NFTs: A Revolution in Art or Investment?
On March 11th 2021 Christie’s, New York sold its first entirely digital artwork. News in itself but to add to the story, it sold for $69.3 million – the third highest price reached for a work by a living artist – and the sale was made as a Non-Fungible-Token (NFT). Furthermore, payment was made by cryptocurrency – Ether, the first time Christie’s have accepted payment in this form.
It’s not surprising that this was headline news and the talk of the artworld. The term NFT entered common parlance and there was a buzz with art world professionals and investors alike.
The story has raised many questions, notably what does this mean for art buyers of the future and how will it reshape the art world?
Firstly, we may ask what is an NFT and how are they used in buying art?
NFTs first came to prominence in 2017 in the virtual world of the cartoon character crytpo-kitties and ‘collectibles’. They are digital assets that represent unique items that are not replaceable and can’t be traded ie: they are ‘non-fungible’. They are essentially a secure blockchain record. They contain ‘metadata’ that is processed to produce an algorithm which subsequently creates a unique 40-digit sequence of letters and numbers. Put more simply, the NFT is not the physical thing itself but a token of authentication of a digital asset. It is ownership of the original digital file.
Christie’s sold the digital artwork by Beeple (Mike Winkleman by his real name) who is arguably one of the most successful digital artists. The collage of images was created over 13 and a half years (beginning in 2007) and contains 5,000 unique images.
Anything digital, however, can be copied perfectly in its entirety which means in theory it is not entirely unique. Anyone can go online and screenshot an image of Beeple’s “Everyday’s: The First 5000 days”, which raises the question of why one would want to own the original? Furthermore, where is the value? Is it in the work itself or the technology of the Blockchain with the NFT being the asset? This in turn raises more fundamental philosophical questions around the value of art.
Regardless of the intrinsic or perceived value of digital art, the sale of Beeple’s work represents a seismic shift for the art world and is the start of restructuring the way art is bought and sold. This has the potential to create a better deal for artists. Art sold as NFTs is recorded on the blockchain ledger which can be coded with a direct link to the artist ensuring that they receive payment if or when an NFT is sold on. This however, could be problematic if NFTs are being used purely as a quick investment tool and a means of manipulating the market. It is perfectly legal for someone to buy, resell and promote the value of a digital asset providing they are not looking to immediately sell their investment for quick financial gain. In the case of this ‘anonymous’ buyer, he has declared he intends to hold on to his purchase.
Which brings us to ask who was the buyer of the NFT giving them the right to Beeple’s work? Unsurprisingly it was a crypto-investor who has previously bought works by Beeple using crypto currency and subsequently sold on “shares” in these works as fractional ownership of the crypto currency. (NB: Crypto currencies can be divided whereas NFT’s cannot.) By the time the buyer had paid his $69.3 million using Ether, the value of the crypto currency investments in Beeple’s other works had also increased. (Beeple himself reportedly also has a crypto currency stake in these other works.)
It is highly likely that as a result of this sale we will see a rise in the creation of digital artworks and a frenzy around NFTs with both art collectors and investors alike rushing to buy them. However, it might be wise to sit back and see whether this is a case of “The Emperor’s New Clothes” or a bubble that might burst. As an art collector, it is cautionary to consider the aesthetic value of the work as much as the intrinsic and investment value.
For now, NFTs should perhaps remain the preserve of the professional crypto-investor. The average buyer does not have a spare $69m to play with and as art should be a matter of taste, one ought to be able to live with and enjoy their purchase. Being stuck with an NFT that loses its value is likely to bring little joy.
Digital art is not new and takes many forms but whether this sale represents a revolution for the artworld is questionable. Arguably, the sale of art through NFTs has the potential to bring benefits to the art world as all digital work sold as an NFT is easily verifiable. The blockchain ledger means it can be easily traced to the original creator without the need for third party verification and all but eliminating the potential for fraudulent copies.
It is far more likely, however, that this is the spark that ignites the revolution or ‘gold rush’ around blockchain technology and it’s move into the mainstream; it may transform the way art is bought and sold rather than transforming peoples taste in art.