Saturday, March 27, 2021

Early Thoughts on NFTs

There's been a lot of talk lately about NFTs (non-fungible tokens) and the art world. In this post I'll share some preliminary thinking and some resources in case you're researching the topic. 

The basic concept has been around for a few years, but it has been in the news after an image by "Beeple" (the social-media moniker of Mike Winkelmann) was auctioned for $69 million at Christies, making his work the third highest price auction result by a living artist.

Below is a good introduction of the phenomenon on NPR's "Planet Money" podcast.

Basically the idea is that you can take a digital file, such as a JPEG, a movie file—or even a tweet—and assign it a unique code verified by the blockchain. 

A collector can purchase and own that file, even though it doesn't exist as a tangible object. The file itself can still be copied indefinitely by other people, and the buyer isn't necessarily receiving any reproduction rights, just bragging rights that they own this digital entity. 

This creates a new way for artists to offer their work to collectors, but it has many other implications. One is that you can grant token-holders access to certain clubs or events, and in this way you can build a following. 


Here's Beeple again explaining his artwork and how he got where he is. He works with 3D programs to create digital art of surrealistic, topical ideas, and he's been doing a new image every day for about 13 years.
 
Even Beeple himself says there's a lot of irrational exuberance surrounding NFTs right now. As with the "dot-com" bubble around 1999-2000, a lot of investments are overvalued. 

But the backers are sophisticated people who recognize that there's something truly revolutionary emerging that will trickle down to most artists in the future.


To some marketers this might appear to be a quick way to make a buck. There's a gold rush feeling to the market for NFTs, and there's already a lot of junk appearing, such as toilet-paper NFTs and potato-chip NFTs. Do such offerings have any real market value, and if so, will they hold their value?

Keep in mind that minting an image as an NFT doesn't automatically add value to it. And be aware that many of the NFT marketplaces charge minting fees, buyers' fees, and seller's commissions. So getting into this field isn't free.

What the technology promises is not only that fans can support artists and own a piece of what they create, but there can be new ways to build a loyal following, something akin to Patreon. I would regard this as a potentially new career direction for some artists, particularly digital artists. Many of the same principles to building an art career still apply: namely that we would need to develop a long-range strategy for this, rather than doing it as a one-off. 

And there are environmental costs. There's a lot of concern surrounding the carbon footprint of NFTs, because the blockchain draws a very large amount of electrical power to encrypt the code. 

This online essay "The Unreasonable Ecological Cost of #CryptoArt" makes an effort to quantify the environmental effect of a typical NFT work. It has a serious carbon footprint at every stage of the process, from minting to reselling. Some NFT artists have bought carbon offsets to try to mitigate the backlash. 
 

Where is this all headed? Beeple shares some of his long-range thinking in Kara Swisher's interview  on the podcast Sway: "What the Heck are NFTs? Let's Ask Beeple." One of the things he's working on is to make actual, physical embodiments of his digital paintings so that the buyers feel they're getting something they can hold in their hands. 

Some recent auction offerings by other artists have included both the original painting and the NFT at the same time. There also have been NFT drops of art created by a robot. We're in a disruptive phase with new paradigms emerging. The New York Times says it's neither a miracle nor a scam.

Does it make sense for every artist to leap into NFTs right now? I don't think it make sense for me—not yet anyway, until there's a better solution to the environmental issues.

In the comments, I welcome your insights, thoughts, and links. If you've had a good or bad experience creating an NFT, please share. 

19 comments:

Susan Krzywicki said...

I think the environmental issues are a big concern. To create something that is proportionally much more damaging just to make a market seems ethically problematic.

The creative industry has had damaging practices in the past, and as the world came to recognize them, those practices were discontinued.

Sam Bleckley said...

We've been selling digital art for decades. Museums own digital art. Collectors own conceptual art that would be child's play to replicate. It's not an issue, because those works have the provenance associated with them -- documents of sale, records of the artist or the auction house. IMO, NFTs are a complicated solution to a problem the art market does not actually have.

