NFTs are unique digital renditions of, for example, a work of art, representing a certificate of authenticity, which is recorded on the blockchain. Additionally, NFTs can be based on physical art, music, collectibles, or other types of digital assets. While some may think that NFTs are a passing fad, there are interesting implications for traditional art markets and digital art, which could indicate that NFTs will have a future in the art world. Let’s dive into how NFTs are integrated into the art market and what future NFts may have in the digital space.
Disrupting the traditional path
For decades artists had to walk a well-threaded path of starting out their career in galleries, placing their art with museums and collectors. After that would typically come the secondary market of auction houses, making galleries and auction houses effectively the market makers for art. Enter NFTs!
With NFTs, artists can skip this decade-old path, disrupt the process and go directly to the buyers. Furthermore, such an approach has also disrupted the pricing in the art markets, as galleries usually set the price for new art. The “liquidity” of the artwork has only been enhanced once it hits the secondary market. Essentially, every sale in the secondary market would mean the proceeds going to the current owner, not the artist.
Any subsequent price increase of an artist’s work did not benefit the artist in almost any way, while NFTs change that, making it one of its main selling points among artists. Contracts built into the NFT can stipulate that a certain percentage goes back to the artist’s wallet after each subsequent sale.
This form of democratization of art and the markets means that there may be more buyers and potential artists who can now earn more from their hard work.
Growth of NFTs
According to data from DappRadar, the top collections in the NFT space each have volumes of over $1 billion. In 2021, the NFT market saw $22 billion in total sales, a 220-fold increase compared to $100 million in sales the year before. The traditional art markets have never seen such an explosion in value. Truth be told, the traditional art markets roughly make $60 billion in annual sales, with a 10% increase or decrease.
Seen such tremendous growth, some established artists rushed in to create their own NFT projects, which further increased the hype around NFTs. For example, Damien Hirst released Currency Project, and Tom Sachs released Rocket Factory as an NFT project.
Following these bold attempts by established artists, galleries started collaborating with their artists in the new NFT space. Galleries like Kate Vass and Konig Galerie promoted NFT drops. Some even launched their own metaverse, and yet some have their own NFT marketplace.
Digital art introduces new possibilities
Technological advances have introduced new possibilities in the art market, more specifically, the digital art market. For example, the Botto Project represents a decentralized AI artist that has the community pick work that will be created and minted. By having an AI component, over time, the digital artist will adapt to the communities preferences and create only those works of art approved by the communities overall preferences.
With the quick evolution characteristic of blockchain projects, NFTs quickly introduced a new possibility in the digital art world, namely, the profile picture (PFP) NFT. Interest in these algorithmically generated PFP NFTs exploded, with popular projects like CryptoPunks and Bored Ape Yach Club (BAYC) hitting the ground running and raking in millions while doing so.
This approach of minting algorithmic works in high volumes helps artists build a following and introduces innovation and gamification into the mix. A popular NFT artist, Pak, released his Merge Project, which allowed holders of his NFTs to merge them and create unique new NFTs, thus fully leveraging the gamification aspect of digital art.
Building a community
Traditional art was more often than not a private experience or simply limited only to the lucky or rich few. With NFTs, artists are making, besides attention-grabbing figures, connections with their audience and forming a community around themselves and their works of digital art. Chat servers on Discord or private direct messages that the community gets from the evolution that technology brought to art make artists more approachable and, we would argue, more likable.
Moreover, NFT companies organize live events where holders of a particular artist’s NFTs or fans can see the artists mint their new work live. Of course, these events are accompanied by live music, food, and drinks, making it a social gathering that was usually never seen in traditional art markets. While most of what was mentioned so far seem overly positive, there are challenges that NFTs and digital art have to tackle before we can only focus on the positive sides.
Challenges
When a lot of money flows into something new, there is a certainty that scammers or con artists will follow suit. Sure enough, scammers found innovative ways to exploit security loopholes to steal users’ NFTs and users’ funds. Furthermore, identity fraud increased, like with the fake Banksy sale, as NFTs provide the transactional record of the work, they don’t prove the identity of the creator and cannot guarantee the authenticity of a created work of art.
Some companies introduced a certificate of authenticity (COA) into their NFTs to protect both the artists and the customers from scammers. Some platforms allow only certified artists to create and sell their works of art on their platform. There is, of course, the issue of environmental impact that NFTs may have. According to data, when the performer Grimes sold her collection of NFTs for $6 million, the transactions consumed so much energy as an average EU citizen would consume in 33 years.
Finally, with speculators starting to show up in greater numbers, most of the NFT projects were surrounded by a speculative bubble, where values went far beyond what anyone expected. This has, undoubtedly, made a lot of money for artists and perhaps some early adopters, but has hurt some that were left holding NFTs that they paid hundreds of thousands but which are now worth 90% less.
Conclusion
The fact that NFTs are not replicable or interchangeable means that NFTs have the potential to solve some of the art market’s biggest issues. Creating a transparent and traceable ledger of ownership for assets can benefit numerous professions, not just the art world, and blockchain and NFTs have that potential.
At the moment, it feels as if there is no going back for the art world, as NFTs represent the early stages of digitalizing that market. Yet caution and prudence are warranted, like with almost any new thing. For those looking to participate, perhaps staying on the sidelines for a little longer may be the best course of action until some issues get resolved. For others, looking to take outsized risks, there is no greater opportunity than to get in now.
