A Short Introduction to NFTs
NFTs have been all the rage in the art community and beyond, ever since the groundbreaking $69,3 million sale of a work of digital art in 2021. Here is a short introduction to NFTs on what you should know about NFTs and why you should care.
About me: When I first encountered digital media and web art back in the ‘90s I knew this was going to be my thing. And it was – for about a decade – then the limitations of exhibiting, selling, and archiving work started to get to me, and I went back to painting for a while, which was on many levels very satisfying (monetization being one of them). Still, I never stopped being fascinated with new technology, so when beeple’s $69,3 million sale catapulted NFTs into public awareness, it caught my attention. On a quest to learn more I found myself drawn into a complex web of issues, positions, and considerations, in which technology is arguably the least important.
Question 1: WTF is an NFT?
This was a question many people had when NFTs suddenly emerged seemingly out of nowhere. It was the topic of numerous podcasts and articles. This SNL sketch sums it up very nicely.
NFT stands for Non Fungible Token *. Even though NFTs could be just about anything, they have in the public eye become synonymous with digital art. They are a type of cryptocurrency and represent a specific item (usually digital art or computer game artifacts). By certifying uniqueness NFTs create artificial scarcity for items notoriously very fungible – something easily replaced by an identical copy indistinguishable from the ‘original’. With the purchase of an NFT you take “ownership” of the item it points to. This item could be a piece of digital art, a digitized photo of non-digital art, an accessory in a game, or any other type of thing that normally is considered easy to replicate and, therefore, absolutely not unique.
It is important to point out that it is not very clear what exactly such ownership consists of. The NFT is just a token, not the thing itself, so if someone turns off the server the asset resides on or alters the item, all you own is a digital link. The people who came up with the idea of NFTs did so at a hackathon in 2014 and could not find a solution for how to secure the actual item, so they used a temporary fix of merely referencing its location. This shortcut is still in place now and very few people seem deterred by it. But questions of ownership, copyright, and quality were not what was driving the hype.
For the art community it was the promise of a democratized art market, and the question of the moment became: “So have you minted an NFT yet?”
Question 2: Great idea - but at what cost?
The first major damper to the general enthusiasm was the realization that minting and selling an NFT on a POW (proof of work) blockchain ^ was about as energy intensive as powering a family home for a couple of months. With the world rapidly sliding into man-made climate disaster, minting NFTs of one’s work and making profit by helping to destroy the planet seemed hard to justify. At this point in the discussion, NFT enthusiasts will tell you that there are greener options, that Etherium itself will be clean in no time at all, (it was supposed to be “green” already a couple of years ago), and that the banking industry and other evil forces produce just as much energy, or more. While all this is true, with this energy the entire banking industry handles billions of transactions for billions of people, while cryptocurrencies are still used by only a small fraction of the population. If the world’s entire population were using cryptocurrencies, we would run into massive energy shortages, and other serious problems. Strangely and disappointingly, the greener alternatives ( proof of stake = POS based blockchains ^ ) are not really catching on, possibly due to an unwillingness to convert or an instinctive belief that high energy inefficiency is somehow associated with value, or simply fear of the new.
Question 3: What problems are NFTs (not) solving?
NFTs were proposed as an answer to a variety of problems, and offer a solution for: Marketability: Thanks to the rise of the Non Fungible Token, there now is a way to commodify previously difficult-to-market assets. With the NFT narrative we can create a marketplace for just about anything. Credibility/visibility: Finally digital art is being considered a serious investment. Ownership: is trackable, and the history of ownership is verified.
This last point is a segue into the issues NFTs have yet to address: Copyright: Not only has this issue not been solved, but it has been complicated even further: The person selling and profiting off the NFT is the creator or owner of the NFT, not necessarily the creator of the artwork it refers to. Countless artists have been complaining about having their work stolen (including the estates of dead ones). Royalties: It is often claimed that the smart contracts underlying NFTs will ensure that the original creator receives royalties in case of a resale. And while this CAN in fact work, it is not a given as there are many ways around it. The smartness of a smart contract turns out to be very limited. The smartness and integrity of the people involved is another point of contention. Elitism: Another big one - the problem of the impenetrable art market. Now that anyone can sell their NFTs on a platform like OpenSea, we should finally have achieved total democracy, a level playing field, opportunity for all. However, the data we now have on who sells what suggest that 10% of the participants are responsible for 90% of transactions - pretty much replicating the real-world art market.