The challenge with an NFT is that, while the token is unique, it still relies on someone (the artist, the auction house) declaring the provenance of the original token. I can make a new, different token that *also* represents Beeple's art, and someone different can own that token, and they'll have different digital signatures, but someone has to know which signature is "real". It would be easy to tell they're different, but nothing inherent to the technology makes one more real than the other.

And as long as the artist (or other authority) is required to publish and maintain that digital signature as provenance, the whole system is not much better than the artist just writing down who bought the piece. A paper trail works just as well for digital art as for physical.

NFT's only real benefit is that it taps into a market of cryptocoin owners who can't spend their coin on anything else because the market is illiquid. Besides that bubble I can't see any lasting benefit to the *artist*, and some cost to the world.

James Gurney said...

Sam, that's a serious issue. You put the case well, and I'm glad you brought it up, because I forgot to. There have always been fakes and forgers in the art market, but the problem is vastly accelerated with NFTs because of the low friction nature of minting. Here's an article about crypto art fraud: https://cryptobriefing.com/crypto-art-fraud-rarible-sparks-governance-discussion/

Susan, yes, the environmental effects are a major roadblock for me, and even if the actual effects were minimized somehow, an artist would have to deal with the perception that they're killing trees to make a buck.

Scale said...

If payments were made through real money, if blockchain technology was used only to mint the artwork itself without requiring to buy into cryptocurrencies, if NFT trading sites had been designed to use one of the more efficient blockchain technologies, if the companies handling the tokens had means of implementing copyright enforcement and act upon nefarious usage, if they were handled by competent companies... then it might be something. But those are a lot of "if"s. It's obvious that the people who set up the NFT trading systems have no interest in art and usage by actual artists, it all reeks of a reckless marketing stunt to draw as many non-tech-savy people as possible into using cryptocurrencies with the promise of easy money.

Because the real problem is cryptocurrency in general rather than this specific usage of them. Their only appeal over real money is that they exist in a legal dark gray area and are by design the perfect tools for money laundering, tax evasion, unregulated speculation, buying illegal stuff. If you look up crypto discussion on socials, the way crypto defenders speak of the technology is eerily similar to the way zealots draw people into cults.

I wouldn't touch NFTs with a ten foot pole, nor support any artist that I know to be involved in NFTs until the whole technology becomes regulated by a serious legal framework which also takes into account their environmental impact. Using NFTs the way they are shaping up, that is with mandatory cryptocurrency involvement and utter lack of transparency and regulation, is as close to a pure morality test as an artist can get to experience.

(And seriously haven't people had enough of the "trickle down money" concept? That supporting argument alone should be a huge red flag about who will really benefit of a technology that could literally enforce DRM upon everything if it becomes efficient enough.)

James Gurney said...

Scale, thanks so much for those powerful insights. Crypto art is such a new and mysterious tech that I doubt politicians will have the understanding and insight to develop meaningful regulation, given that to date most of them barely understand how social media works. And the prospect for self-regulation of seems equally dubious. But if this is going to really last, the issues you and Sam and Susan have raised will need to be addressed.

arturoquimico said...

"And there are environmental costs. There's a lot of concern surrounding the carbon footprint of NFTs, because the blockchain draws a very large amount of electrical power to encrypt the code." I have a degree in Science, I was in the Food, Drug, quality control business internationally for 30 years, I taught Chemistry in college 10 (not bragging, just giving credentials and pragmatic experience). Would someone explain to me (using good science) why the excess energy requirements for blockchain? How are these servers using any more power than shopping on Amazon or banking from the home computer?.. show me the data, not "Dr. so and so said so"... I believe in science and data... not Scientists or scientism...

Courbet said...

I am not sure about all of this. I still have a problem with how fake it all is or seems to be. It just seems like a way to launder money and ‘value’ is just outside of my mental abilities- it’s much like contemporary art in general. (Small aside- watch ‘The Price of Everything’ if you haven’t. The art market is so fake and inflated and that’s ‘real art and real money’) This is even more make believe.

