When auction house Christie’s sold an entirely digital video clip by the artist Beeple for $69 million in early March 2021, headlines erupted. And the topic of non-fungible tokens, or NFTs, began to trend.
Yet this high-profile sale wasn’t just a blip on the radar. Research showed that in 2020, total NFT transactions quadrupled in value from the previous year. They’ve been widely used for collectibles of all sorts, and now the art world is seeing a boom in this market.
The average person might be enticed by the opportunity to get in early and make a quick profit. But artists, art collectors, and enthusiasts, in general, are in it for the long haul. Does the rise of NFTs herald a significant industry change?
We take for granted the convenience of online personal banking services today. But these didn’t arise immediately after the Internet was established. Among other things, financial institutions needed to verify and secure transactions.
The development of cryptocurrencies like Bitcoin took far longer. In a nutshell, what these digital currencies offer is security without the need for a centralized authority. Using a technology called blockchain, they create and continuously update an immutable record of transactions.
This premise of immutability is what makes NFTs possible. Purchasing digital art with an NFT creates an immutable record of your ownership, something that isn’t otherwise possible in a medium that can be copied indefinitely onto other devices.
For many people, the reaction to Christie’s sale was tied to perceptions of overblown value. $69 million nearly cracks the inflation-adjusted list of the most expensive sale prices for paintings, including many works by the old masters.
Yet art appreciation is subjective, and its valuation even more so. For all the criticism, Beeple’s video can’t be faulted for lack of effort: it documents 5,000 images the artist created since May 2007.
Maybe the price point was still disproportionate to the skill involved, but it’s not as egregious an offender as the $600,000-valued Nyan Cat meme, for instance. You’re paying that for the bragging rights to something that anybody can copy and download.
This is the common cause of the layman’s outcry. Crypto-art too often looks like something any kid could create, or at least literally rip off the internet. It’s the market forces that are superficially propping up these eye-popping prices.
You’d do well to question the sustainability of this boom, as well as who really profits from the pyramid-like structure of the setup.
Other criticisms are aimed at the underlying technology. As with anything online, NFTs can be stolen by hackers. Their rising profile and value have already made them attractive targets. Once stolen, it’s unlikely that users can recover those assets or receive assistance from the respective platforms in doing so.
The mining activities behind cryptocurrencies are notorious for consuming the equivalent of a small country’s electric consumption. That’s often a deal-breaker for any art enthusiast who also cares about the environment.
Still, it’s worth examining the underlying system free from the hype.
Through NFTs, artists can earn a percentage from each sale. This is unlike the real world, where the artist’s share in the profits is limited to the initial transaction, even if their work subsequently appreciates.
For collectors, the digital-only process makes the transaction simple. Ownership is clear and easily established. New marketplaces are opened as the line between fine art and collectible items gets blurred.
A matter of time
None of this takes place without context. You’d do well to evaluate the NFT craze in light of what’s been happening recently.
We’re still deep into the lingering effects of a pandemic. This means that more people have been confined to their homes, effectively living online, and limited in their options to spend disposable income. These factors can inflate both the spending on NFTs and attempts to create low-quality crypto-art.
These uncertain times have also encouraged more people to take financial risks and fall prey to get-rich-quick schemes.
Less than two months earlier, amateur investors on Reddit drove a surge in GameStop shares’ prices. Some hedge funds faced substantial losses, and a few people managed to get off the ride early enough to pocket their profits. Yet in the end, the system won: Wall Street gained from all the activity.
It may be a cop-out to say that time will tell when it comes to the staying power of crypto-art. But it’s also just sensible advice.
There may be some long-term promise in this new hybrid of art and technology. Right now, the scene is too speculative. Cryptocurrencies themselves are too volatile. If you’re dedicated to art, don’t make it a gambling affair.