The latest innovation in cryptocurrency, non-fungible tokens, or NFTs, has the art world abuzz. But do you know what they are and what their impact is?
What is an NFT?
A non-fungible token (NFT) is a special type of cryptographic token that, unlike cryptocurrencies such as Bitcoin, are unique and not interchangeable. “Fungibility” is a metric in economics that determines the property of a given good or commodity as equivalent and/or interchangeable.
NFTs are relatively new on the crypto scene, but have seen a massive boom in the past year, and their newness hasn’t stopped big names like Grimes, Kings of Leon, and even premiere auction houses like Christie’s from jumping in on the market and making huge sales.
Like all cryptocurrency, NFTs are completely open-access, meaning any artist who can create a piece of digital art can upload that art and sell it on the crypto market, regardless of their level of fame, the size of their audience, or their connections in the industry.
The way that sales on NFTs are organized, the original uploader receives a royalty fee each time the NFT changes hands, meaning if a piece increases in value and is resold, the original seller can continue to make money off it, instead of selling once and losing ownership.
Uploading a piece of art for sale on the crypto market requires comparatively little investment for a potentially (and arguably likely) large return - a piece that took a few hours to create can be uploaded for a relatively small fee and can net up to thousands of dollars.
All cryptocurrency has the problem of incredibly high energy consumption. For example, a transaction of 1 eth (a single unit of Ethereum, the second-largest cryptocurrency behind Bitcoin) uses about the same carbon emissions as driving a gas-powered car for 12,000 miles. (NFTs are higher on average than a simple cryptocurrency transaction, as an average NFT upload/sale requires multiple transactions on the blockchain)
Cryptocurrency’s open-access also means that anyone can upload a piece of digital art or content as an NFT, so art theft is a definite possibility. Accounts on Twitter like TokenizedTweets allow any user to tag the account on a tweet and get a unique ID for it, regardless of who wrote it, or if there is artwork attached. Ownership disputes are possible, but it remains to be seen how effective they will be.
NFTs essentially extend the already existing scarcity-based fine art market to the digital world. Just as auction houses like Christie’s sell a piece of art for millions of dollars to the highest bidder, regardless of interest in the artistic value of the art itself, NFTs relegate digital art to the realm of “assets,” which is not a new concept but may seem a bleak future to some artists.
In summary, NFTs are a relatively new means for cryptocurrency to get invested in the art world, but the systems they take advantage of are not exactly new. Millionaires and technocrats who bid on NFTs in order to avoid taxes or launder money have a number of other avenues to do so, including more traditional art markets and auction houses. The concerns over the devaluation of art is similarly a tale as old as time. Consider the kerfuffle at Art Basel Miami Beach in 2019 when artist Maurizio Cattelan duct-taped a banana to the wall and called it a piece called “Comedian,” which eventually sold for $150,000 (but not before the first banana was unceremoniously eaten by performance artist David Datuna). Cryptocurrency’s carbon footprint is a worrying trend, but it is also hardly the biggest contributor to environmental damage: online retailer Amazon produces an average of 51 million metric tons of carbon emissions per year, and defenders of crypto have compared the footprint of Bitcoin to the energy wasted each year by idle home electronics in the US (items like TVs, game consoles, lamps, coffee makers, etc, which are always plugged in but not always in-use) which they claim could power the entire Bitcoin network for two years.