Thursday, April 29, 2021

What's an NFT for art? Plus why artists should be wary of the latest bubble

I'm pretty sure my view about NFTs includes perspectives related to "the Emperor's New Clothes", the "South Sea Bubble", the "dot.com boom" and tulipmania.

In other words excessive speculation often leads to very big losses - of dignity, reputation or cash!

Just because something is the latest thing and there seems to be a furore about it doesn't make it any good!

So here's a quick run-down on NFTs - plus links to a list of articles on the topic as follows:

  • What is an NFT
  • Why are people excited about NFTs?
  • Why artists should be wary of NFTs
  • Recommendations for artists
  • List of articles about NFTs - from authoritative and other sources
Screenshot of the Christies's website  - and the sale of Beeple's 5,000 images of Everydays

 

What is an NFT?

NFT stands for "non-fungible token". Let's take that apart word by word.
  • "Non" means it isn't one i.e. it's not the same as a fungible token
  • "token" means a voucher that can be exchanged for goods or services
Which leaves us with "fungible". 

"Fungible" means that the object or 'thing' or 'token' so described (e.g. money or gold bars or bitcoins or barrels of oil) can be replaced by the same type and quantity of 'thing' when paying a debt or settling an account. In other words 
  • one gold bar is the same as another gold bar.
  • one £10 note = two £5 notes
So that means "non-fungible" must mean that it's unique and not interchangeable. 
In other words it can't be replaced with something else of equivalence.

For example there is only one Cullinan Diamond. There are other diamonds, but there are none which have the same number of carats, the same quality of brilliance and the same cut. 

There is only one of some paintings. (i.e. while each painting is unique, some artists have muddied the waters by creating more than one or used the same title for more than one painting).

It's thought that the momentum around NFTs for art stems in part from the sharing of images without any regard to copyright or attribution - on platforms like Tumblr and Pinterest.

Maybe people thought that if sharing is for free maybe we can make some money out of this?
 
The NFT seems to have arisen in connection with digital art because unlike some other forms of art, there can - in theory - be infinite numbers of the same digital file. 
 
So there's a need for a token that says this file is the only one and/or the first one and/or one of a limited edition - whatever the artist chooses.
A non-fungible token is a unit of data stored on a digital ledger, called a blockchain, that certifies a digital asset to be unique and therefore not interchangeable. NFTs can be used to represent items such as photos, videos, audio, and other types of digital files.
Wikipedia

However, there is one big issue - which is you don't get the artwork. 

Instead, they get a unique digital token known as an NFT which records ownership of the digital artefact in a blockchain (like with bitcoins / cryptocurrency).

This part of the BBC article on this topic explains it most clearly

What's stopping people copying the digital art?

Nothing. Millions of people have seen Beeple's art that sold for $69m and the image has been copied and shared countless times.

In many cases, the artist even retains the copyright ownership of their work, so they can continue to produce and sell copies.

But the buyer of the NFT owns a "token" that proves they own the "original" work.

Some people compare it to buying an autographed print.

So there you go. You're paying out to say you own the first version. 

Why are people excited about NFTs?

 
Basically because of this  
 
 
WATCH a video of an artist see a digital artwork of his digital artwork sell for over $69 million at Christie's.

 
 
In March, an artwork made by Beeple (real name Mike Winkelmann - a graphic designer from Charleston, SC, USA who creates digital art in a variety of media) sold at Christies for $69 million
 
As he indicates above, a lot of people have all of a sudden got interested in digital art. Mind you - take a look at Beep's daily digital art - it's obviously superior to a lot one sees around.
A digital-only artwork has sold at Christie's auction house for an eye-watering $69m (£50m) - but the winning bidder will not receive a sculpture, painting or even a print.
What are NFTs and why are some worth millions? | BBC

This is its listing on the Christie's website

Listing on the Christie's website - where you can see it for yourself
 

The characteristics of the artwork were that:

  • Title: "Everydays: The First 5,000 Days" 
  • Created: "Minted on 16 February 2021"
  • Description:
    • token ID 40913
    • size of image: 21,069 x 21,069 pixels
    • size of digital file: 319,168,313 bytes or 319 megabytes
    • it represented a collage of images that the artist had made every day between May 1st 2007 - January 7th, 2021. ⠀
  • Payment - was also digital and "interesting" - see below. Find out more about Ether
Please note that you may elect to make payment of the purchase price for this lot in the cryptocurrency Ether. Payment in Ether must be made via a digital wallet transfer of Ether to Christie’s. The digital wallet must be maintained with Coinbase Custody Trust; Coinbase, Inc.; Fidelity Digital Assets Services, LLC; Gemini Trust Company, LLC; or Paxos Trust Company, LLC. Only Ether payments sent from digital wallets maintained at these platforms will be credited towards this lot purchase, and we will not recognize payments from digital wallets hosted at other exchanges or self-hosted wallets. etc. etc.
  • Maker: Beep credits Makersplace as being the people who created the digital artwork.
The price realised at auction at Christies's was USD 69,346,250.

Subsequently there has been an auction of non-fungibles by Sotheby's via


The Fungible Collection

The Fungible collection by digital artist Pak is a pinnacle of creative technological experimentation through the lens of fine digital art. By leveraging blockchain technology and non-fungible tokens (NFTs), The Fungible not only provides collectors with novel assurances of scarcity and ownership, but exposes them to the unique features with which technology can endow artwork. Through this collection, Pak scrutinizes our understanding of value. What does value mean, and from where does it derive authority? Core to the collection is the Open Editions, which allow collectors to purchase as many fungible cubes as they wish during the sale period for a fixed price. As the collection reveals itself over the course of the sale, Pak continues to challenge the collector community with this question of value while simultaneously providing a unique journey into and through digital art.
To my mind this is a prime example of artspeak by Sotheby's. 
 
