A year or so ago, few had ever heard of the term “NFT,” or non-fungible token. So, what is it, and better yet, what impact, if any, does it have on today’s digital artists?
An NFT is often described as a one-of-a-kind digital asset that can be exchanged on a blockchain. It can assume many forms: a graphical element (filmed, photographed, or crafted), a musical element, a URL, a Tweet, and far more.
I knew very little about NFTs outside of the headlines that peppered the news outlets. “Everydays: The First 5000 Days,” digital artwork from Mike “Beeple” Winkelmann, sold for $69.3 million at Christie’s. It was not his only NFT sold to date, either. “Crossroad” sold for $6.66 million initially, and “The Complete MF Collection” brought in $777,777. An NFT version of the first Tweet on Twitter, by Twitter Cofounder/CEO Jack Dorsey, sold for $2.9 million. Randomly generated CryptoPunks characters have sold for $7.5 million, $1.54 million, and $1.3 million.
Those are just some of the top earners — for now. However, the dollar amounts may be a bit deceptive, as those sums will not show up in a Wells Fargo or Chase bank account. Rather, the bidding amounts are in ether, and the cryptocurrency actually credited to a digital wallet.
Welcome to today’s world of hard-core NFT collectors who own prominent crypto tokens — the modern-day rare books and masterpiece paintings of yesteryear.
Providing information on this growing trend and what it might mean for digital artists is Christopher Nichols, director of Chaos Labs, whose CG Garage podcast series recently focused on the subject. In this exclusive Q&A with CGW Chief Editor Karen Moltenbrey, Nichols discusses NFTs, their history, and why digital artists need to educate themselves about the crypto world in order to make an informed decision as to whether entering this market is right for them.
What exactly are NFTs?
NFT means non-fungible token, which can be broken down into three words. Let’s start with “token” and move backwards. A token represents something of value. For example, a subway token represent one ride on the subway. A dollar bill is a token that represents $1 of value. In the crypto world, a token is created by a piece of the blockchain (a digital database of records, or blocks, linked together using cryptography). So, the block is the token. You can own that piece of the blockchain by having it in your digital wallet.
Fungible means something that’s able to replace or be replaced by another identical item — for instance, if I have two $1 bills in my wallet, they are the same; it doesn’t matter which one I give you. Likewise, a Bitcoin. However, non-fungible means it’s unique. So, a non-fungible token is a token that is attached to something totally unique, something that doesn’t exist anywhere else, as opposed to something that is duplicated. That’s the whole point of NFTs.
This all came about because in the DeFi (decentralized finance) world when Bitcoins surfaced, they could only be used for currency. That’s how Bitcoin was invented. But now there are hundreds of blockchains that can do far more. Ethereum (with its own cryptocurrency called ether) allows you to attach other things to the blockchain, including something called a smart contract. The smart contract — a piece of code that executes an agreement and is stored on the blockchain — is attached to an NFT and basically means it is a unique thing and can be attached to a token.
When you think about something that is unique, you naturally think about art. So, that’s how art started to become part of the NFT world. People really into cryptocurrency and the crypto world began buying and selling art in this way.
So, it’s a way of attaching digital content to a token, to something that can be tokenized. In terms of what that means for the art world, that’s a whole other part of it.
Are NFTs always associated with cryptocurrency?
Anyone can make anything that represents something. But, an NFT is something that became unique in the crypto world. And, its popularity is specifically centered around these ideas of smart contracts, because smart contracts change how you think about what is on the blockchain.
When did NFTs really start becoming popular?
People have been selling NFTs for a while. What captured everyone’s attention is when Beeple sold his piece for $69 million. That’s when everyone started to pay attention to the market. January-February 2021 is when the big boom started happening.
Beeple is famous in the same way that Banksy is famous. He creates the lure of the story, which is more important than the art, and he’s very good at that. Successful artists are always about the narrative that goes with the art. By the way, he is the third richest artist in the world now. (Beeple is launching an NFT platform, called WENEW, that’ll sell “iconic” moments in time pertaining to artists, athletes, and more.)
But, NFTs have been around for much longer than this?
Yes. For example, the SuperRare marketplace has been around for a couple of years, but not many people knew about it back then. It didn’t really explode until the beginning of this year. And then, everyone tried to get involved.
Interestingly, the only people who were involved before that were artists who were also into cryptocurrency. But now, all artists are interested in them because they feel like they’re missing out on something. A lot of people who weren’t following crypto or DeFi are now following that and buying cryptocurrency, which is why the price was going up. Actually, it’s going down now because of over-supply of goods.
How can digital artists capitalize on this trend?
Well, that’s the thing. You have to be careful, as capitalizing on it is a risky business. The first thing I would recommend an artist do is find the right market to sell their goods, and right now, there’s a supply-and-demand problem. If there is too much supply, which is where we are now, there won’t be enough demand, and therefore the prices will go down. Right now, everyone thinks they’re just going to make a bunch of NFTs and everyone’s going to make a lot of money. And that’s not the case.
First, you have to pay attention to the market and find out what’s going on. Artists need to become somewhat economy wise. You also have to ask yourself why someone would want to buy your art. They’re going to want to buy your art because they want to collect things, just like anyone buying any other type of art. Artists who have better market share are those who are famous or have a following. The same rules apply in the NFT market. A word of caution: Don’t flood the market with NFTs because that brings down the value of all NFTs.
After you find somewhere to host your art, then you will need a digital wallet and will also need to buy cryptocurrency, because that’s how everything is exchanged. And cryptocurrency is extremely volatile. You really need to become savvy in cryptocurrency, and that’s a complicated world.
