ALL ABOUT NFTS

By Bryant Frazer

April 19, 2021

How Cryptocurrency Has Enabled a New Market for Unlikely Works of Art

The collectors’ market for digital artwork has surged this year with the widespread embrace of non-fungible tokens, or NFTs — a way of using the same blockchain technology that enables the existence of cryptocurrency to authenticate the status of a physical or digital asset. An NFT can represent digital drawings, paintings and photos, animated GIFs, musical recordings or even social-media posts. It’s trivial to make a perfect digital copy of any of these things, but only the individually identifiable NFT version, which is tracked immutably on the blockchain (an open ledger of transactions that are easy to reference but difficult to manipulate) is designated as the original, collectible piece.

For digital artists, the implication was clear. Rather than outputting their work onto prints or posters or loading them onto digital displays for sale, a creator working in a digital medium can use an NFT to designate a purely digital original of their work that can be bought, sold and traded as an authentic, irreplaceable piece of art, like an original canvas signed by Picasso or a limited-edition lithograph authorized by Warhol. Advocates see it as a way for digital artwork to reach parity with physical art as a sought-after collectible.

This isn’t pie-in-the-sky thinking. The NFT market is here, it is roaring, and big money is being made. But it’s not all sunshine and roses. Some artists are troubled by the outsized carbon footprint of cryptocurrency platforms like Ethereum, which underlies most NFT marketplaces. Security experts are concerned about potential attacks on the integrity of the blockchain, which may become more likely if the NFT market expands. And some observers caution that the NFT market seems already to be on the back end of a boom-bust cycle after a huge surge in interest earlier this year.

Anyone can embed or otherwise copy and distribute this early tweet by Twitter co-founder and CEO Jack Dorsey, but only crypto tycoon Sina Estavi, who paid $2.9 million for it at auction, can claim ownership of the authenticated, creator-verified NFT…
Anyone can embed or otherwise copy and distribute this early tweet by Twitter co-founder and CEO Jack Dorsey, but only crypto tycoon Sina Estavi, who paid $2.9 million for it at auction, can claim ownership of the authenticated, creator-verified NFT. (Dorsey says he forwarded the proceeds to GiveDirectly’s Africa Response charity.) Source: Twitter



How huge? The NFT market peaked in March, when Mike Winkelmann, better known by his fans as Beeple, sold Everydays: The First 5000 Days — a collage of 5,000 different digital images in JPG format that measured 21,069 x 21,069 pixels — as an NFT through Christie’s for 42,329 Ether, or more than $60 million. (That’s not the highest price a piece by a living artist has ever fetched, but it does put Beeple in the top three.) Twitter CEO Jack Dorsey went retro, selling an NFT of his first-ever tweet, a five-word missive dating back to 2006, for a cool $2.9 million. Musician Grimes and her brother, Mac Boucher, made around $6 million from their “WarNymph” collection of trippy visuals set to original music — not a bad take in the Spotify economy.

A collectible dunk from Lebron James is up for sale on the NBA’s Top Shot marketplace. Source: NBA Top Shot website
A collectible dunk from Lebron James is up for sale on the NBA’s Top Shot marketplace. Source: NBA Top Shot website



Beeple certainly benefited from his association with Christie’s, maybe the most famous name in art auctions. But the traditional art auctioneers aren’t in the driver’s seat where NFT sales are concerned. Instead, a variety of venues have sprouted, catering to different audiences with different sensibilities. OpenSea bills itself as simply “the largest NFT marketplace.” Rarible lays claim to being “the first community-owned #NFT marketplace,” meaning users earn “governance tokens” that give them a voting interest in how the platform is run. The NBA has entered the fray with NBA Top Shot, a website that updates the concept of trading cards by allowing users to lay claim to key moments from the basketball court. (A lay-up by Denver Nuggets star center Nikola Jokic goes for as much as $5,422, and a spectacular dunk by LeBron James has changed hands for $210,000.)

