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We will tell how NFT is going to change the Art Industry. We will uncover the advantages and disadvantages of the new technology for the Art Market and the main NFT working processes
In March 2021, an American digital artist, Mike Winkelmann, sold his picture at the Christie’s auction for 69 million dollars. The bidder has not received a physical picture, nor a digital copy. Instead, he became the owner of a non-fungible token, also known as NFT. This was the very first case when an NFT art piece was sold at Christie’s. Next, we are going to tell you what NFT is and how this technology can change the art industry in the near future.
What is NFT art?
NFT art, namely crypto art, is digital artworks that apply non-fungible tokens («NFT») for trades. NFT — is a cryptocurrency token
that has a unique identification number. What differs them from regular tokens is that they are not interchangeable. By this, I mean that each NFT is unique. In contrast to bitcoins, dollars, or gold, one non-fungible token is not equal to the other. Furthermore, NFT cannot be divided, combined, or duplicated.
The art industry uses non-fungible tokens to pass the right of ownership of certain artworks via a blockchain system. NFT blockchains supply a non-changeable recording of the trading operation of an NFT between the counteragents in a public register.
How do NFTs work on the ground level? Source
To make the long story short, the combination of blockchain and NFT art is a digital asset that provides all the necessary information to help identify a certain work of art and the owner — the token holder. This is a great opportunity to buy and sell digital works of art quickly and securely as people trade bitcoins.
Furthermore, as the blockchain structure is compatible with NFT technology
, metadata can be added to these tokens. Metadata can include legal details (such as what copyrights a particular token gives), a small text describing the underlying asset, or even a small image.
3 ways of storing NFT artworks
There are three types of NFT artworks. They all depend on the way of storing: on the same blockchain, on the other blockchain, on decentralized storage.
On the same blockchain
The most obvious way of artwork (audio, video, animation) storing is on the same blockchain the NFT is run on. This option is the most secure, since even if the project development team stops or quits and their website is deleted out of the internet, then the artwork still will exist in the blockchain.
The most reliable storage mechanism for your NFT art is when the artwork and the NFT token are in the same blockchain. Source
are vivid examples of platforms that apply this storing method to NFT and artworks. They both use the Ethereum blockchain
and the ERC-721 token standard. These are the tools required to possess an artwork.
On the other blockchain
The second solution that works as a bridge between the NFT and the work of art is when the image, audio, or video file that helps to identify a certain artwork, is stored on the other blockchain. Else, it can use decentralized storage (Arweave
). For example, the NFT is stored on the Ethereum blockchain, while the image is on the FileCoin
is a decentralized network that works on IPFS as cloud storage.
The scheme of an NFT token and an artwork being stored on separate blockchains, or when the metadata is held on decentralized storage. Source
When the NFT and the artwork (image, video, audio) live on a different blockchain, or you use a decentralized storage method, you might have a bad experience if the project (NFT marketplace
) is shut down. In this case, the data about the artworks and the history of owners might inevitably get lost. Here are the two worst and still most obvious scenarios for the NFT art and the owners:
- Link support termination. If the NFT and the artwork are stored on different blockchains or a decentralized repository, a link to where the artwork is stored is attached to the NFT. If the platform where the NFT is stored ceases to function, that link will be terminated, hence the NFT becomes useless.
- Support failure from the repository. If a video, audio, or image file is stored on IPFS (a torrent), someone on IPFS should always store it on their device. If no one stores the file on their device, the file will simply disappear from the network and NFT will become useless again, even if the link to the storage location is still active.
uses this method. It is an NFT platform that stores the source NFT data on Ethereum blockchain, while the files of the artwork are on a decentralized storage — Arweave.
In a centralized storage
The last option is to store the file on a private company’s servers, or a regular decentralized cloud storage, such as: AWS or Google Cloud Platform.
NFT token is on the blockchain, the file of the artwork is stored personally by the company that runs the token. Source
To be honest, this solution is probably the most unsafe and unsecure, since the centralized platform can stop servicing and storing your file. This may be the platform’s fault or one of the centralized storage). Furthermore, the content can get censored, or the storage might suffer a hacker attack.
Examples of these projects are:
- Crypto Kitties. The family (DNA) is stored on the blockchain, but the images generated are off the chain and are stored on private servers.
