Authenticity and scarcity have always mattered in the art market.
With the proliferating blockchain technology underpinning the crypto world, an estimated $1bn market for non-fungible tokens (NFT) has seemingly come out of nowhere.
Early this month, a digital artwork was sold for nearly $70mn at Christie’s, in the first ever sale by a major auction house of a piece of art that does not exist in physical form.
The artwork by American artist Mike Winkelmann known as Beeple, exists in NFT form, meaning that it is authenticated by blockchain, which certifies its originality and ownership.
In February, a 10-second video clip known as “Crossroads” by Beeple was auctioned for $6.6mn. An animated image of a flying cat leaving a rainbow trail went for almost $600,000 that same month.
NFTs are digital certificates of authenticity: A unique, irreplaceable identifier created by an algorithm.
When an artist wants to sell a work, they create, or “mint,” an NFT that will from then on stand as a digital claim on ownership for the piece. NFTs are registered on open blockchain ledgers, making it possible to track ownership, prior sales prices and the number of copies in existence.
The security provided by blockchain technology means that selling fake tokens is all but impossible, which can’t always be said of physical works even of famous artists.
NFTs can be used for anything, including physical objects.
There’s also a burgeoning market for sports collectibles.
Manchester City have launched their own NFT fan token that will allow supporters around the world access to VIP rewards, club promotions, games as well as augmented reality-enabled features.
The best moments for the NBA’s biggest stars have been sold on NFT market for hundreds of thousands of dollars.
Even digital assets like tweets can be sold as NFTs. Twitter co-founder Jack Dorsey has put an NFT representing the first message on the platform (“just setting my twttr”) on the auction block.
NFTs are also being developed for more utilitarian uses. Walmart uses the technology for managing the supply chain for the food it sells. In real estate, by putting NFTs representing titles on a blockchain, the need for title insurance could be made obsolete.
There are downsides, for sure.
Since not every technology sticks around, blockchain could potentially go down and theoretically orphan a slew of NFTs. As with anything that lives on the Internet, getting hacked is an ever present threat. If proper security precautions aren’t taken by exchanges or the owner of the NFT, they could wake up to an empty wallet one morning.
While blockchains solve the problem of trust with their open ledgers, they don’t prohibit people from trying to pass off another artist’s work as their own. There’s also the concern about the massive amount of energy that is expended to power blockchains.
NFTs appeal to the human desire to collect rare things vis-à-vis technology that defines all aspects of human lives. The clear-and-present market is now capturing the imagination of artists and blockchain enthusiasts all over the world.