And sex workers, who have typically been locked out of mainstream e-commerce platforms, are getting in on the action while they can. One erotic artist, PolyAnnie, told TechCrunch she has earned more selling NFTs on Rarible than she earns in a year on platforms like OnlyFans and Patreon. Ironically, the market for adult-themed NFTs, which face special legal burdens (like verifying the ages of those involved with the art, as well as those purchasing it), is likely to become more and more restrictive if NFTs themselves move into the mainstream.

But for the time being, NFTs are an undeniable boon for digital artists who have gained a new revenue stream that connects them directly with fans and patrons. Other advantages may not be so obvious. For one thing, the nascent NFT marketplace offers a rare opportunity for artists to claw back some protections that are not afforded them by current copyright laws. For example, an NFT can be created with the stipulation that a percentage of each resale goes back to the artist. If you buy a Beeple for $69 million and manage to flip it a few months later for $100 million, Beeple himself may be entitled to 10% of that subsequent purchase price, ensuring him residual income every time one of his NFTs changes hands. Again, all such transactions are safely tracked on the blockchain, making any such transfer of ownership a matter of public record. Think of it as a workaround for American copyright law, which features a “first-sale doctrine” requiring no royalty payments when a piece of physical art is sold.

The Internet-famous Nyan Cat recently sold at auction for $600,000. Source: Printmag.com
The Internet-famous Nyan Cat recently sold at auction for $600,000. Source: Printmag.com



Speaking of copyright, it’s important to understand the copyright status of NFTs. Think of Nyan Cat, a wildly popular animated image that features a cartoon cat with a Pop Tart body flying through space with a rainbow trailing behind it. Nyan Cat debuted on YouTube in April 2011, but it wasn’t until 2021 that creator Chris Torres minted an NFT edition of Nyan Cat that sold in February for nearly $600,000. What did the buyer get for their money? Well, they don’t own Nyan Cat. The copyright in an image remains with its creator, even if ownership of the image itself has been transferred via NFT. Think of it this way: if you buy a page of original art from a Superman comic book, you own that physical drawing, but DC Comics will shut you down if you try to sell mugs or posters featuring that artwork. It’s the same with an NFT, where you may “own” the digital artwork, but the artist retains copyright control.

Caption: Artist Amrit Pal Singh jumped into the market with samples from his existing Toy Face Library that he put up for sale as NFTs. He says the NFT community is about more than just buying and selling art.

Artist Amrit Pal Singh jumped into the market with samples from his existing Toy Face Library that he put up for sale as NFTs. He says the NFT community is about more than just buying and selling art. Source: amritpaldesign.com
Artist Amrit Pal Singh jumped into the market with samples from his existing Toy Face Library that he put up for sale as NFTs. He says the NFT community is about more than just buying and selling art. Source: amritpaldesign.com



For 3D artist Amrit Pal Singh, NFTs came along at exactly the right time. During the COVID pandemic, he began building what he calls a Toy Face Library — button-cute representations of a diverse world population rendered from the shoulders up as tiny toy figures. He sells them as a growing assortment of 120+ 3D avatars for a flat fee, and he takes commissions for custom Toy Face portraits when he can spare time. When the NFT market blew up he jumped in head-first with some special Toy Faces that fetched nice prices at auction, including representations of Vincent Van Gogh ($7,350), Frida Kahlo ($7,750), and even a post-breakup Daft Punk duo ($13,900 and $15,800).

Singh benefited from being an early adopter, but some are already wondering if the crypto-art market amounts to a bubble that is already deflating. Citing figures from market-tracking site NonFungible.com,  Observer noted that sales volume and average prices have dropped dramatically since the market peaked in late February. Artists like Singh, who’ve been buoyed by the levels of support they’ve found in the NFT market, consider that sort of analysis premature. I understand why people might be apprehensive at first," Singh said. “But once you’re in the [NFT] community, you see that it’s full of artists supporting each other, collectors investing in something other than stocks, and people who want to keep their crypto-currency savings in the metaverse …. NFTs have introduced a lot of new things, but they can also push for a better copyright and authentication system and a better trading system for art. It has money and a collector base behind it, so there are a lot of good things happening in the space.”

