$69 Million For a Token?
How NFTs Are Transforming the Art World
Over the last month, the art world has been buzzing about non-fungible tokens (NFTs). The international auction house Christie’s sold its first NFT digital artwork, Everydays: The First 5000 Days (2021) by artist Beeple for a staggering $69.3 million, the third-highest price to be fetched by a living artist at auction. The sale, which seems to serve as a stamp of approval for NFTs in a largely inveterate art world, has led to speculation about the potential this emerging technology has to disrupt and revolutionize the art market.
Non-fungible tokens are cryptographic assets on blockchain, a digital public ledger, with unique digital signatures. Whereas cryptocurrencies like bitcoin are mutually interchangeable with one another, NFTs are non-fungible. This means that they cannot be traded or exchanged at equivalency, as no two NFTs are the same. When minting a digital art piece as an NFT, a file is created on the blockchain that cannot be modified or deleted. Because it exists on a blockchain, the artwork’s record of ownership is publicly available and verifiable. In essence, NFTs serve as proprietary stamps on digital works, not only ensuring its traceability and preventing fraud, but also creating a desired scarcity in the digital art market.
An inherent problem digital art faces is that it can be easily copied and is infinitely reproducible. When the reproduction is identical to the original, the original artwork loses the appeal of authenticity that collectors value. As such, digital art has generally resisted commodification because it has been largely perceived as uncollectible in the art world.
In the ‘90s, artists in the Net Art movement embraced digital art precisely because of its counterfeit problem—they thought it was radical that digital art could be endlessly copied and consumed, but not commodified. They created artistic websites that everybody could view without having to buy art. Central to the ethos of this genre was the avant-garde notion of being resolutely outside the art marketplace.
Yet today, when there is constant engagement with, and reproduction of, digital art on social media, digital artists increasingly need and want to be recognized and compensated for their art. NFTs seem to offer a solution to this problem. By assigning a distinct signature to a digital asset on blockchain maintained on a public ledger, NFTs add the requisite mark of authenticity to digital art that makes it worth collecting. Kurt Ralske, a professor of the practice in digital media at Tufts School of the Museum of Fine Arts said, “The beauty of the NFT is that now it’s possible for there to be an original within the digital realm.”
NFTs also give artists greater control over the sale of their art by enabling them to directly sell their work on NFT marketplaces like OpenSea. According to Ralske, “[This means that artists] can bypass the gallery, they can participate fully in their income, and not have to give a share to the gallery, which is usually 50 percent.” NFTs remove the need for intermediaries like agents and galleries, not only allowing for greater market efficiency, but also for artists to connect directly with their audiences. And, because the record of sale and purchase exists live on a blockchain and is publicly visible, artists earn resale income every time the work changes hands.
The recent NFT craze in the art world may be partly fueled by a genuine interest in supporting digital artists. Yet, there are several people buying NFTs who are motivated primarily by the gains of financial speculation with vested interests in sustaining NFTs’ popularity. Nick Seaver, a professor in the Tufts Department of Anthropology who specializes in tech culture, pointed out that Pablo Rodriguez-Fraile, who purchased the Beeple work for $69.3 million, is already actively invested in the crypto world. It could be said that Rodriguez-Fraile bought the NFT at a nominally high price to artificially increase the apparent value of Ethereum, the cryptocurrency in which the work was sold. Seaver said, “It’s the same group of people that hand each other money in order to make it look like a lot of trading is happening…[which] is a known kind of fraud within the stock market.” In that case, it is unclear whether this new technology is here to stay and revolutionize the art world, or if it is simply a bubble created by those who are already invested in selling and trading NFTs among themselves. Though the benefits of NFTs are immeasurable for artists, those individuals contributing to this cycle may unintentionally gatekeep the market from smaller artists and buyers.
It is questionable, though, why an auction house like Christie’s, which committed to becoming 100 percent carbon neutral in the next nine years, would support the increase of NFTs. The enormous energy consumption involved in NFTs is not sustainable for Christie’s carbon-neutral plan. Immense computing power is required to operate the blockchain system of NFTs, and the carbon dioxide emissions generated are immense. Spectrum IEEE reported Ethereum’s market capitalization at roughly $10 billion US dollars in January 2019, which meant one transaction used more power than the average US household in a day. In April 2021, its market capitalization has risen to $243 billion. Since most NFTs are part of the Ethereum blockchain, they are far from being an environmentally conscious way to purchase art. According to CryptoArt.wtf, the ecological impact of another one of Beeple’s NFT digital artworks, Crossroad, sold for $6.6 million, is roughly equivalent to a European Union resident’s total energy consumption for five and a half years. Currently, it costs approximately $5,000 to offset the emissions from one of his collections.
Beeple and other artists turning to NFTs are attempting to offset emissions from their works by investing in renewable energy, conservation projects, or sustainable technology. Still, the most impactful solution is to change the security system for cryptocurrencies. The most common security system, proof-of-work, asks people to solve complex puzzles using energy-consuming machines. It uses significant amounts of energy and is also significantly inefficient. Of course, NFTs make up a small portion of all Ethereum transactions, but their recent popularity will likely increase the use of Ethereum and, in turn, increase emissions.
An alternative to proof of work is a system called proof-of-stake. While proof-of-work relies heavily on electricity because of its complex equations, the proof-of-stake model uses a different crypto-algorithm. Rather than using an extensive amount of electricity to enter the cryptoworld, proof-of-stake only asks people to prove they have a “stake” in the ledger by putting their tokens in as an investment. This means that the more someone “stakes,” the more significant their output will be. But if they attempt to do anything malicious, they lose their stake. Since this model does not require complex cryptographic sums, its electrical costs are lower. Ethereum is hoping to transition to a proof-of-stake model, and many artists involved in cryptocurrency are optimistic about the transition.
According to Ralske, “[the NFT] is a game-changer” for many artists and has the potential to break down the barriers of exclusivity of the art world. Though NFTs may be slow to operate under environmentally sustainable technology, their popularity is exciting for both emerging and well-known artists. The future of NFTs in the art world is uncertain, but they certainly have a place in the present cultural milieu.