I wonder if people sounded like me when the stock market launched. You don’t actually ‘own’ the company- only part of it. NFTs feel similar in a way- you don’t own anything. It’s all phony- all fake and all make believe money.

Except it isn’t.

Roca said...

I'm baffled that anyone would pay that kind of money for a bunch of pixels. To me, anyone doing so is just a sucker. However, as it's so difficult to make money as an artist, I couldn't blame an artist one bit for taking the money while they can. Just one of these could set someone up for life, so why not? I understand the environmental issues are a big downside here, but that kind of money could surely buy a handful of carbon credits or be offset in some other way. This is surely a fad and won't last long so I think artists should take advantage while they still can.

Roca said...

arturoquimico, I have a friend that mines bitcoin from his home. He has a whole room full of servers, running very powerful processors 24/7 which also require a lot of cooling fans since they get very hot. I don't know what his energy bills are but I imagine they are high!

Luca said...

It seems that in the artistic community the only issue at the moment are NFTs and i was wondering what you think about them, so it's a very timely post!
This technology could be an interesting opportunity in the (more or less near) future, but at the moment i see just too many issues against it. The environmental problem is the most important but also the most unclear (keeping all the computers needed to create the system consumes a lot of energy, but how much exactly? Different sources give different views but i'm afraid we have to wait a bit to see the real effect of the NFT boom on energy...) .
Another one is the whole system at the moment is too young: is there a way to prevent money laundering through ETH? Is there a real efficient way to prevent copyright problems?
But above all, the problem i see is a moral integrity one, and that's why i feel a bit...well, disappointed - to use a kind and gentle euphemism - from artists that have jumped on the bandwagon of NFTs from the beginning. It's a speculative bubble and nothing else: prices of these links (since, from what i've read, the NFT minting actually concerns a link to a file, so people are actually buying a link to a file that...could disappear when the server will go off. But even if NTFs are actually files, they are just 1 file i could easily find for free on the web) are insane and have nothing to do with art loving and collection. Some famous artists are minting NFTs but there's a lot of stupid things too in NFT selling sites: memes, twitter post, screenshot of sites (someone could mint this very discussion on your blog and make a NFT of it). So, since there are a lot of important issues to be solved- or at least cleared! - i find disg...ehr, disappointing that these artists jumped in just to take a piece of the speculative bubble pie. There's no need to rush in, unless people don't want to become rich with a speculation that has no real sense and no real explaination. They seem like the LOTR characters when one after one they are defeated by the One ring temptation.
I appreciate that you are taking time to understand before taking a decision, i realize it's a difficult decision and it shows , another time, what a nice person you are.

RotM_81 said...

Thanks for sharing this...I had thought about giving NFTs a go, but the second I read about the environmental impact, I lost interest.

Jonathan W. said...

I agree with most everything said above, and to the points of crypto defenders being culty: I feel that crypto is the same as any MLM or pyramid scheme. Your participation is only a boon to those who have bought in, and you will only see an increase of value if more people buy in. If anything I think the whole enterprise of NFTs is extremely telling about our society at large, our willingness to overlook environmental issues for the sale of profit, our intense need for "ownership" as a display of power no matter what it looks like. I have no issue with contemporary art, but beyond avoiding taxes through buying art there is a sense of "cool" or "prestige". Recently conversed w a popular illustrator friend who in doing a commission for a wealthy patron, he also noticed this tendency. Someone once said that artists are feared by the rich because they cross class lines... And yet in this way they are also desired by a portion of the wealthy, as access to an 'other' that they are otherwise removed from. In the end will the earth suffer because of wealthy people looking for 'cred' on flashy gifs that will be yesterday's news by tonight? The internet moves fast. Sorry for the ramble. Love your work.

Yvonne said...