Not everyone is enthusiastic about the new digital marketplace, and it didn’t take long for the establishment’s knives to come out — see, for instance, critic Ben Davis’s comprehensive post-auction takedown of Beeple’s art, which he dismisses as “decade-old, BroBible-level brain farts.” And some artists claim to remain confused by the whole development. Asked about NFTs by the hosts of the Waldy & Bendy’s Adventures in Art podcast, David Hockney — whose Portrait of an Artist (Pool with Two Figures) set the record for the highest price ever fetched by a painting by a living artist when it sold for $90.3 million in 2018 — described the marketplace as “international crooks and swindlers” before claiming a lack of interest in the subject. “I’m not looking for money … I’m just working away on my iPad, and we print them out because you have to print them out if you do it. Things can get lost in the computer, can’t they? And they will, in the future, get lost in the computer for sure.”

Some are warning that the current NFT standard is flawed because NFTs don’t typically contain the actual art they refer, but rather include a pointer to a location where that art lives on the Internet. (It is expensive to store data on the blockchai…
Some are warning that the current NFT standard is flawed because NFTs don’t typically contain the actual art they refer, but rather include a pointer to a location where that art lives on the Internet. (It is expensive to store data on the blockchain.) If the company hosting the art goes out of business, the “original” artwork could vanish entirely. Source: Twitter



Hockney sounds a little bit cranky in that interview, but he makes a cogent point. Anyone who works with digital media knows how hard it can be to actually keep track of the location of various assets — video footage, still images, subtitles in text-only format — while they work on a given project. The fact that every NFT is tracked seems to mitigate the chance of ever losing track of them, but it turns out there’s a weakness in the blockchain: the NFT record for an image doesn’t include the image itself, but merely points to an Internet URL where the image may be found. And if that URL goes down, or the company hosting it (often a start-up) goes out of business, what happens to the broken link on the blockchain? Software engineer Jonty Wareing created a stir by pointing this out on Twitter: “Right now NFTs are built on an absolute house of cards constructed by the people selling them,” he wrote.

That tension between the real world and the virtual world — the confusion over whether a work of art really exists if it hasn’t taken on tangible, physical form — has led some creators of NFTs to figure out ways to attach some kind of real-world token to their art. After Saturday Night Live aired a comedy sketch in which an Eminem-impersonating Pete Davidson asked the musical question, “What the hell’s an NFT?” the show minted an NFT derived from a 10-second clip from the broadcast and packaged it with two tickets to an SNL taping. It sold for nearly $370,000. (Proceeds are being donated to nonprofit organization Stop AAPI Hate.) And Kings of Leon released a new album as a limited-run NFT last month; some of the NFTs include a lifetime “golden ticket” guaranteeing the holder front-row seats at Kings of Leon shows and special merchandise bags. NFT sales alone netted the band over $2 million, according to NME.

This authentic print by Banksy turned out to go up in value after the physical art was burned and replaced by an NFT of a digital copy. Source: YouTube
This authentic print by Banksy turned out to go up in value after the physical art was burned and replaced by an NFT of a digital copy. Source: YouTube



But not everyone thinks it’s a good idea to try to increase the value of NFTs by tying them to tangible rewards, instead arguing for a push to establish the value of entirely virtual art. A blockchain firm called Injective Protocol made a digital copy of a physical print by Banksy valued at $95,000, minted an NFT from the digital copy, then set the original print on fire, live-streaming it from a Twitter account called BurntBanksy. “If you were to have the NFT and the physical piece, the value would be primarily in the physical piece,” a representative of BurntBanksy explained on camera. “By removing the physical piece from existence and only having the NFT, we can ensure that … no one can alter the piece and it is the true piece that exists in the world. By doing this, the value of the physical piece will then be moved onto the NFT.” Sounds dubious, but it worked — the group flipped the NFT for more than $380,000.

