ 6.6 million. At that point, the entire asset class had been validated and the future of art forever changed.
You may be wondering if with digital art I can safely just download a high resolution JPEG and have it on my phone? Why pay such an exorbitant amount? However, the same argument could be applied to Da Vinci, Picasso, or Jackson Pollock. You pay for ownership of the original. People take care of property. Owning art is an emotional experience that has been around for millennia. Now technology has closed the gap and created this unique aspect of ownership in the digital space.
“We are now on new territory. This is a validation of the collective category. NFTs are clearly more than just an emerging collection space. I hope that it enables digital artists to do interesting work and that everyone has more confidence in NFTs. “
Noah Davis, Christie’s post-war and contemporary art specialist
Another important aspect is that NFTs have a royalty structure similar to the master recordings of an album. By embedding smart contracts, the artist receives a portion of the future sale of the token. This also allows artists or anyone on the contract to participate in the main function of art. The original seller, be it the art world or the hypebeast culture of sneaker resale, usually doesn’t get a share of the resale value.
Now, not every digital creator is going to be Beeple. Aspects of this are a bubble, but they still legitimize digital art as a good investment. There is a trend that goes beyond NFTs and links audience interaction with digital art. In an auction, the audience defines how much the creator is worth to them, which is an emotional experience. The rise of Patreon and Only Fans in recent years shows the audience’s desire to create another exclusive emotional connection to a topic. Most major Patreon developers get fewer than 20,000 individual customers, but the amount generated from monthly fan submissions on these platforms far exceeds what that particular number of fans would be worth to a brand if they were to directly engage with deal with this developer. Ultimately, the market decides the value.
In addition to the arts, Kings of Leon recently became the first band to release an album as an NFT for $ 50. This somewhat groundbreaking token offering is both a trend for that trend, providing the American rock band with an easy press for their new album and allowing fans to get special perks like limited edition vinyl, merch, meet & greets, personal drivers for shows, unlock. and front row seating for future concerts for life. From an experimental standpoint, this is interesting for the most serious Kings of Leon fans who are going to have an incredibly unique collectible in their hands. People like Portugal. The Man, Shawn Mendes and Grimes also recently got on the digital token train as musicians look for additional sources of income in the concertless era of the pandemic.
“It’s still in the early stages, but I think in the future this is the way people will release their tracks: if they sell 100,000 for one dollar each, they only made 100,000 dollars.”
Josh Katz, CEO of YellowHeart
Right now, NFTs are like an advanced form of vintage band t-shirts or underground sneaker drops. You have an element of exclusivity and specialty. They satisfy that individuals need to be ahead of the curve. Deep down, everyone wants to discover an artist before they blow up. Before they go mainstream. There is also a feeling that both sides of the relationship, the artist and the fan, can benefit financially in the long run from trading NFTs. Fans could monetize a creator’s support through a digital token.
In the first 10 minutes of bidding, Christie’s had placed more than 100 bids. The auction went from $ 100 million to $ 1 million. They had more than 20 intergenerational bidders from 7 different countries. Most interesting, however, is that Christie’s only known three of these first-time bidders. The vast majority were brand new to Christie’s, and therefore to the entire professional art market.
The art market had to be fast to adapt to our ever changing world. In October 2020 alone, Sotheby’s posted sales of $ 88.2 million in live streaming art sales in Hong Kong, the most successful contemporary art sale in Asia. The sale also generated two million views on the digital and social platforms, with one star ticket selling for $ 27.6 million. This makes it the most expensive Western work of art ever to be sold at auction in Asia. The Sotheby’s auction was also the first live streaming sale from Hong Kong, with employees in London and New York bidding through telephone banks.
Virtual viewing and social distancing are the new normal in the art world. Collectors have become used to seeing images and videos of works of art virtually without being able to view them in person. These changes have resulted in a definitely more flexible market, opening up opportunities to further integrate art and technology in the future, as we are now seeing with NFTs. This online shift and the opening up of the market have meant that the art world as a whole has become more accessible to a younger audience. Both Christie’s and Sotheby’s reported that bidders aged 40 or younger accounted for more than 30% of sales in 2020, compared to 8% in 2016.
Time will tell whether NFTs will become a mainstay of the art world. The huge amount of energy used in mining cryptocurrency and minting NFTs can become an obstacle to advancement in the art world, which has recently become more vocal and proactive in acknowledging and reducing its environmental impact. For example, the environmental impact of Beeple’s $ 6.6 million sales effort crossing alone corresponds roughly to the total energy consumption of an average person for five and a half years. However, the process of creating tokens for digital works of art and then buying and selling them using cryptocurrencies may seem like an environmentally harmless process, especially when compared to the art world’s habit of traveling the world for trade shows, biennials, and auctions prior to COVID .
Ultimately, the perceived value business only has weight if you build trust through social evidence. A company’s worth is based on social evidence. Why are diamonds important? Because we say they are important. Because we linked it to storytelling and a deeply rooted tradition in our culture. NFTs begin to develop their own social evidence and cement their perceived worth as true worth. Time will tell how big the impact will be, but right now the underlying technology certainly has the potential to disrupt not just the traditional art market, but anything of monetary value.