What Are NFTs and What Is Their Worth?
A month ago, Mike Winkelmann, a digital artist better known by the username Beeple, made headlines with a $69 million sale. The product? A piece of digital art labeled as an NFT.
What’s The Art World Up to This Time?
It’s rare for any intangible, digital piece of artwork to sell for big bucks. In fact, it has never happened before in the long and complicated history of art. Collectors have wildly strayed away from anything outside of the guise of fine arts, even in today’s contemporary landscape. Just two years ago, a banana duct-taped to a wall sold for $120,000–– which was apparently a fantastic piece for evoking discourse on how the value of objects varies depending on context.
Some believe that the art world revolves around a different orbit than most, and that’s probably why their tastes differ from what is aesthetically normal. But as a result, it has been extremely difficult for digital artists to gain financial leverage in a world where auction houses like Christie’s only catered to physical, tangible traditional art.
And that’s why Beeple’s sale marks a very important event in art history. The $69 million success makes him one of the richest artists in the world, and it wasn’t even the first of his list of recent wins. In December of last year, Beeple made $3.5 million after his NFT, “Everydays,” sold on a platform called Nifty Gateway.
What drove Beeple’s success is the newfound ability to create NFTs, or non-fungible tokens: the next big thing fueling collectors into a frenzy for digital art.
What is an NFT, And Why is the World Obsessed with It?
Before delving into the very definition of an NFT, it’s important to understand blockchain technology and how it’s quickly changing the world.
Bitcoin, and all other cryptocurrencies, are run on a blockchain, which manages transactions and stores data related to any token that falls under its network. Whenever a certain number of transactions occur on the network, a new block is formed and connected to a chain of other data blocks. The system is decentralized, and every block is non-reversible and uneditable, which means that nobody can go in and tamper with the data. Because of that, every transaction is traceable down to its creation.
Some blockchains, like the Ethereum blockchain, allow anyone to create various kinds of tokens, one of which are NFTs, or non-fungible tokens. Unlike Bitcoin (a fungible token), where there can be 21 million in existence, NFTs are one-of-a-kind. Think of them like Van Gogh’s infamous Starry Night––there’s only one of it in the world, and only one person can own it. NFTs are essentially digital representations of ownership and rarity. The only difference is that there’s no such thing as a physical NFT. These tokens are digital assets and only exist in the virtual world.
It’s hard to say what drives the value of NFTs because they are such a new concept. NFTs, at best, hold speculative value––they are worth how much people are willing to pay for them. To a certain degree, they evoke the feeling of scarcity and the novelty of owning a one-of-a-kind digital asset, motivating collectors to shell out millions for them. And in the art world, there’s nothing more novel than owning something unique that nobody else can get a hold of.
From Digital Artist to Collector: NFT Marketplaces Empowering the Hype
While the prospect of NFTs may seem like an elusive industry to get into––it’s actually not. Selling digital art on NFT marketplaces like OpenSea and Rarible is easy because the barrier of entry is so low. On that note, it’s hard to gain recognition without proper marketing, as there are thousands of new NFTs being put up on the listings daily. Sites like SuperRare are harder to get into but offer curated assets that attract higher-paying collectors. On the gaming front, DIGITALAX is spearheading the tokenization of game assets through a virtual fashion marketplace specifically for listing mods and in-game assets. And there are plenty more marketplaces dedicated to mediating NFT transactions––there’s one for every kind of collector.
It’s also important to know that there are gas fees––or processing fees––for every transaction on any platform, but the prices depend on the crypto market. For instance, the gas fee in OpenSea transactions is paid through Ether (ETH), and the fee goes up when the ETH price rises. Putting up a listing and purchasing art may cost as little as $60 to as much as thousands of dollars in gas fees, so it’s important to take it into consideration when determining a price.
A little bit of strategy is involved to succeed in the current NFT market, but it’s still a much larger chance than ever before for digital artists, hence why millions are taking the risk and jumping in while they have a chance. Even the KPOP industry and Paris Hilton aren’t shying away from the massive earning potential behind these tokens!
Is There a Future for NFTs?
NFTs, like all things new and exciting, have been at the center of debates over the past few months. On one end of the scale, these tokens have given small artists a once-in-a-lifetime opportunity to break out of client work and make big lump sums, so they can focus on doing what they truly love. NFTs have empowered innovation in the digital art economy more than anything else in the world since the creation of computers.
However, on the other hand, Ether, the coin that powers most NFTs, is minted through an unsustainable mining model. In a nutshell, Ethereum mining requires powerful and energy-hungry ASIC rigs to generate coins, prompting experts to call out the ecological impact of the token-powered economy.
The biggest challenge for NFTs is achieving sustainability by introducing more eco-friendly NFT-compatible blockchains and implementing regulations in the industry to prevent theft and fraudulent listings. But what’s certain is that NFTs are disrupting the real-world economy by forcing a shift to the digital sphere––much like what cryptocurrency does.