Singh said he can understand the impulse to include a physical item — perhaps a high-quality digital print of the artwork, or eventually a holographic version that can be displayed in perfect fidelity on digital displays of the future — to make NFT transactions feel more real to buyers who haven’t fully embraced the metaverse. But he hopes it won’t be necessary in the long run. “Some people want to tie NFTs to the real world, but others would be fine with them existing digitally,” he says. “Those are the same people who are OK buying a player skin or some other asset in a videogame. They don’t need anything tangible to understand the idea of ownership. I think this kind of physical-and-digital item would point the way toward all digital, and eventually we will be OK with it existing totally digitally.”

It’s hard to say at this point what the future holds for NFTs. A commonly cited drawback to NFTs is their outsized carbon footprint. Most NFT marketplaces use Ethereum, which is a power-hungry system that requires users to perform complex computations before being allowed to add information to the blockchain. (One effect of those energy demands is that it makes it much less profitable for hackers to attack the system or attempt to manipulate records.) By some estimates, Ethereum uses enough energy in a year to provide electricity to a country the size of Libya. That has some artists concerned, especially those who rail against the kind of pollution that leads to climate change — digital art marketplace ArtStation announced an NFT platform and then canceled it within hours after receiving negative feedback about crypto’s effects on the environment.

Ethereum is working through an overhaul of the system that promises to dramatically cut the energy consumption of transactions, but the change has been difficult to implement for a number of reasons, one of them being security.  Speaking of which, another disadvantage of the crypto marketplace is that its users are subject to the same hacking and phishing attacks as any other online community. In March, the Nifty Gateway platform admitted that NFTs had been stolen from a “small number of users.” (Nifty Gateway said it hadn’t been hacked, and those users’ passwords had apparently been compromised.)

The NTF fund Metapurse, financed by crypto-entrepreneur Vignesh Sundaresan, built a virtual museum to showcase Beeple’s record-breaking Everydays: The First 5000 Days along with more of the artist’s NFTs. Source: The Metapurser
The NTF fund Metapurse, financed by crypto-entrepreneur Vignesh Sundaresan, built a virtual museum to showcase Beeple’s record-breaking Everydays: The First 5000 Days along with more of the artist’s NFTs. Source: The Metapurser


In addition to technical and operational issues, there’s a real question about how broad-based support for NFTs really is, and whether the market is poised for growth. To date, much of the financial action has been driven from the inside, by members of the cryptocurrency community who have a vested interest in the success of crypto-enabled technologies. For example, that tweet by Jack Dorsey was purchased by Sina Estavi, the CEO of Malaysian blockchain start-up Bridge Oracle. And the anonymous bidder who made that historic purchase of Beeple’s $60 million NFT turned out to be Vignesh Sundaresan, an Indian entrepreneur living in Singapore who’s been involved in the crypto-currency market since 2013. Sundaresan identified himself, he said, to advance an idea about how crypto can help previously marginalized global markets compete on the world stage: “The point was to show Indians and people of color that they too could be patrons, that crypto was an equalizing power between the West and the Rest, and that the global south was rising.”

It’s fine for a few crypto tycoons to push millions of dollars around to put a spotlight on NFTs as an advertisement for blockchain technology, but if NFTs don’t retain their value over time it’s hard to imagine a mature market developing — at least not at the eye-watering price points that have grabbed headlines to date. But interesting ideas are floating around about how to make NFTs more desirable and dynamic for collectors, perhaps by gamifying them in ways that are designed to make values rise and fall over time. Imagine a virtual sports trading card that tracks the player’s stats in real games and uses that performance to add rare attributes to the card or even mint new NFTs commemorating special achievements, or an NFT tied to a celebrity or notable expert in a given field that gives the owner the right to ask that person a question, or converse with them for a set period of time. What about an NFT that comes with a promise by the artist to update it over time, delivering a new painting, photograph or holographic image on a daily, weekly, or monthly basis? A smart strategy that evolves NFTs in a way that makes collecting them feel fun and surprising — or even addictive — could keep the market relevant for years to come.