So, What’s An NFT Anyway?

Posted inDesign News
Thumbnail for So, What's An NFT Anyway?

Ryder Ripps, DEAL WITH IT

Everything has a price. Even gifs.

At least that’s the noise from the art world, as everyone—even befuddled morning hosts—is trying to wrap their head around just what an NFT is. And while many are confused about what boils down to essentially owning a file, no one seemed to know about the money many of these digital works can seemingly generate.

Physical pieces of art or memorabilia, to retain their value based on their uniqueness, require some proof of authenticity. That usually involves paperwork, maybe some photographic evidence, copies of invoices, or perhaps some insurance documents. Some collectibles can be graded and authenticated by services devoted to such things, for a price, of course. But even this is subject to subterfuge and deception, and such authentication is only as credible as the market believes it to be.

A relatively modern technological innovation, however, has the potential to upend the market for creative and collectible goods, significantly changing the way collectors, dealers, and designers trade.

Beeple, Crossroads

NFT, or Non-Fungible Tokens, are digital certificates that get created and tracked much like cryptocurrency tokens on the same network are tracked, called the blockchain. The same technical aspects which make cryptocurrencies like Bitcoin and Ethereum secure make blockchain secure. Instead of a mined coin, something worth as much as any other coin on the market, NFTs have their own value.

But just like those coins, once recorded on the blockchain, NFTs can not be altered, duplicated, or deleted, and anyone can trace their entire transactional history. Blockchains act as public ledgers, and networks like Bitcoin, Ethereum, Dogecoin, and others, are decentralized and distributed, and every transaction is verified as it moves along the chain.

In existence since 2015, NFTs have recently surged in popularity thanks in part to greater public awareness of cryptocurrency and validation from large institutional and celebrity investors, such as Mark Cuban and Elon Musk. No longer the domain of nerdy folks and tech bros, confidence in blockchain technology and cryptocurrency have gone full mainstream.

Chris Torres, Nyan Cat

This rise in profile has led to some artists adopting the technology, as of late, selling work for millions of dollars. Some early adopters have deep roots in web culture, such as Chris Torres, the artist behind 2011’s beloved gif Nyan Cat. Nerdy DJ Deamau5 uses NFTs to sell collectible digital items, and Lakers superstar LeBron James has turned to the blockchain to monetize his highlight reel. Grimes sold six million worth of digital art. Graphic designer Mike Winkelmann, known as Beeple, has found the technology interesting enough to experiment with it as well and is currently auction off his digital work The First 5,000 Days over at Christie's. As of this writing, the bidding is at $9.7 million and would set a record for the most expensive NFT sold at auction.

Beeple, The First 5,000 Days

So how can artists and designers use NFT technology? Smart contracts, agreements that automatically execute when certain conditions are met, are attached to tokens. Some deals can be simple, merely providing authenticity and proof-of-ownership. But artists can also set other conditions, for example, with secondary uses and automating licensing revenue. If a designer creates custom sprites that you can use in a particular game, for example, you can program the smart contract to pay a royalty to the original designer automatically.

That, of course, won't stop digital art from being reproduced without authorization or otherwise pirated. It also doesn’t ensure the appropriate compensation for the use of that work of art, though it does provide for a tamper-proof public record of ownership that can be verified by anyone, making claims against infringement easier to prove.

Tokens for NFT media are placed on their corresponding blockchain and live alongside other NFTs and fungible tokens, i.e., cryptocoins. Unlike cryptocoins, every NFT is unique and can't get broken into smaller pieces. To own an NFT, collectors would need a compatible cryptocurrency wallet. Your tokens then get managed in the same way as coins. Alternatively, services like brokerages also exist to manage client crypto assets.

There’s even a marketplace to buy curated, select works from digital artists. Foundation, Super Rare, OpenSea, and Nifty Gateway let folks bid Ether on a wide-range of work. Hell, Ryder Ripps and Azealia Banks sold the first-eve audio sex tape NFT, and that’s an actual thing someone bought for $17,000 (which is getting resold for the low, nice-price of $275 million).

Justin Roiland

Justin Roiland, co-creator of Adult Swim’s Rick and Morty, is another artist making real money on digital art using blockchain technology. His first NFT collection netted proceeds exceeding $1.65 million, with $290,100 going towards LA-homeless charities.

What remains to be seen is how much of current NFT adoption is due to buzz and hype and how will the market look like in the near future? The question isn’t unfounded either, as collector markets see bubbles that can quickly get inflated by a sudden interest in items. Markets for trading cards and Beanie Babies have seen spectacular flame-outs leaving devotees with a pile of worthless stuff. And while baseball cards are very much en vogue, that pile of sun-baked stuffed animals in your rear window has a destiny date with the thirst store when you die.

Fine art collecting can even be more bizarre, with peaks and valleys in price seemingly controlled by who knows what. Digital art sold using blockchains might be an overheated trend in the art world fueled by hype, and the oxygen crypto sucks up with an eventual slide and correction. We’ve seen it happen in the value of Bitcoin and other cryptocurrencies, while large spikes and deep drops. However, the advantages of using NFTs to sell digital media remain, regardless of the price of the underlying cryptocurrency.

It’s not just visual art, memes, and digital trading cards being sold as NFTs either. Rock band Kings of Leon has jumped on the NFT train, auctioning digital assets with unsold items permanently “burned” and never made available again. DJ 3LAU recently sold a collection of NFTs based on his album Ultraviolet, including tokens for each track which also includes other digital media. 3LAU also auctioned some other rare NFTs, which include custom, unreleased music, physical media, and even a collab experience with the artist on an upcoming track. The DJ’s offering spanned across physical and digital media and even featured an experiential prize, netting over $11.6 million from 33 bids.

So far, the majority of the work sold as NFTs is digital, though, as 3LAU and others have done, tokens can get designed to be redeemable for a physical item. But does physicality matter? Owning a Picasso and a Nyan Cat is really the difference between the creation being splashed on a canvas and holding the only key to a unique art piece. Blockchain technology makes more secure the riskiest part of collecting art—authentication. For most creative works, the scarcity of an object drives much of its value, and NFTs make ownership easy to prove.

Pak, The Title (from Nifty Gateway)

There are limitations to marketing creative works using NFTs. Mining tokens aren’t free and require computing power and electricity, having a potential environmental impact. Tokens, just like their cryptocurrency brethren, are mined by solving complex algorithms. While the computations can get done by hand, computers, specifically devices specially designed to use graphics processors, are much faster and better at mining. These processors use electricity, and the more mining completed, the more electricity that gets consumed. The environmental impact of the increased popularity of NFTs has increased demand for tokens, along with increased energy consumption. Unless the underlying production is green energy, you can tie all of the associated climate change implications of energy consumption to NFT mining and cryptocurrency at-large.

It is still early days, but the ability of NFTs and crypto-technology to help creatives maximize the value of their works looks promising. For consumers, art purchased using NFTs provides an ironclad proof of authenticity. Creatives, including those whose art has historically been widely pirated online, selling via NFT doesn’t stop copying and unauthorized distribution. But it does provide revenue streams and licensing opportunities.

The digital art market distributed by blockchain might be experiencing a bubble. Should that bubble burst, the underlying technology will remain unchanged, and the implications to art could perhaps look a lot more permanent.