Question 4: Are NFTs a safe investment?
It depends on what we mean by safe. But actually, no.
There still are open legal questions, such as how data protection laws apply to a blockchain, where nothing can be deleted. There is very little regulation around this market, theft and scams (especially rug pulls) are frequent and most often have little or no negative consequences for the fraudster. Also, NFTs can contain malware, so any offer of a “free” NFT should be treated with caution. Another very common risk is that people lose access to their wallet by losing their access key, and chances are this wallet is lost forever–which is tragic because, ironically, there are aspects of this technology that are very safe. And with the loss of your wallet, there goes your art collection.
Question 5: What about the technology?
Speaking of the technology - as Tante puts it: “NFTs are technologically stupid. That’s just what any person working in digital media or any reasonable engineer will tell you – if they are not trying to scam you of course. If you look at the facts, the properties of the thing, there’s nothing of substance there but exploitation in the same vein that we have seen in games with microtransactions.”
One of the main selling points of NFTs is that they run on a blockchain – the technology that is the basis for anything to do with cryptocurrency. It is not that new, but until the invention of BitCoin there had not been much application for it. A blockchain engineer explained that the only use case he could think of was deregulated, decentralized cryptocurrency and nothing else. If any party involved in a transaction can be considered trustworthy, then in pretty much every scenario a database would be a more efficient alternative. The only case in which a decentralized system is necessary is if no one can be trusted at all – otherwise it is unnecessarily wasteful. (This view, held by a number of software engineers, is discussed in more detail here.) And even though many very smart people have been trying to find an application for it, so far none have been convincing.
With this in mind, the hype around it and the rise of crypto-anything is positively dystopian. Still, the belief that the technology must somehow revolutionise the world is pervasive, something Stephen Diehl calls Blockchainism. And there just might be a use case - but we yet have to find it.
Question 6: So why the hype?
One of the most fundamental questions is what NFTs can bring to the table that could not be solved by traditional methods. There have been attempts at selling non physical art before. Tino Sehgal (who studied both dance and economics) has successfully sold many a performance using (appropriately) the form of a verbal contract.
However, it was not until 2021 and the sudden rise of NFTs that the marketability of immaterial art took off. Galleries now both show and sell digital art - but why they didn’t in the past was not for lack of technology. The new trend is related to a societal shift rather than technological advances. A Berlin net-art gallery admitted that the sale of an NFT was largely symbolic. With the purchase of an NFT, the buyer was able to show his appreciation while supporting the artist and the gallery.
They agreed that people could have supported the artists all along by sending them actual money in exchange for a real life token, like a postcard or free entry to a show - yet they didn’t. But with the NFTs suddenly they do.
All the NFTs at the gallery except for one ran on the Ethereum blockchain, even though most artists at this point are aware of the energy consumption and the availability of greener options. This was most likely for financial reasons, and at least in part because of “the community”.
Question 7: What is “the community”?
The way “the community” is referred (and deferred) to gives it a mythical air - just short of sounding like a cult. It feels like you are either part of the community or you are an uninitiated outsider. Calling it “the” community is just as misleading as talking about “the” blockchain. There are many blockchains and many so-called communities, but pretending that there is just one serves to add authority while at the same time shrouding it in mystery.
The community is an essential part of NFT culture. There are in fact many communities, exclusive to varying degrees. The community in general is the interaction between people interested in NFTs. Post-mint, the community revolves around a specific NFT project – often only open to those who can afford to buy into it. The quality of the community around an NFT project can make or break it. The community offers psychological, social, financial and, of course, marketing support by buying, trading, and pushing each other's NFTs, so starting a community around your work usually precedes the actual minting.There are now agencies offering support in setting up communities and help in selling NFTs. One of the biggest and most well known is the Bored Ape Yacht Club. If you are an Ape holder you have access to real life meet ups with fellow Apes, events and presales – not to mention the support and encouragement of 10000 others who assure you that you are doing the right thing. Quite possibly this membership is what you are actually buying when investing in an NFT. It’s the equivalent of what used to be an exclusive golf club membership. The communities mainly communicate on Discord, Twitter, and Instagram, but also any other social media platform. Posts are generally vague and very optimistic, comments are so affirmative that it’s hard to picture real people behind the profiles. Covid-19 almost certainly exacerbated the need for virtual community and digital art - as nft now CEO Matt Medved at Art Basel put it: “How much time do you spend looking at your wall compared to how much time you spend looking at your screen?”