In the past year or so, I read a piece that suggested the NFT principle could be a solution to the problem of artists not benefitting from subsequent sales, esp, when the value of a (tangible) work increases dramatically. That it could effectively be a way of directing a commission back to the artist each time a work changed hands. This is obviously not the NFT phenomenon as it’s currently manifesting itself, but that use of the technology struck me as interesting.

Salty Pumpkin Studio said...

Interesting subject. At my lower level of art/non professional, the option could fade by the time I grasp all the aspects of it. There's, I believe, a tier of technology savvy folks that has been in development for so long, each new creation rises farther and further out of focus for the masses. Mona Lisa versus my Vermont autumn watercolor is a gap with no bridge crossing.

Mary Aslin said...

Outstanding reflection by Seth Godin: (https://seths.blog/2021/03/celebrity-art-priceless-worthless/)

“And if you’re a cyber-person, intent on pushing NFTs (the abbreviation for Non-Fungible Token, unhelpful shorthand for ‘an unduplicatable digital code that’s easy to trade and speculate on’) then it’s worth noting:

Digital tokens aren’t beautiful.

Digital tokens will never make someone gasp.

No one wants to see your hard drive.

It’s quite difficult to display the status or beauty of something that isn’t connected to 20,000 years of cultural expectations, institutional embrace and design evolution. And if you can’t display your status or enjoy the beauty, then it’s simply a speculative trade.

People buy and trade stocks in order to make a profit. Most of them are largely indifferent to what the stock certificate looks like.

I think we’re always going to be hooked on status, and we’re always going to seek beauty. I’m not sure, though, that just because we can marketize and digitize something that it will inherit so many of the cultural tropes that are at the core of the human experience.”

Unknown said...

I do think that, as is it a new form of media, time will be needed to see great ideas on how to use it. Except for the environmental impact, one must not be to hard to judge something that is only really developing now, has every change in the art world has always been overlooked by the people who were there before.

NFTs will create many new ways for artists (and brands) to share art or stuff by selling things that were'nt sellable before : a song, a lyrics sheet, maybe an empty canvas before it is painted, everything is possible.

Today, people are ready to buy a painting for millions. Just to have the original work when the entire world can have a poster in its bedroom that 99% of the people could not distinguish from the real one. From that perspective, NFT are for now just an extension of that silly state of the market but it is really a response to a need.

I have good hope that it will become a great new way of sharing art with the audience.

Lorin Wood said...

I'm pretty unsure about the entire "movement" at present. There is a nagging pyramid aura floating around NFTs (at the moment) that rings false to me personally. From the perspective of those actively involved with it appears very attractive, but the aspect that few are grasping is that Beeple, for example, has been making his brand of art (which is prolific) for over a decade; he has a massive online presence over a variety of disciplines. Of course, collectors will want to "own" his work. A similar scenario rests on many other artists that I know who have been just as prolific with branding themselves for the years; yes, they are making a great deal of money. The unfortunate side effect to this is that EVERYONE now thinks it is an easy cash-grab, like you said, James. Goldrush mentality. Now the market is being overrun with mediocrity making it more difficult for the artist to get noticed and collector to find quality artists. At the moment it just feels, and looks like, playing the stock market more than legitimizing art. This falls too close to the "tulip mania" (https://en.wikipedia.org/wiki/Tulip_mania) or Charles Mackay's Extraordinary Popular Delusions and the Madness of Crowds (https://www.gutenberg.org/ebooks/24518).

I'm waiting it out to see if the bugs are fleshed out and refine before diving in. It's fascinating to see unfold, but I have a sneaking uneasiness about where it's currently heading. It's a bubble...

James Gurney said...

Hey, Lorin, Thanks for your comments, which seem seasoned and sane. I was interested in what you thought given your closeness to the concept art and mech worlds. Hopefully the NFT market will evolve safeguards for establishing provenance, responsibility in the energy demand category, and some way of curating or ranking the value of content. The basic premise seems sound in theory, but there are a lot of bugs to work out.

JMRinguet said...
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