NFT: cyberproperty or digital wild wild west? - The tokenized future of digital art
Opinion Analysis by Sandro Joseph Azzam, Staff Writer and Georges Haydar, Staff Writer
April 9th, 2021
The year is 2050 and we bid the Guggenheim farewell. The tour of a newly opened museum is all going swell! The art on the wall seems too good to be true, hey, there’s even a painting that looks just like you! You get closer and squint to make sure you see it all but alas, it is nothing more than a red dot on the wall. Perplexed, you turn around and see what looks like real art but upon closer inspection it looks like a scan of a human heart. The fright settles in and you run for the door but instead, all you must do is click Alt then F4. And such is the stuff of nightmares for art collectors, and museum directors…
For those who may have missed the subtle geeky reference, Alt + F4 is a shutdown command that you use on your computer to end the current task you are doing. In 2050, the fear is that virtual art will replace “real” art and that with it, will disappear the charm, class and finesse of looking down at the spiraling Guggenheim.
While “NFT” might sound like an obscure financial markets tool (along the lines of a CDO or an ISDA) or the acronym of the world’s Bond villains yearly gathering, it is something much simpler, and more importantly, much more accessible. Reality - digital reality to be precise - are full of bad jokes, and this may be one of them.
NFT stands for “Non-Fungible Token” which is the latest trend in the cryptocurrency and blockchain community. A token is a tangible representation of a certain possession or fact. A fungible token is a token that can be exchanged for another identical item. It is mutually interchangeable, and the perfect example is cash. A 10-dollar bill can be replaced by two 5-dollar bills with a simple swap, and you would still have the same amount of money. Now, unless you have a tooth to grind with Abraham Lincoln, this is an innocent exchange you would take in a split second. And this is a fundamental point to understand because it is the sole thing that does not define a NFT. A non-fungible token is one that you cannot trade because it is unique. It is a possession that confirms that its holder is the owner of a certain object. It could be a painting, a stock, a house, or in the case of the digital world, a clip of Robin Van Persie’s header at the 2014 World Cup or a GIF of Elon Musk blasting a flamethrower on General Grievous’ corpse. But how can you “own” something like that, especially if it is not your creation? And why is it worth so much?
The central, pivotal, and inherent characteristic of an NFT is its uniqueness. It is the only condition that gives NFTs their value. While this may be more apparent in the art industry, where thousands and thousands of copies can be made, only one entity can own Salvator Mundi or the Mona Lisa. Copies can be made, and forged artwork can be convincing but, ultimately, the artist’s original work will eventually prevail as the reference. In the digital world, this notion of uniqueness is much harder to define. You can easily copy a video clip, or a photo and it is almost impossible to find out which came first. But even if you did, why should something so intangible have any value. You can see the Mona Lisa at the Louvre; you can feel the painting in your palms (all while risking a hefty prison sentence and a crusade from the worldwide artistic community) but you cannot touch a video on your phone. But, if you could prove ownership someway, this would solve your problem.
And this is where blockchain technology shines in all its might. Building on the previously published series on Bitcoin by the two authors, blockchain is a tamper-less ledger that tracks online transactions through a sophisticated network of decentralized verifying bodies. Bitcoin, whose blockchain is a 12-year-old history of every single Bitcoin transaction that has ever occurred, is undeniably the most famous one. NFTs, however, are built on Bitcoin’s younger, geekier brother, Ethereum. It unleashes blockchain’s capabilities and goes all the way as to run virtual programs and not just be a ledger of transactions.
Suppose an artist wants to sell an artwork as an NFT. The first thing he does is sign up on a dedicated marketplace such as opensea.io. Then, he “mints” the digital token whose owner will be the sole proprietor of the artwork. Minting is a process by which you create a file that exists on the blockchain, is recorded, cannot be edited or deleted, and can be viewed publicly. Thus, anyone can check the provenance of an NFT in all transparency. Once the digital token is minted, the artist auctions it on the platform where it will go to the highest bidder, or it can be sold at a fixed price. Naturally, all transactions happen in ether, which is the currency of the Ethereum blockchain. This mechanism not only eliminates the need for middlemen and brokers, but it is also more accessible and includes a vast array of options, from resale commissions to the original artist all the way to collections.
However, this technological power move comes at a cost, the same as Bitcoin: power consumption. As mentioned in part 3 of our series on Bitcoin, the power footprint of cryptocurrencies, when it comes to electricity consumption and hoarding of graphic cards, is infuriatingly high. The amount of power wasted on what some consider to be a useless and soon-to-be outlived activity sits on a scale hitherto undreamt of which is a significant concern in times of climate change. Furthermore, when you factor in legal challenges and intellectual property theft in this digital wild west, this technology feels entrenched in a moral gray zone. Nevertheless, Ethereum’s planned shift to a Proof-of-Stake system instead of the current Proof-of-Work system (which is the core reason as to why this activity uses so much power) could prove to be a game changer that cements the absorption of yet another industry into the digital world. And this is a necessity because the numbers won’t stop going up.
$ 69.3 million USD is a tempting sum. It could be the price tag on a beautiful mansion in Beverly Hills, or a budget worthy of a supercar collection, or even the cost of a Monet painting. However, this stratospheric number, along with the rage and furious anger of a hardworking middle-class struggling to make ends meet in times of recession, is the opportunity cost of an NFT that was sold at a Christie’s auction in March 2021. Try to wrap your head around this: there is someone, somewhere on Earth who, instead of buying a superyacht, bought a JPG file. This was also the first time Christie’s ever settled a payment in digital currencies with buyers being able to opt for a digital wallet transfer to Christie’s Ether wallet.
This form of art has gained massive popularity in the last few months, and the reason? Taxes. A Republican’s worst nightmare has spurred a massive rise in the popularity of digital art. See, as mentioned in our previous article, making money in the cryptocurrency market means you have to pay taxes if you decide to convert online money into “real” money. The only way to avoid this taxation is to buy things directly using online money and whilst we also mentioned that the typical purchases included child soldiers, rocket propelled grenades and enough cocaine to make you Pablo Escobar Jr., NFT art has risen as a new asset class for people to move their money into. By keeping their money “online” and out of sight of regulators, people went ahead and bought virtual art. Once you own the virtual art, it is sort of like owning the Mona Lisa. Everyone knows that her rightful place is at the Louvre just as everyone now knows that a digital image of a cabbage now belongs to wallet #67ac274b6d7eaf. “Getting away from taxes” has led to NFT art gaining massive popularity and prices for such pieces commanding eye-watering amounts. A single red pixel is on sale for 900 000 USD. That’s literally a single virtual red block going for as much as a ranch in Texas.
The panic for the museum managers and non-digital artists piqued a few days ago. Tech billionaire, shark and full-time badass Mark Cuban launched a digital art gallery dubbed lazy.com to allow collectors to show off their NFT art. This begs the question of whether or not we will see the traditional museums of the world moved completely online. If COVID-19 has taught us anything, it’s the power of what can be achieved online and the fear is that in the post-pandemic paradigm, we’ll see the disappearance of many businesses and organizations only to be replaced by digital counterparts. Museums may well be the first victim.
So, what on Earth is an NFT? It’s pretty much the real Mona Lisa, except you won’t need to go to Paris to admire it. You can access unique pieces of art from the comfort of your own home and the ownership of said piece is as undisputed as Mona Lisa’s place in the Louvre. The trend towards digital art has been accelerated by media hype and most importantly tax considerations that have driven prices of NFT art above those of a New York City townhouse.
Sources:
https://time.com/5947720/nft-art/
https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-art-faq