The truth about NFTs and what we artist can learn from it – Part II
This is part II of my NFT blog series dealing with the trend of NFT art. Part I was explaining what triggered the NFT hype and gave insights on how artists can be part of it. This blog post will give insights into the benefits and downsides of NFTs. Part III will explore what NFTs will look like in the (near) future and what we can expect to happen next.
What are the advantages of NFTs?
The biggest argument for NFT technology is that it finally gives digital and multimedia artists a way to sell their artworks. For years the art world could not agree on how to sell these artists especially with the ever-changing technology as well as with the rise of the internet. Now, even if there are millions of copies of an artwork speculating on the internet, an ownership with a digital certificate of this artwork can be established. And as the ownership history is recorded on the blockchain it is traceable and cannot be altered.
Another benefit is that thanks to the digital record, re-authentification and validation costs of an artwork could be eliminated for future sales. Which of course is quite a money saver especially for investors. Buyers can watch the market and relist the rights of ownership at any time without getting involved with a third party such as an auction house.
Additionally, NFT and blockchain technology allows fractional sales and ownership of assets. Like in any other investment scheme buyers could buy ‘shares’ of an artwork. This strategy could attract less experienced buyers as well as art enthusiasts who are interested in supporting a beloved artist. Similar to crowdfunding platforms, however instead of buying project-related pledges, it would be shares of an artwork. Currently, the are no existing NFT platforms that are supporting this proposal.
As already mentioned, NFTs can include royalties for secondary sales. Currently not all NFT platforms incorporate this approach but many artists hope that in the future this could be standardised. Consequently, this would mean the resurrection of the Artist’s Reserved Rights and Transfer Agreement, a legal document that artist Seth Siegelaub and the lawyer Robert Projansky drew up in the 1970s to protect how artworks circulate in the market. Half a century later, we have finally obtained a way to truly define – and trade – the work of art as a contract. At the frontier here again was Beeple, his first NFT drop ‘Crossroad’ was initially sold for $66,000 but recently resold for $6,6 million. According to Beeply, the smart contract included 10 per cent of royalty which means that the secondary sell earned him 10 times more than the original sale.
One more thing worth mentioning is the direct payment of artists through these platforms. If you ever dealt with galleries or art shops, especially the less organised ones, you know that receiving payments can take a long time. Many artists have to wait months until they receive their share of a sale. Selling art online, especially when selling directly, gallery percentages and waiting time can be avoided.
Sounds great but are there any downsides to NFTs?
Let us start with the most obvious one – even during the writing, I had to explain specific terminology and try to describe things oversimplified to make this article widely accessible. The NFT movement is very techie and requires technical know-how to be able to participate. It demands access to cryptocurrency and digital wallets that is still not public knowledge. Many people will struggle to engage with NFT platforms on their own without guidance.
Another point that comes up every so often is that in essence, the NFT is a contract with no oversight and with no protection by the ‘real human law’. The NFT supporters argue that the autonomous process is protected by cryptography. But what happens if your wallet gets hacked, or the NFT platform of your choice goes bankrupt and you lose the access. Of course, somewhere on the blockchain, the data will still exist but you as a non-techie person will not know how to locate it.
Moreover, just because the record of ownership and transactions is immutable, it does not mean that the artwork itself is save from forgery. Most NFC platforms do not have regulation in place to secure that the tokenised art was really made by the person selling it. What if a fraudster puts someone else’s art as NFT and sells it? It would be irreversible. And who will be responsible to compensate the affected party then?
The internet is already a hot spot for imposters, fake profiles and bots so who will protect artists from copyright infringement? The dilemma of infringement is not new to the art world however the digital anonymity spread this issue. In the last year, thanks to the pandemic and the rise of fake online galleries, artist are more vulnerable than ever before. Some NFT platforms try to solve this problem by implementing a verification process of the seller’s identity and credibility. But these processes are often depending on human resources and it is just a question of time that errors will occur.
A further concern is the transparency and visibility of the NFT market. In most cases, this is listed as NFT and blockchain biggest advantages but it may scare a lot of art investors, speculators and collectors especially the ones operating in the grey market. Of course one can argue that this is actually a good thing and it is time to clean up and legitimise the market. But this might be too utopian and many potential buyers will still require privacy and anonymity and stay away from NFTs.
Worth to mentions is also the popular critique on NFT, cryptocurrency and blockchain – and that is their environmental footprint and the tremendous volume of energy that they consume. Just the other day Elon Musk announced that Tesla will no longer accept bitcoin as payment due to its high amount of carbon-based energy use. Blockchain supporters claim this is taken out of context and in reality, we are missing a comprehensive study on how much energy banks worldwide consume vs bitcoin usage. If you want a deeper dive into this topic I can only recommend reading this medium blog.