Question 8: What is the art like?
It is undebatable that nowadays screen time far exceeds wall time, but what kind of art are we staring at? One should never generalise, and there are always outstanding and very creative works of art in every medium and on almost any platform. But what is being pushed on social media and in the marketplaces is, in almost all cases I have seen in the wild, amateurish, self-referential, and heavy handed ripoffs of some project that was, financially, highly successful – despite being questionable in terms of its artistic value. Therefore references to cryptocurrencies and cryptoconventions are at least as common as apes and pixelated portraits. With the Russian invasion of Ukraine, a host of war related images got minted. Not to accuse anyone of being opportunistic here, it still shows how instantaneous this kind of art is. Instantly produced, minted, and sold. To be a runaway success á la Bored Ape, time needs to be invested into building the community and positioning the product properly. But even more so than in the real-world art market, algorithms and stakeholders influence the success and visibility of NFTs in these virtual marketplaces, with quality often being an afterthought.
Question 9: Is this NFT thing going to go away?
Even though some think that web3 is bullshit, and even the original creators of the NFT concept are disillusioned with how it ended up being used, it probably isn’t going to go away any time soon. Commerce has found a new way to sell things they previously couldn’t, and even though H&M’s plans to offer outfits as NFTs, so you could dress up your avatar in the metaverse, ended up being a joke - it does make a lot of sense, and many people bought the idea. Cryptocurrency is rapidly infiltrating the mainstream, and there are many more issues to be talked about there. It probably is not going to go away, but hopefully in our excitement we will still try to address the problems they have not solved, and the problems they create. Even if we could download our consciousness into the metaverse and decide real life on planet earth is not worthwhile, we would still need to take care of quite a few real life issues. We might be entering a situation like the one described in “The Three Stigmata Of Palmer Eldridge” by Philip K. Dick, where life on earth is so unbearable that we need to fantasize ourselves into avatars – but we would still need to transition to this state before life on this planet has become impossible. Greener blockchains and renewable energy might be a start. Maybe we can stop driving and flying if we do most of our socialising in the metaverse.
Question 10: So how do I get involved?
There are detailed tutorials and even books on how to create NFTs and/or get started with cryptocurrency. The first thing you need to do is open a wallet, which is as easy as downloading an app from your preferred app-store. Setting it up does not involve divulging any personal information, it does not even involve buying any coins. You then connect this wallet to a marketplace of your choice and now you are just steps away from being an art star and/or a star art collector.
May I suggest you start by investing in “Untitled Chain 1”, the NFT I created specifically for you - any funds raised will be used to try and stop the madness.
* Non Fungible Token: in currencies tokens are usually fungible, meaning that one can be substituted for its copy without any effects on value or recognition. Non fungible means that this token is unique, even if there are innumerable identical copies.
- Short introduction to NFTs
- What are NFTs?
- NFT stands for Non Fungible Token *. Even though NFTs could be just about anything, they have in the public eye become synonymous with digital art. With the purchase of an NFT you take “ownership” of the item it points to. This item could be a piece of digital art, a digitized photo of non-digital art, an accessory in a game, or any other type of thing that normally is considered easy to replicate and, therefore, absolutely not unique. The NFT is just a token, not the thing itself, so if someone turns off the server the asset resides on or alters the item, all you own is a digital link.
- Are NFTs a safe investment?
- It depends on what we mean by safe but largely no. There still are open legal questions with NFTs, such as how data protection laws apply to a blockchain. There is very little regulation around the NFT market, theft and scams (especially rug pulls) are frequent and most often have little or no negative consequences for the fraudster. Also, NFTs can contain malware, so any offer of a “free” NFT should be treated with caution. Another very common risk is that people lose access to their wallet by losing their access key, and chances are this wallet is lost forever.
- How to create an NFT?
- There are detailed tutorials and even books on how to create NFTs and/or get started with cryptocurrency. The first thing you need to do is open a wallet, which is as easy as downloading an app from your preferred app-store. Setting it up does not involve divulging any personal information, it does not even involve buying any coins. You then connect this wallet to a marketplace of your choice and now you are just steps away from being an art star and/or a star art collector.
- Johanna ThompsonCreative Artist