It has always been notoriously difficult for digital artists to earn income from their work. As copies of digital art can easily be replicated, it is very difficult to sell.
However, the digital art industry is being revolutionized by the rise of NFTs, or non-fungible tokens, which allow the owner of a particular digital art to verify that they are the original owner of the item. This has helped facilitate a market for NFTs, which exceeded USD 300 million in 2020.
How do NFTs work?
An NFT is a unique digital token run on mainly the Ethereum blockchain. The token is usually associated with a copy of digital art, music album, or any other digital file. The token then uniquely identifies that the owner of the NFT is the original holder of the file.
This process is facilitated through the Ethereum blockchain’s ledger, which records who owns which one. The non-fungible aspect of NFTs mean that they cannot be traded or exchanged for each other.
For example, one US dollar can always be exchanged for another US dollar. They are identical. However, due to the digital signature of NFTs, they cannot be exchanged for each other. Although NFTs can be used for any digital file, they are currently predominantly used in the digital art market.
Does owning the NFT mean they own the digital artwork?
No. Owning the NFT simply allows the owner to identify that they are the owner of the original copy of the artwork. However, the creative rights over the piece of art are retained by the artist, who has control over where it can and cannot be used.
Why do people buy NFTs, and why do sellers sell them?
Although buying an NFT does not make them the owner of the digital art, it enables them to verify their status as the owner of the original digital work, and allows them to monetize it. This is significant as it was previously difficult for artists to be paid for their digital work, due to non-excludability.
People could once conveniently make a copy of the digital art, and use it themselves. However, with NFT’s, more people are willing to purchase digital art as they can now become the original owner of the work.
Sellers, on the other hand, have more incentive to produce digital art as there is increased demand for it. NFTs have also created a transparent marketplace for smaller sellers to sell their digital work.
Which famous NFTs have been sold?
The first tweet. The CEO and founder of Twitter, Jack Dorsey, sold the first tweet ever made on the platform (written by him) for a hefty 2.9 million USD. This demonstrates how NFTs are able to commodify things that were previously impossible to sell.
The most expensive NFT ever sold is by an artist known as Beeple, who compiled his first 5000 pieces of digital art work into one piece and sold it through the auctioneer Christies. This ended up selling for a staggering 69.3 million USD.
Another notable NFT which recently sold for over half a million USD is the Nyan Cat. In February 2021, an animated GIF of the cat sold for $561,000, making it the first ever meme to be sold as an NFT.
Is NFT a new cryptocurrency?
No. Whilst NFTs have the function of uniquely identifying artwork, cryptocurrencies are generally used for transactions. NFTs therefore make use of the blockchain technology, and not cryptocurrencies.
Is it a bubble?
The tulip mania in 1637 is one of the most famous examples of a bubble, as one tulip was selling for the equivalent of a house at the time. However, this all came crashing down.
It is speculated that the NFT market could also be in a bubble. After all, how can simply having a token validating original ownership be worth so much? Another concern is the cryptocurrency market as a whole is also in a bubble. If it crashes, then NFTs, which are run on the Ethereum blockchain, will also see its value plummet.
It is difficult to determine if NFTs are in a bubble, as its underlying technology has use, but it may have been inflated because of its correlation with cryptocurrency markets. A price correction may reduce its value temporarily – sales of NFTs have dipped by almost 90% over the past month – but it is widely speculated that NFTs have transformed the digital art market forever, and are here to stay.
NFTs have altered the way the digital art market operates, and regardless of the speculation about it being a bubble, its technology and use will continue to have a positive impact on the arts industry.