So now, let’s say you have a piece of art you want to put on the market. You’ll have to do something called “minting the NFT,” meaning you’re adding your NFT to the blockchain. Currently, that costs money, and that money can fluctuate drastically, anywhere from $40 to $300, depending on what the “gas price” is — not actual gasoline, but how much energy is used for creating the NFT. That is done through crypto mining, which is very controversial. Right now, especially in the Ethereum world, a system is used to verify the block on a blockchain, called “proof of work,” and it involves a lot of people using a lot of computer power to mint the NFT. It’s a little complicated how that’s created, but basically it’s a bunch of computers using a lot of energy.
Some people are not very happy about that because it’s not very green, and current blockchain technology is definitely not energy-efficient, or efficient in general. Ethereum is testing a new system called “proof of stake,” and that would drastically change the way blocks are minted, using very little energy.
What makes an NFT so desirable?
What makes anything popular? It’s about collecting things; you want to be part of collecting something that’s special and unique. People collect baseballs from famous home runs, for example. In the end, it’s really just a baseball you’re talking about, but it has more value because it is associated with something. The same thing is happening with memes in the sense that people remember those memes; they’re an important part of Internet history of some sort. So, they have value.
People who are making a lot of money in the DeFi world are young — 30 years old or younger. They would rather own a meme than a Rembrandt.
So, can anyone sell an NFT? What about artistic ownership?
There is nothing stopping me from taking something that someone else did and making it an NFT. Someone asked Beeple, can I take one of your images and mint it as an NFT and sell it? He said, “You absolutely can. But, you’re not going to get any money for it because it’s not Beeple’s NFT.” That’s the importance of the markets, which are what is validating the art out there.
There are certain market sites on which anyone can put an NFT for sale. But, it doesn’t mean someone will pay thousands of dollars for it. They’re not going to do that because they don’t know where to find [the site it is on], who you are, what’s going on. Just like an art gallery in the real world: People curate the art that is out there so people can validate that there’s value in that art. Especially people in the crypto world, they don’t really know much about the art world. They’re collecting it based on speculation of its value.
Are artists really making money on NFTs?
There are actually thousands of artists who are making a living, or at least some money, on some sites, but they’re not making half a million dollars on NFTs. They’re making an ether (about $3,000) or so on some really good art. That’s something that should be celebrated. This is the first time many digital artists have a legitimate marketplace to sell this type of content on it.
Remember, too, there’s an actual cost involved. If it costs you $300 to put up an NFT for sale, you better make at least $300 on your sale. Just because a bunch of people are making a bunch of money on NFTs doesn’t mean that you’re going to make a bunch of money on NFTs.
Does the artist give up his or her rights to the video clip or image?
It depends on what you have agreed to in your contract. It’s all in the contract. Also, that person didn’t buy the art. They bought the token. The token is attached to the art. That token represents the uniqueness of what they own. What the person wants to do with that art or that NFT is up to them. There are VR museums out there that are filled with NFTs of a person’s favorite art that he or she collected.
Oh, there’s one more important thing that a lot of people don’t know about the NFT market, which is a really good thing for the artists. The contract basically says you passed ownership of this art, but there’s a lot of contingencies that are actually in that contract that are really interesting.
Say you buy my piece of art on a market site for one ether; I get 0.85 ether, and the gallery gets 0.15 ether, their commission. Now you own that NFT. A few years go by and I become really famous and the NFT becomes very valuable for my art piece, and you’re able to sell that NFT for 100 ethers, making a big profit. The contract states that I get 10 percent of every subsequent sale. So, if you sell it for 100 ethers, I get another 10 ethers. So, the artist constantly gets a cut of every sale. That’s because of the nature of how blockchains work. It’s a ledger. You can’t hide anything. The only way a person’s going to own the NFT is through the execution of the contract.
What happens if someone just now buys a video, for instance, that has been circulating on YouTube for a number of years?
Scarcity is important. The “Charlie bit my finger” video (one of the most watched videos on YouTube) recently sold as an NFT (for $760,999), with the family promising to delete the video from YouTube. (The NFT buyer decided to leave the original 14-year-old video on YouTube.)
CG Garage did some podcasts on NFTS — Why?
A lot of friends and people who’ve been on my podcast started asking me questions about NFTs, and I thought we needed to provide information on this subject so that people can make their own decisions about it. I talked to my friend Sally Slade, who is very tech-savvy and a great artist, and she agreed to give the process a try, and did a podcast episode where she went through all the steps that are involved.
And then I started getting in touch with others. One was David Yermack, head of the finance department at NYU Stern School of Business and an expert in cryptocurrency. He knew about NFTs before it was about art.
I also talked to other artists about how this is affecting their livelihood, particularly with everyone talking about the Metaverse — which is how you buy and sell digital goods. If you want to buy architecture or real estate in a Metaverse, an NFT is probably a cool place to do it, which now means that architects should start thinking about building things in a Metaverse instead of in reality, or in addition to reality.
Are NFTs a temporary fad?
No. There is definitely an oversupply problem right now, which is not necessarily a bad thing, because it’s going to weed out some work and, eventually, the cream will rise to the top. Remember, NFTs are not necessarily just about art, but they do have an effect on the art market. And, I don’t think that’s going to go away. I think people are going to continue to buy and sell digital goods, and NFTs are an answer to doing that. That includes art, videos, and other content of that nature.
What take-away do you have for digital artists?
We need to get information out that helps people, especially artists, and the more people can learn about NFTs and educate themselves on the subject — whether they’re for them or against them — the better equipped they are to make decisions on whether they want to be part of that market.