A simplified overview of non-fungible tokens.
The COVID-19 pandemic forced museums and art galleries to close which caused a considerable decline in artists’ revenues and employment, pushing them to seek new opportunities. The growing use of blockchain, both as subject and tool, allowed artists, collectors, and crypto-enthusiasts to revitalize a formerly technology reluctant market with non-fungibles tokens.
Distinguishable digital assets issued in Ethereum (EC-721), NFTs are characterized by unique features and hence not interchangeable. The decentralized platform values the tokens by preventing changes to the data thus preserving ownership rights and authenticity of the original artwork. Due to their many advantages, experts predict that NFTs will take over the whole Ethereum chain as the trading value of art NFTs rose from $2.6 million in November 2020 to $8.2 million in December.
NFTs ownership grants a digital (sometimes physical) artwork, along with other benefits and new properties earned over time, therefore its value can appreciate. For instance, Dazzle, India’s first NFT, lowers exchange fees and provides discounts on some services. NFTs are exchangeable without intermediaries and can serve as a speculative store of value, a value based on their rarity and digital scarcity ensured by blockchain, as well as social dynamics. Amongst others, social status acquired by the possession of exclusive items, such as the Rick and Morty NFT Art Collection auctioned for over $1 Million under five-minutes.
The crypto art market creates opportunities for both digital and traditional artists by providing new means of revenue and reducing traditional art market commissions. Artists use NFTs to monetize their work and engage with a larger audience – even without particularly understanding the underlying technology of blockchain. The former has reconsidered artists’ compensation by offering reselling shares to artists to take into account appreciation. The technology is liberating for some, as it drives a social movement that promotes the democratization of art because individuals of lower financial status can acquire fractional shares of artwork.
Another example of a successful NFT, sold at $101,100, is Matt Kane’s “Right Place & Right Time,” which changes daily based on bitcoin price volatility. In addition to the art piece, this productive asset provides the owner with a 21% revenue share as the piece generates new NFTs previously programmed. Simpler pieces were also sold at extraordinary prices such as the rare Pepe cards, or Lil Yachty’s exclusive content.
NFTs are highly affected by market volatility. As BTC and ETH recently reached historic highs, the current liquidity will boost NFT investments. On the other hand, easily affected by speculation due to wash trading, price imperfectly reflects the worth of digital artworks as shown by their quality disparity. Fortunately, as collectorship culture grows, speculators are recognized and isolated, hence stabilizing market prices and their reliability. However, NFTs are weakly scalable, high transaction fees, and slow transaction time, are accentuated by the fact that each token has its own market.
Despite these issues, Crypto art attests to Ethereum’s potential as a platform to manage intellectual property. NFTs offer significant opportunities to both investors and entrepreneurs across various industries, and just like art, the use of NFTs is only limited by imagination.