Art & Non-Fungible Tokens
Non-fungible tokens (NFTs) are essentially data stored on a blockchain, which signify ownership of unique assets. When applied to works of art, the owner of an NFT would possess a mechanism to prove the authenticity and provenance of the artwork.
NFTs have gained traction in the public consciousness recently, with Mike Winkelmann, an American digital artist, graphic designer, and animator, who goes by the pseudonym Beeple, selling an NFT called “Everydays — The First 5,000 Days” for just under $70 million USD at 255-year-old auction house Christie’s. According to Christie’s, this was the 3rd highest selling price at auction for work by a living artist. A digital art collectible called a “Hashmask,” generated by Switzerland’s “Suum Cuique Labs,” is a collection of 16,384 unique digital artworks created by a collective of over 70 artists. One Hashmask was recently sold for 420 Ether, which at the time of purchase was equivalent to $650,000 USD, but with the rapid rise in Ether’s current value, at the time of writing this amount would be worth over $1.5 million USD. Many artists envision NFTs as a revolutionary means of connecting themselves and their art, with the public, allowing for a 1-to-1 relationship without the need for intermediaries.
FUNGIBILITY
Before examining how an NFT can be of benefit to artists, beyond a more direct relationship between creator and public, and the potential financial compensation for works of art, we need to be clear on what “fungible” and “non-fungible” actually mean. A fungible asset is one that can be easily converted into something of the same type. For example, money is fungible, because a $50 bill can be simply exchanged for two $20 bills and a $10 bill, five $10 bills, etc. Stocks in a particular company of the same type are also fungible. However, a vintage sportscar, or an original painting would be non-fungible, due to the fact that in each case, the object is more-or-less unique, and irreplaceable.
Essentially, non-fungible tokens are digital representations of unique
assets. Due to the immutable nature of data stored on a decentralized
digital ledger, aka a blockchain, NFTs provide proof of the origin and authenticity of a work of art, thereby mitigating the possibility of forgery. These tokens can be purchased and sold, which confers ownership of the artwork. The transactions are recorded on a blockchain via computer programs called “smart contracts.” Once the transaction is saved to the blockchain, it provides a unique record of copyright. Because of their
unique nature, NFTs also provide rarity, and hence desirability among
collectors. An original artwork minted as an NFT, is a verifiably unique and authentic asset, rather than a copy. For an art collector, this “stamp of authenticity” can increase the value of the work. Tokenizing a work of art not only helps to reveal the art to a potentially larger global audience, but also provides for less tangibility, and thus more liquidity. Without the need for a “brick-and-mortar” art gallery to display the art, “middlemen” are removed from the equation, and an artist may realize increased profits from their efforts.
BLOCKCHAINS & MARKETPLACES
At present, most NFTs exist on the Ethereum blockchain, although this
monopoly is in the process of changing. A sampling of other blockchains that can host NFTs include Tron, Neo, Wax and Tezos. In terms of number of on-line marketplaces where NFTs can be bought and sold, Ethereum is presently the platform of choice. Some of these NFT marketplaces include: OpenSea (promoting itself as the “first and largest marketplace
for user-owned digital goods”), Rarible, SuperRare and Foundation.
SAVE IMAGE AS…?
Perhaps the first question that springs to mind regarding digital art and its security and value, is the fact that since images can be viewed on a computer screen, what prevents someone from simply saving these images to their computer’s hard drive? How does an NFT help in this scenario? The answer to this quandary is that aside from a unique identifier, NFTs consist of metadata: extra information describing the artwork. This information is critical, as it often contains a link to a file, which could be an image, music or text format file. Large files are stored
“off-chain.” Smaller pieces of metadata may be stored “on-chain.” What does this mean? Having metadata on-chain means that the metadata persists alongside the NFT identifier, as long as the particular blockchain persists. Off-chain metadata entails storing metadata on a web-server, in the “cloud,” or using the InterPlanetary File System (IPFS), which is a
globally distributed peer-to-peer file storage system. Because of storage
restrictions on the Ethereum blockchain, and the expense of storing data on-chain, most digital art metadata is stored off-chain. IPFS is often used, which prevents modifications to metadata and potential breaking of the link to the metadata. Instead of locating metadata at a particular domain,
metadata at an IPFS address can be found if at least one node on the IPFS network is hosting it. IPFS pinning services can be used to ensure that metadata persists into the future.
SMART CONTRACTS
Depending on the way a smart contract has been coded, ownership, copyright and reproduction rights of the artwork can be retained by the
artist, or these rights can be transferred upon sale to a new owner. Other functionality that may be included in a smart contract are royalties paid to the original artist upon re-sale of the artwork. Percentages can also be stipulated. For example, upon future sale of an artwork, a smart contract could transfer 10% of the sale price to the original artist. Artists do not typically receive royalties when their art is re-sold. Mechanisms such as these are greatly empowering for artists, ensuring that they are adequately compensated for their work.
THE FUTURE
In many ways, NFTs level the playing field, allowing for artists to create tokens of their art and potentially reach a global audience. Without the need for physical galleries to display their work, artists have the ability to sell their work in digital marketplaces, and be immediately compensated in cryptocurrency for their efforts. This cryptocurrency can be exchanged
for fiat currency if desired. The potential to receive royalties on future sales, is a mechanism which greatly enhances the benefits that NFTs provide for today’s artists.