NFTs: The Controversial Future of Art – and Perhaps the World as A Whole
GameStop, Dogecoin, and NFTs characterized the beginning of 2021 – continuing where the otherwise surreal 2020 left off. While stocks and cryptocurrency are well-established, the NFT craze hit the mainstream hard and fast. Suddenly, digital artworks and memes were being sold for upwards of tens of millions of dollars. So, what does the future hold for NFTs? Will it continue to revolutionize not only the art world but the world as a whole?
Nifty, NFT, or Non-Fungible Token – however, you prefer to say it – is a unit of data (code) that’s stored on a digital ledger known as a blockchain that certifies that a digital asset is unique. It was first created to represent any digital items like video, audio, or image files. However, the future of the NFT may be so much more than that.
At the moment the focus of the “NFT hype” has been mostly centered around the obscene amount of money seemingly inconsequential digital items have been selling for. This is particularly true when it comes to memes and 8-bit characters that have fetched millions at auctions. From the outside, this may seem absolutely insane. But it basically comes down to how people value a unique or limited item. Just as a physical artwork, baseball card, or historical object doesn’t have any inherent or objective value, but merely the subjective value that one gives it. The same is true for tokenized pieces of digital data. People purchase these unique items because of the value that it holds to them and perhaps also the likelihood that the item will increase in value and can be resold for a profit in the future.
While digital art may be the most famous use for NFTs at the moment, it’s a rather pigeonholed view of them. They have the ability to verify digital property and licenses as well as university degrees, music copyrights, or even physical items like real estate, books, or event tickets.
Of course, while there is a significant upside – the extent of which is still unknown – there are also some downside elements too. These include the complicated and technical nature of NFTs, energy consumption, theft, and the possibility of a loss of ownership due to a server malfunction or disruption.
There’s no doubt that NFTs are going to disrupt the art world, and perhaps the world as a whole. But will it change for the better?
Power to the Artists!
By leveraging NFTs, artists that work in nearly any medium can monetize their work. This can primarily be beneficial for those that work in the digital realm. If a 3D render, illustration, or animation isn’t tokenized in the form of an NFT then it can be freely circulated online, and the artist gets little more than free publicity. And even then, the credit for the work can often get lost along the way. Despite artist’s IG pages stating, “don’t share my work without permission,” or something similar, it can often fall on deaf ears. Meaning that hundreds or thousands of shares later, the work can be misattributed to someone that didn’t even create the work.
While the same thing can happen with an NFT image – the image can be copied and pasted and shared – if someone wants to hold the real version then they have to purchase the token that allows for verified access to the image. This is akin to a bootlegged autographed poster versus an authentic one. There is nothing stopping someone from trying to pass off a bootlegged version, but it doesn’t hold the same value as the authentic version.
What makes an NFT particularly beneficial for artists is the smart contract component of an NFT. This means that behaviors are automatically executed when another action takes place. And the creator of the NFT can set the parameters of this in the minting process. For example, when an artist mints a 3D image, they can set the artist commission at whatever percentage they want to, say 10%. So, every time that 3D image NFT is resold, the artist gets 10% of the sale directed to their crypto wallet, which is usually Ethereum (ether).
However, it’s not all sunshine and rainbows. While there are significant upsides for artists, it’s not without costs. This cost is in the form of gas, listing fees, and auction commissions. Gas is the cost (in ether) required to successfully execute a smart contract or a transaction on the Ethereum blockchain. The price of gas can change depending on the demand or use of the Ethereum network. If more people are utilizing the network – the demand is higher – therefore the cost of gas is higher.
Additionally, the other costs incurred by the artist are on the hosting website itself. Platforms like SuperRare, Foundation, and others charge various fees like a gallery hosting commission and/or sales commissions.
All these fees can quickly add up. It can easily cost over $150 in ether to list a single NFT when you take into consideration the cost of gas, and platform fees. So, for artists on a very tight budget, it may not be feasible to frequently tokenize their works.
Fight the Forgers!
Providing proof of authenticity is one of the main upsides of NFTs. It can show what works are legitimate and what are not. And while some forgeries have become so famous, they have gained notable value, like the works of one of the most famous forgers: Han van Meegeren, generally, forgeries aren’t worth anything compared to the real thing. The same goes for digital works, and possibly even more so since digital works can be freely shared an infinite amount of times.
But how does it actually prevent forgery? In the case of a physical piece of artwork where forgery is a common problem, an artwork can be “microchipped” in that a QR code on the piece is linked to the digital address on the blockchain where the NFT token is stored. This connection between the physical asset and digital asset verify its authenticity. And due to the decentralized and extremely secure nature of the Ethereum blockchain, it’s impossible (so far) for the network to be compromised the artwork can’t be misrepresented as authentic when it’s in fact not.
Moving Beyond the Art World
Like the case of forgery prevention, in that a physical art asset is tokenized and linked to a digital version (NFT), other aspects of business and even daily life will likely be tokenized. The most obvious potential uses for it are in real estate or vehicle purchases. Such transactions require multiple “middlemen” to establish trust and to make sure a high stake or high-value sale happens. Selling a home rarely involves just two individuals – buyer and seller. Instead, there are two teams of lawyers, bankers, real estate agents, etc. By leveraging the blockchain and smart contracts, it takes away the need to have such middlemen. Trust is guaranteed due to the reliable nature of the blockchain since transactions that occur on the blockchain can’t be changed or compromised. Smart contracts can replace lawyers and escrow accounts that ensure the security of transactions.
While this is just an example based on real estate, this can work for anything that is contractual in nature. It can also work pretty much any physical asset as well. Theoretically, anything that one can buy could be tokenized and linked via QR code. It doesn’t have to prove ownership but rather it can provide extra details or content related to the physical object. For example, you could buy a physical book and the book is tokenized. And when you scan the QR hologram inside the cover of the book you’re taken to a page that has extra content by the author or publishers like the creative process of the author, a photograph, a song, or anything else that can be stored digitally.
It’s still too early to tell how much NFTs and tokenization, in general, will impact our lives. But it’s pretty safe to say that the NFT craze is going to be much more than million-dollar memes.
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