Blockchain is creating a new market in digital art via the non-fungible token, or NFT, but is it all its cracked up to be?
Non-fungible tokens, or NFTs, is a concept that is gaining momentum fast. At heart, it's a way to ensure only one original copy of digital art exists, thus creating value for this single copy.
It allows blockchain to create value for digital art, whether it is a static image, a video or even another form of digital content such as music. And it is creating an explosion in interest among investors.
But does digital art applying blockchain really make sense?
To create an NFT of digital art, you upload the art or the digital file onto a platform such as an auction house including KnownOrigin, Rarible, or OpenSea.
To cite Wikipedia, "this creates a copy of the file recorded on a digital ledger." I wonder if those words point to the flaw. Isn't the whole concept of original digital art an oxymoron? The very process of creating the unique version of digital art, available via blockchain, using Non-fungible tokens, involves the process of making copies.
But let's go back, and define some terms and explain what NFTs are and blockchain and digital art.
Digital art and blockchain
Fungible is a term often used to describe money. It refers to the ability to swap an asset for another asset of equal value — for example swapping five one-dollar bills for a single 5 dollar bill. NFTs are the opposite. They confer on an asset a unique value usually determined by the forces of demand and supply and facilitated by an auction house.
Back in October 2020, Pablo Rodriguez-Fraile forked out $67,000 on a video.
Here's the video.
The video in question was created by Mike Winkelmann, whose artistic name is Beeple. The video in question was authenticated by blockchain, meaning it is nigh impossible to cheat the record.
Earlier this month, Rodriguez-Fraile sold the video for $6.6 million.
Rodriguez-Fraile, said: "You can go to the Louvre and take a picture of the Mona Lisa, and you can have it there, but it doesn't have any value because it doesn't have the provenance or the history of the work."
Recently, another example of digital art by Beeple, Everydays, was sold at auction for $69 million.
There are many other examples of digital art, or just videos, uploaded onto auction sites, applying non-fungible tokens. For example, Twitter's founder Jack Dorsey is hoping to sell the non-fungible token of his first Tweet.
"Just setting up my twttr," tweeted Dorsey on the 21st March 2006. It has since received 155,000 likes. It looks like the Tweet will got for around $2.5 million, with Dorsey saying the proceeds will go to charity.
Basketball video clips are another example. The NBA's Top Shot product blockchain-based trading system has brought in $230 million.
And what does all this mean?
SOTA — a multi-chain digital content NFT P2P marketplace — explains it well:
"Artists can now issue unique "digital signatures" on their work in the form of NFT to ensure the authenticity of the creation. At the same time, true collectors are recognised and protected as owners of the digital work (NFT) they have purchased."
What is especially interesting about NFT blockchain and digital art is that it could potentially reward local artists by creating scarcity.
One of the curses of the internet is that it creates a winner takes it all economy. A local singer or artist may have once earned a decent living by selling to a local audience. Imagine your particular singing talent makes you one in a ten thousand; your friends marvel at your voice; you were the singing star of your school. And then you appear on TV and sing alongside others who are one in a million. In the internet age, even international boundaries lose relevance: the internet selects people who are one in 100 million. Our local singer seems mediocre.
By creating scarcity, people might clamber for a local artist: singer, poet, or literal artist; it could be a democratising force.
One of the main criticisms of NFTs in the energy consumed by the blockchain system.
"I knew mining was (really) bad, but even a single Ethereum transaction is four days of average-EU-person-electricity?! How does a socially-aware artist square that with their conscience? " tweeted Timo Elliot.
But the argument that NFTs are energy-intensive and therefore bad for climate change is not clear cut.
For one thing, it turns out that the Ethereum units used in NFTs were going to be created anyway — so NFTs don't impact the energy usage. You can, of course, argue against that point; and respond by saying that NFTs are part of a broader shift that is bad for the environment.
The second defence is more compelling — Ethereum based exchanges are expected to become enormously more efficient over the next year or so, as usage has increases. Whatever the energy cost is now, deduct a few zeros to estimate the longer-term cost.
There is a third point, how damaging the energy cost is depends on where, when and how the energy is generated. In time, via AI, technology could theoretically be applied to limit Ethereum units' creation to times when energy is especially cheap, such as optimal conditions for wind power or solar. Such technology may not exist now, but the point is that it could.
Yet, there is something bizarre in the concept. Allow me to return to the flaw I alluded to above. Wikipedia states that an NFT "creates a copy of the file recorded on a digital ledger."
In other words, to get around the problem of digital being the perfect medium for creating exact copies, artists upload a copy of their file.
Isn't this creating artificial uniqueness?
I am reminded of the Dutch Tulip bubble. The story goes that some tulips were sold for ten times the annual income of a skilled artisan. But the tulips were worth what they were worth because people were willing to pay for them; until one day, no one was, and the bubble burst.
How do we define what a piece of digital art is worth? We define it by what people pay for it. But people fork out millions of dollars for a piece of digital art that we can all view on our computer because they see it as an investment. And it is a good investment because people think that others think it is. Isn't that the definition of a bubble? Not that different from a Ponzi scheme?
Maybe I am mistaken, but it seems that a society that is willing to pay $69 million for a piece of art, when you and I can view an identical copy of that art for free, is a broken society.
It is great that Jack Dorsey will give the proceeds from the sale of his first tweet away to charity — good on him. But don't you feel ever so slightly that we have somehow moved into a new universe, a distorted universe, where we all think we are emperors and none of us wear any clothes?
Technology is great; it promises to create abundance, solve poverty and increase life-spans. I am not so sure that applying NFT so that digital art can be sold via blockchain is an example of technology for good.
Or do you disagree?
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