What are NFT’s? What kind can of value can they bring to artists, and why it is democratizing art
Me neither, never in a hundred years. But here we are. Recently, digital artist Beeple became one of the richest living artists. He sold his artwork, consisting of one drawing for 5000 consecutive days. It fetched over $69 million.
It’s still very early though. A survey of 1,948 people that was recently released, found that only 27% of Americans are very or somewhat familiar with the concept of NFT’s. Men, millennials, and the wealthy were overall more aware.
In 2020, the market cap of NFT’s grew by 300%, bringing its total value to over $250 million. In 2019, the overall market cap of NFT’s was only worth $62 million. Can you imagine? Beeple’s NFT sale alone was higher than the whole market cap of NFT’s in 2019. I think that says a whole lot about the popularity of non-fungible tokens.
Fungible vs non-fungible
Let’s start with fungible. What does it mean? Basically, fungible means that the units are interchangeable, each unit is indistinguishable from the other. Take currency for example. A dollar bill is always worth $1, and all the 1$ bills are the same. You could also trade a combination of four quarters, and that would add up to $1, and it would be the same as the $1 bill. Let’s take another example, one gallon of gasoline at Exxon is the same as one gallon at Chevron. A grain of rice is the same as another grain of rice, and etc.
When something is not fungible, it just means that is it not interchangeable. The best example of this would be land. An acre of land in Manhattan, New York is not equal nor interchangeable with an acre of land in the Arizona desert or freezing Alaska. Even though both lots encompass the same amount of land (1 acre) they do not and will never have the same value.
Another great example would be art. Just because two paintings are of the same size that doesn’t mean they have the same value. Let say you were in possession of the Mona Lisa and you loaned it to the museum. You would not be okay with them returning any other painting than the one you lent, merely because it was the same. You would expect to get back the same painting you loaned out in the first place.
This makes art a non-fungible asset. A non-fungible token is something that represents the ownership of an asset that is not interchangeable with another.
(1) NFTs improve transparency. Blockchain technology helps to enhance data traceability and improving security. The sellers will no longer know more than the buyers in transactions.
(2) NFTs level the playing field. A traditional art market is monopolized by a few at the top. If you’re not a painter or sculptor, you have a very slim chance of making it. With NFTs, artists from different backgrounds and genres can participate in the art investing community.
(3) NFTs are digitalized. Unlike paintings, they don’t require the same level of human and financial resources for storage or transportation. This will change how we appraise art going forward.
Art often holds value or even appreciate
But for the artist himself, the secondary market doesn’t bring him any value. Non-fungible tokens aim to change the whole paradigm. Enabling artists to get a percentage off of a sale every time that their artworks are resold on the market. Not only that but as with crypto, enabling people to bypass banks entirely, artists in the future will be able to list and sell their artwork on their own with ease, bypassing the middleman that is the auction house.
In the past, auction houses were caught using ghost bidders and other tactics to drive the price of art up. And the same applies here, And I guarantee some NFT artists are doing just that. Fortunately, transactions that are carried on the open ledger, whether on the Bitcoin or the Ethereum network, are easily trackable. Either way, it empowers the artists more than the usual benefiting middlemen, the greedy auction houses.
There are transaction fees and systems in place that try to combat this shady practice. But the system isn’t perfect. As it’s always difficult to determine the true value of an artwork. Perceived value and scarcity are usually the driving forces that determine a piece of art’s value. Ultimately, something is worth as much as someone is willing to pay for it.
Capturing more value
Being able to monetize content via proof of ownership, on a distributed ledger, enables artists to capture more value that is owed to them. It completely removes the middleman from the equation.
While the hype around NFT’s has been getting bigger and bigger and is still much in infancy, and some people might be abusing it, there are multiple real use-cases for non-fungible tokens, as shown by the popularity of NBA’s TopShot.
The low fees associated with the minting of NFT’s makes it easier and less risky for independent artists to list and sell their work. Simply put, NFT’s are providing and creating a viable market and ecosystem for digital artwork. And the recognition of digital artwork and NFT’s as proper art is not only increasing their demand and value. It’s also enabling anyone to potentially invest in art.
You no longer need connections or a big bank account to acquire legit pieces of art.
Art is being democratized, more accessible than ever before.