Here in the New Age, Lies the Magic of NFTs
Has the world of collectable art finally gone digital?
Thaddeus Chong (not his real name) had been waiting for this day for a long time. As an anonymous phone bidder at a recent Christie’s auction, he had been waiting for months to receive his latest prized find – a rare piece by American abstract expressionist Jackson Pollock.
Chong, who attended New York’s finest business schools and made his fortune trading oil futures in the 1970s and ’80s, first set eyes on Pollock’s works when he was cutting his teeth on Wall Street and vowed to someday own one. And now that the day finally came, he couldn’t have been happier.
Prancing around the expansive living room of his 12,000-square-foot bungalow in Singapore, Chong couldn’t wait to show off his latest acquisition to his friends, who would be “green with jealousy,” as he surmised.
Then the COVID-19 pandemic hit. And Chong was left pretty much alone (his family hadn’t taken to art in the way that he had) to stare at his Pollock that hung forlornly in his living room. Even when the lockdown was lifted, Chong, who was accustomed to hosting large, lavish parties as an excuse to show off his extensive art collection, could only have small gatherings with close friends over to marvel at his latest acquisitions.
Chong, who was probably more into art for the bragging rights than anything else started to grow somewhat dejected – what was the point in having something that nobody even knew you owned? This is when Chong stumbled on the concept of NFTs or non-fungible tokens.
NF What?
NFTs are not new. They’ve been around since Ethereum – the world’s second-largest cryptocurrency by market cap – originated. NFTs are essentially digital tokens that can be tied to anything digital – drawings, songs, items in video games, and even animated GIFs.
Using blockchain, a decentralised database that stores immutable information and transaction data, NFTs keep track of who owns what piece of digital property, and also serve as a public ledger to attest that ownership. Whether it’s a photograph, a piece of art, a video clip, or a collectable sports card, blockchain becomes the ultimate tracking tool to unequivocally determine ownership.
Let’s say you’ve created a digital painting – that painting can be registered to an NFT on the blockchain, as well as its history of ownership and its unique identification or code. When someone buys that painting from you, the blockchain will record that new ownership and also serve as a certificate of authenticity, which not only guarantees sole ownership in perpetuity but ensures that any copy of that art will not be “re-sold” as a knock-off because the blockchain is immutable and to date, unhackable.
Ownership of Original
One important caveat? Ownership of an NFT will not prevent someone else from copying the artwork. Because anything digital can be copied, there’s nothing stopping the infinite number of copies of your painting from being recreated. However, none of these digital copies of your painting will be the original because the blockchain will only reflect the one NFT.
And therein lies the magic of NFTs. While the art industry spends millions of dollars each year authenticating art and tracing the provenance of highly-prized pieces, NFTs allow creators to confirm the authenticity and lock that certification in perpetuity. True, there’s nothing stopping anyone from making copies of your digital masterpiece, but only one (or however many “originals” are issued) will ever exist.
NFTs are designed to give their owners something that can’t be copied – ownership of the work, though most times, the artist still retains the piece’s copyright and reproduction rights, just like with physical artwork. To put it in terms of physical art collecting, anyone can buy a Monet print, but only one person can own the original.
While previous generations have an attachment to the physical, including physical art, photographs, books and other collectables, Millennials and Gen Z are far more comfortable with digital works.
Imagine an entire generation that has grown up comfortably with the idea that you watch movies and listen to music that you don’t own, rent your house out to people you don’t know, and ride in a car that doesn’t belong to you; the concept of digital ownership becomes an extension of that theme.
How It Works
You have to hand your digital painting over to a dealer who can get it authenticated, by looking at its blockchain history, and then make it available for people to bid on. Since the digital painting is yours and trackable on the blockchain, each time it’s sold, you as the creator get a cut of the transaction.
But wait, there’s more.
Because NFTs run on blockchain technology, they can be tied to smart contracts so that a creator continues to receive a portion of every subsequent NFT transaction, without requiring clunky trusted intermediaries to facilitate the payment of those royalties. Imagine if the descendants of Monet could continue to collect royalties from each time his paintings were on-sold!
And with the rising price of cryptocurrencies over the past year, demand and interest for NFTs have never been higher. Canadian singer, songwriter and visual artist Claire Elise Boucher, better known as Grimes, recently sold some US$6.6 million worth of digital artwork. And in early March, a digital video clip of NBA basketball star LeBron James attracted a winning bid of US$200,000.
NFT fever reached its zenith when Christie’s auctioned off a piece of virtual art on March 11 – a digital collage titled ‘Everydays: The First 5000 Days’ for US$69.3 million – the third most valuable piece of art ever sold by a living artist.
To be sure, some of these heady NFT prices are because of the recent spike in cryptocurrency prices – most NFTs are transacted in Ether, whose price has shot up by 570 per cent in the past year. ‘Everydays: The First 5000 Days’ was paid for using Ether, which was trading around US$1,800 at the time of the auction, but is now worth well over US$4,000.
And given that many of the investors of NFTs were also early investors of Ether (or have existing bags of Ether lying around), the recently achieved NFT records can’t necessarily be equated in dollar terms, without at least factoring in that some of that Ether was acquired at relatively low prices.
Regardless, it still begs the question of why any collector would pay money for something that can be easily copied. The answer is simple – ownership.
Do you own art, or does art own you?
Sure, anyone can download a digital copy of any digital work, but ownership is an exclusive and expensive club. Because the blockchain ensures the certainty and transparency that it’s yours forever, NFTs provide a unique value proposition that has only just come into maturity.
What is however less clear is what an investor of an NFT is getting. Although many would assume that the copyright of digital art that is tied to an NFT passes on the benefit to the purchaser of the NFT, that isn’t entirely certain.
Some legal scholars suggest that an NFT is nothing more than a proof of authenticity and that the copyright creator had not intended to transfer the intellectual property in the creation to the purchaser of the NFT.
Intellectual property issues such as these will continue to loom large as the space for NFTs evolves. Yet, even if the copyright of the digital creation does not transfer, the NFT in and of itself may still be valuable – ironically.
Because it’s easy to make digital copies, the demand for the “original” will be even stronger. NFTs create digital scarcity in an age of internet abundance, and there’s an intangible value to that.
As was witnessed in China, demand for designer knockoffs – regardless of their quality – fell significantly as the Chinese became wealthier and demanded to own the originals created by French or Italian fashion houses.
One of the obvious benefits of buying art is that it lets you financially support creators that you like – and that’s true with NFTs as well. Buying an NFT typically also comes with some basic usage rights such as being able to post the image online or even better, setting it as your profile picture, so everyone will know you own it. But more importantly, there are bragging rights with NFTs and a blockchain entry to back it up.
Ultimately, knowing that you own the original imbibes an unquantifiable sense of satisfaction that collectors are willing to pay for. There will always be people willing to pay for fakes, but in a world that feels increasingly commoditised, even more will likely shell out for ownership of an original. NFTs are just an extension of the times. Even if someone owns a Monet, as Thaddeus Chong will attest, not having anyone else know you own it is sort of missing the point.
Patrick Tan can be contacted at patrick@novum.global.