To me it reminds me of pyramid schemes and reads as something along the lines of "we're trying to find out how much you are prepared to pay for something which says it's unique - but might actually have no obvious tangible value". 
 
Check out what the punters were bidding for. 
 
There are also various art galleries trying to work out how they can sell digital art as non fungible tokens. 

Plus we're seeing the first obvious fraudulent activity associated with NFTs - when people try to sell an NFT for a digital image of an artwork where the copyright clearly belongs to another party and no releae has been given.

So this is the beginning - but it's a very long way from the end of the beginning. There's a lot to sort out before this becomes a marketplace which seasoned art collectors will invest in.

 

Why should artists be wary of NFTs? 

 
Frankly, anything which does not have the confidence of art collectors in the regular market is not long for this world. (As Auctioneers and Artists Rush Into NFTs, Many Collectors Stay Away | New York Times).

That said there are a number of people rushing around the art market at the moment desperate to get in on the ground floor of "the next big thing" and make it a respectable form of art which serious art collectors will want to collect.

Which is why it reminds of me of all those bubbles of old. 

Lots of excitement and lots of activity does NOT make a marketplace for the long term.

I'm absolutely certain there's a market for digital art. 

There are also markets for anything which appears to have a value. 

However, do realise that certifying that something is unique and proving that it is unique are two different things. There are always good guys and those who are less than good operating in the artworld. 

Ask all those art collectors who bought so-called 'Andy Warhol lithographs' or works allegedly by Salvador Dali whether or not there is scope to pull the wool over the eyes of art collectors.....

What I detect at the moment is a marketplace which is akin to the "wild west". Those who make the laws and for sales and regulate markets - to make sure people (artists and art collectors) are not ripped off - have yet to put in appearance. They'll be along presently and then we'll see what they make of it.

 

RECOMMENDATION

So my advice to artists interested in digital art and the use of NFTs to market your art is:

  • be circumspect - do not rush in if it costs you money
  • keep the NFT marketplace for art under careful review
  • remember that markets need safeguards as well as places to make sales before people are happy to buy collectible art - and there are very few safeguards at the moment and there are some MAJOR legal and due diligence issues.
  • if it becomes respectable - as opposed to a bubble - that's the time to make the jump.  Anything before that is speculative at best and foolhardy at worst.

Go and look at the bids and sales for artwork on Makersplace if you want to decide what to do.

 

Articles about NFTS

 
If you want one reliable source for authoritative comment on NFTs right now, I'd go with The Art Newspaper. They've published lots of articles to date - you can see some below and will doubtless continue to do so.
 

Reputable Sources

The sudden and explosive arrival of digital art onto the art market has thrown a hand grenade into notions about price, quality and validation in the traditional market. This market—crypto art—was valued at an eye-watering $574.5m by one site in March this year. 

Sales for NFTs linked to art dropped from $16.7m to $12.5m—but experts say it's not a permanent dip  
With interest in non-fungible tokens growing fast, the legal questions are testing the experts
Bricks-and-mortar commercial spaces are bringing crypto art to life, "providing an experience beyond the artwork living on a cell phone”
Over 3,000 bidders purchased nearly 24,000 digital works in a three-day, multi-facted sale on Niftygateway
Similarities between the new digital technology craze in the art world and the surge in value of tulips in 17th-century Holland suggest that it could all end in (real) tears

Non-fungible tokens, or NFTs, are a type of cryptographic asset. That means it is a thing - the asset - that is guaranteed by cryptography - meaning mathematical codes that can't be broken. It might sound quite complicated, but it isn't as complex as it first seems!

A day before his record-breaking auction, Beeple - whose real name is Mike Winkelmann - told the BBC: "I actually do think there will be a bubble, to be quite honest.

"And I think we could be in that bubble right now."

Many are even more sceptical.

Auction sales show a schism in the market: speculative buyers flock to crypto art while blue-chip collectors hold back, fearing legal gray areas and copyright issues.

All common NFT platforms today share some of these weaknesses. They still depend on one company staying in business to verify your art. They still depend on the old-fashioned pre-blockchain internet, where an artwork would suddenly vanish if someone forgot to renew a domain name. “Right now NFTs are built on an absolute house of cards constructed by the people selling them,” the software engineer Jonty Wareing recently wrote on Twitter.
In 2021, there has been increased interest in using NFTs. Blockchains like Ethereum, Flow, and Tezos have their own standards when it comes to supporting NFTs, but each works to ensure that the digital item represented is authentically one-of-a-kind. NFTs are now being used to commodify digital assets in art, music, sports, and other popular entertainment. Most NFTs are part of the Ethereum blockchain; however, other blockchains can implement their own versions of NFTs.

 

    Other platforms

     

    Other relevant websites

    • NonFungible - lists the marketplaces for non fungible tokens and the value of transactions (i.e. one place to keep track of the volume of reported sales) Whether sales are audited and verifiable is another matter.
    • MakersPlace - one of the NFY marketplaces listed by NonFungible 
    Posted by Making A Mark on Thursday, April 29, 2021
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