- Axie (Pokémon like). The family (DNA) is on the chain, the images are stored and generated off the network, but 3rd parties can still access them.
2 types of NFT art
There are two main types of NFT art: generative and non-generative. Non-generative artworks are ordinary paintings and other artwork created by people and uploaded to a blockchain and then assigned to an NFT. Most of the NFT art you'll see on the Internet is not generative. They are the results of human creativity (and technology). The most famous examples of non-generative NFT art are:
- A digital collage titled “Everydays: The First 5,000 Days” by an American artist who works under the pseudonym Beeple was sold at Christie's for $69 million.
- The most expensive pixelated image from the crypto-punk category, titled “CryptoPunk #3100” (a blue headband head), sold for $7.58 million (at the time of the sale).
- Another piece of digital art by artist Beeple called “Crossroads” sold for $6.6 million.
- Twitter CEO Jack Dorsey sold his first tweet (aka the first tweet on Twitter) as an NFT for $2.9 million.
Generative artworks are created using a specific algorithm that uses a unique NFT identifier as the “seed” to create digital artwork. Such NFT artworks can be generated from start to finish by an algorithm. Or they can be created based on something the user specifies, e.g., they can specify a name, color, description or upload/draw some image, then based on these elements (all or individually) the algorithm creates something new. Here are some similar projects:
- Autoglyphs — generative NFT-art. Created and stored on the network.
- ChainFaces — generative NFT-art. Created and stored on the network.
- Crypto Kitties — generative cats. Family (DNA) stored on the chain, the images are generated and stored on centralized servers.
- Axie Infinity — generative Pokemon-like game. Family (DAN) stored on the chain, NFT-art — generated on the chain, but stored on a decentralized storage.
How NFT transform the art market
According to Forbes experts, blockchain, and NFT have the potential to fundamentally change the global art market due to their unique advantages and new opportunities. At the same time, the key changes will concern market liquidity and the protection of artists' copyrights online. In addition, new technologies will also enable new ways to monetize.
The development of digital art
As NFT penetrates the global art market
, they are increasingly transforming it. The clearest example is the $69 million trade of “Everydays: The First 5000 Days” by NFT mentioned earlier. Digital artist Beeple (aka Mike Winkelmann) has been creating and selling his work for over a decade. But previously, he was essentially alienated from traditional auction houses because digital art “can be infinitely reproduced,” making its sale “useless,” since anyone can copy it and use it.
«Everydays: The First 5000 Days» — sold for $69 millions. Source
Thanks to the NFT, which is an essential digital identifier, such works of art can be made unique. That is to say, a particular image can become an original and all others will be copies of it — a digital file can be copied, but the NFT is always unique! This is what has helped Beeple's paintings gain tremendous value in the traditional art world, as only originals have value there.
Another example of NFT art being sold at a traditional auction house is the recent announcement that Sotheby's will be selling the first minted NFT, Kevin McCoy's 2014 animated “Quantum” drawing.
«Quantum» — first NFT, by Kevin McCoy. Source
These examples show how blockchain and NFT have made digital art relevant to the traditional art market, where previously only “physical” goods and copyrights were in demand. Now digital images, video, audio, animation, 2D and 3D models can become equivalent (at least in sales value) to the works of Van Gogh, Michelangelo, Raphael, and Malevich.
At the same time, the digital art market will retain all its advantages, such as ease of access, speed, and security, and will gain new opportunities thanks to blockchain technology and smart contacts. This is easy to understand if we compare two examples: the sale of Leonardo da Vinci's Mona Lisa and the sale of any NFT:
- First, the authenticity and the legality of purchase should be proved, then the shipment should be discussed. And it is consuming a lot of time, money and requires special talent.
- Selling the most expensive NFT is done in a nick of time, the operation itself is fast, simple, and secure, no intermediaries are required (which only increases the overall price).
The art market gets more accessible
And what is even more impressive, the NFT helps to make the market much more accessible for both beginner artists and customers. Now, even a no-name, 12 years old teen can create NFTs
of pixel whales. Moreover, he managed to sell them online for more than 400 thousand American dollars!
