To NFT or not to NFT?
From the title alone you probably fall into one of two trains of thought. Train of thought one: what in the world is an NFT? A Non Fungible Token (NFT) is – to put it simply – a unique, virtually-signed and authenticated, piece of digital art. The second train of thought might be something along the lines of: what’s so good – or bad – about NFTs? To answer that question we must first examine how NFTs operate in the world of cryptocurrency.
If that last statement felt a bit overwhelming, fear not! We are going to dial it back a bit to the fine art world in order to cross the barrier into the digital landscape. Our starting point is 1973, when the art world transformed into its current iteration or, if you share the opinion of art critic Barbra Rose, “when the art world collapsed.”
Ten to twenty years prior to this date owners of a well off taxi company in New York, Robert and Ethel Scull, began buying up emerging artists’ works all around town. Within the Sculls existed the belief that through art acquisition they would be able to move up into higher tiers of society. What happened next shocked the art world. On October 18th 1973 the couple put up 50 artworks in Sotheby’s auction house bringing in 2.2 million dollars. This situation was incredible for the standing of then contemporary American art; however, as put by The News Republic, “more spectacular was the disparity between what the Sculls had initially paid, in some cases only a few years prior to the sale, and the prices they commanded at auction: A painting by Cy Twombly, originally purchased for $750, went for $40,000; Jasper Johns’s Double White Map, bought in 1965 for around $10,000, sold for $240,000.”*
It is in this kind of high profit relationship that we see the auction houses of the fine art world and the marketplaces of the NFT world coincide. A piece of physical art sold at auction is an authenticated, unique, piece of work that can not be substituted by a copy (try as forgers might) and its virtual counterpart is a Non Fungible Token. Just as artwork can be purchased directly from the artist and then sold for a markup at auction, so can an NFT at marketplace. Both institutions make their money based on a scarcity model. It comes back to supply and demand. If you can drum up enough demand and only provide a limited supply you’ll see people willing to pay sky high prices.
The esteemed Christie’s auction house is one of the institutions bridging the gap between the traditional art world and the digital. In March 2021 Christie’s made headlines from the $69,346,250 dollar sale of Beeple’s NFT EVERYDAYS: THE FIRST 5000 DAYS purchased with the cryptocurrency Ether. This massive digital collage was minted – the process in which a digital artwork is authenticated and “stamped” onto the Ether “token” – specifically for Christie’s to sell. It is that process that then allowed for the buyer to purchase the work by transferring Ether from their virtual wallet to Christie’s virtual wallet and having the Non Fungible Token transferred to them. All records of these transactions are stored in blockchains on the ethereum network, where Ether originates. Essentially, the Ethereum Network is the bank, Ether is the currency, Minting is appraisal, Blockchains are the ledgers (collection of financial accounts), and the NFTs are the artworks. So, what’s the point in all of this? Why learn a whole new digital process which is almost identical to the physical one?
Let’s take a look back to the sale in 1973. The most remarkable part of the situation was the incredible resale prices which some artists such as Robert Rauschenberg felt were indicative of exploiting artists’ labor. As the starving artist trope may indicate, this high profit world of auction house sales doesn’t generate the average artist the amount of income one would hope for. This amount is even smaller when you consider how many artists are pining to get into such institutions. This problem is one that NFTs could rectify. Within the minting process for an NFT, terms and limitations can be set such as the originator receiving a commission for every resale. In considering what’s so good about NFTs, this feature is definitely a plus in most artists’ viewpoints. As long as they are the ones who upload and mint their artwork it’s no problem; however, wherever there is an art market, there are art forgers.
Easier than making an incredibly skilled master copy of a painting, for example, art forgers in the digital realm need only save and download the artist’s original work and then mint it as their own. Of course NFT marketplaces have their own security and authentication processes just as auction houses do. However, as we’ve seen with the boom in social media and the increasingly digital world, copyright claims – when they occur – can be difficult to prove. It is much easier to pass off a copy of a lesser known artist’s work, be it physical or digital, than someone of celebrity, and online this happens frequently. So while the originator has more to gain from an NFT, the downside is the buyer has more to lose.
That is just one aspect of the good and bad of NFTs and is generally the risk one takes on from any sort of marketplace purchase, from buying an antique at a thrift store, to purchasing an heirloom off of Facebook. It might not seem like the kind of big moral dilemma that would cause some artists to swear off NFTs altogether, so, what is? The environment.
NFTs and cryptocurrency as a whole run off massive amounts of electricity. This comes from its digital nature, the amount of transactions that occur, the process of creating blocks and block chains (verifying and creating records), and of course the storage of information. If you look at the most known of all cryptocurrencies, Bitcoin, you might find a study explaining how Bitcoin takes less energy than traditional banking, prompting the belief that cryptocurrencies use less energy. There are, of course, a few issues with this. First, the study was done by Galaxy Digital, a cryptocurrency firm, meaning they had an implicit bias. Second, Bitcoin, the currency system said to require two thirds less energy than traditional banks, is just one company. The likelihood that the energy consumption of all cryptocurrency is more than our traditional banking system seems high based on the energy consumption of just one of those companies being an entine third of the energy consumption of our current system. Taking a look at Ethereum, the company through which most NFTs are bought and sold, you can see just how bad the energy consumption is. InHabitat explains “a single Ethereum transaction consumes 48.14 kWh. For comparison, that’s just over one and a half days of energy consumption within the standard U.S. household.” Considering between 1,000 and 3,000 transactions with unique buyers occur in a typical day, you might see why some artists are putting on the brakes when it comes to NFTs.
While NFTs are new, exciting, and promising ways to buy and sell artwork they are not without cause for concern. While the system of cryptocurrency and NFT marketplaces are so similar to cash, credit, and auction houses, their differences shouldn’t be ignored. This isn’t without optimism. Ethereum announced that it plans to cut down its energy consumption and improve its environmental ranking by 2022. A step in the right direction but the energy sources themselves will still come from non renewable resources. It is my hope that cryptocurrency, as it appears to not be going away anytime soon, joins in on the switch to renewable energy and environmental conservation. Until then many artists, myself included, are left with a question. To NFT, or not to NFT?
By Tierra Deacon