Twelve-years-old, Benyamin Ahmed makes $400,000 from whale NFTS. Source
One more thing to be mentioned, is that people all around the globe were buying these whales. In what concerns the traditional artworks, only a narrow community has access to the pictures, which are mostly sold at auction houses.
In contrast to the traditional market, which is hardly accessible, NFT art is global and accessible to everyone.
Copyright protection on the internet
Before blockchain and NFTs, we never had to own anything completely digital. We used to download images, videos, and animated graphics, repurposing and sharing them as we pleased, without any regard for copyright.
NFTs, blockchain, and other innovative technologies are changing that, allowing creators of art to track their distribution on the Internet, which in turn allows them to protect their copyrights online.
For example, if you create your digital artwork and want to copyright it, you need to mint an NFT on one of the NFT platforms. You will then be able to use this NFT as proof of copyright on the Internet. You can track and monitor the infringement of such a right by using specialized services. The simplest example is a Google search for a given image or a YouTube search for your video content. Moreover, on YouTube, it is possible not only to track the distribution of your content but also to receive money for the views on the channels which use it.
It is just the beginning, thanks to the development of deep neural network technology
(artificial intelligence), we can expect that in the future there will be many services for the purchase and sale of digital content and tracking it online.
New opportunities for monetization
In addition to the benefits described above, NFTs can also increase artists' income. For instance, there is already evidence that some artists have been able to double their monthly income by selling NFTs. This is possible because when using NFT, artists can bypass art dealers and sell their works directly to end buyers (which saves 10 to 60% of the transaction).
But that's just the beginning, as NFT allows new revenue models to be created:
- There are some NFTs that automatically pay royalties to artists when they resell their work. This monetization model is used by the Foundation: artists receive a 10% royalty in perpetuity on every resale of their work. Royalties are deposited directly into the wallet of the person who minted the NFT. That said, the Foundation already has an agreement with OpenSea, Rarible and other similar venues that if the Foundation's NFT is sold in those markets, they will transfer a 10% royalty to the artist's wallet.
- The ability to claim ownership of content online with NFTs and track its distribution allows monetization mechanisms to be developed where anyone who makes money with that NFT can automatically pay royalties to its owner. Like this is partially implemented on YouTube, but for the entire Internet.
- NFTs also allow you to sell the ability to show artwork with time and/or location restrictions. For example, you can sell NFT art with the right to display it anywhere, but only for 10 years from the time the token is sold. Or it could be the right to show it only in the U.S. or in a specific Facebook group or YouTube channel.
- Museums can create NFT-arts of their exhibits and start entire digital exhibitions, and then charge money for viewing them.
A new way to store art
Proper storage of valuable (physical) works of art requires special storage facilities that maintain special lighting, humidity, and temperature conditions. And since art is a lot of money, proper storage is an obligatory but sometimes difficult task for owners of all valuable works. This is especially evident in museums, which sometimes spend hundreds of millions of dollars (if not more) to store valuable pieces.
However, even the most technologically advanced depositories are not able to store valuable art objects forever, as they will eventually collapse or lose their appearance. Moreover, it is impossible to protect architectural objects from the influence of unfavorable factors — the fire in Notre Dame Cathedral is a vivid example of this. And then there are temporary art objects, such as the Triumphal Arch designed by Christo Yavashev and draped in white paper, which “live” for weeks, days, or even minutes. In the real world, it is impossible to preserve all these works of art without losing their “original” status.
This problem can be solved by digitizing physical art objects and assigning a specific digital copy the status of “original” with the help of NFTs. This is the only way to preserve the art object and its value when transferring it to “digital”.
The NFT industry strives to create an inclusive, protective environment in which digital artists can make money. Anyone with access to the Internet can create an NFT and have the ability to monetize it: whether it's a photograph, a digital painting, a 3-D animated graphic or block pixels like the Nyan Cat video (which was sold for $600.00). It could change the lives of millions of bright minds around the world.
However, there are a couple of things to be aware of:
- Artists have to pay $80 to $1,000 to have their NFT, even if their picture, photo, or video doesn't sell.
- Now, NFT has a big environmental footprint. French artist Joanie Lemercier has calculated that one 2-second NFT transaction consumes as much energy as an art gallery needs for 2 years of full operation, which is 8.7 megawatt hours of energy.