NFTs saw a surge in popularity last spring, when a painting by digital artist Beeple was sold at a record $69 mio in cryptocurrency. Many celebrities began creating their own digital art and selling it at tremendous prices, while others feel quite skeptical about this phenomenon.
A new form of art
NFTs are tokens with a unique signature that cannot be replaced within a blockchain. You can exchange bitcoins for the same bitcoins, and the sum of your assets will not change.
NFTs are non-fungible tokens; they cannot be replaced with a different item of the same kind and are ideal for storing intellectual property objects in a digital format, and prove their authenticity. These tokens can represent any digital work such as images, photos, musical albums, videos, texts, 3D models and video game artifacts. It is still possible to copy and distribute files, and make it available on the net, but the buyer is the sole owner of the signature in the common chain.
The technology was created in 2017, but the token art market is booming right now. The interest in the NFT market is heated by famous people such as artists, musicians and actors who began issuing tokens and earning hundreds of thousands of dollars.
Brave new world
Digital art has recently been making headlines, sometimes reaching absurd lengths. For instance, the animated image of Nyan Cat was sold at $580K, while the founder of Twitter sold his very first tweet for $2.9 mio. All of this created certain hype around digital art, due to which the NFT market grew severalfold last year and continues to grow.
The digital trend also covers entertainment: the news broke that the new film with Anthony Hopkins will be released on an NFT platform. It will be unavailable in movie theaters and popular streaming services, and only those who purchase a relevant token will be able to see it. The creators believe that it will help to protect the film from pirate copies. It is possible that other film studios will try to experiment with this new format.
Artists are the most active participants in the NFT market: one of Banksy’s works has been burned and sold via a digital token representing the work that lives on an immutable blockchain.
NFTs are becoming increasingly popular in Russia as well. The artist known as Pokras Lampas has tokenized a photo of his artwork, which had been sold for the Ethereum cryptocurrency, and offered it for sale for RUR 2 mio. Russian pop rock band Mumiy Troll has issued its non-fungible token to celebrate the release of a new album. Even Hermitage Museum administrators are considering creating NFTs of some works of art. This seems logical in view of technological progress: the popularity of crypto art has naturally become increasingly popular amidst the pandemic as the world has shifted online, with popular musicians giving virtual gigs, museums organizing online exhibitions, and our day-to-day lives becoming more virtual in general.
Problems with digital art objects
Many analysts call NFT a crypto art pyramid as entering the market is rather simple, with anyone able to issue their own token by simply uploading an image to the platform and paying a placement fee. Currently, entire marketplaces are being launched which feature plenty of such digital objects; however, there are no mechanisms to determine their actual artistic value and equitable price. Author’s works include plain scam projects that have no worth whatsoever, and their value endowed upon by people who are ready to pay large amounts of money for nothing.
A platform cannot always determine the original source of the token — that is, its actual author. This leaves wide room for speculation, with fraudsters taking advantage of the situation and uploading someone’s art object claim it to be theirs only to collect money from users and then disappear. Another common case is wash trading, a form of market manipulation when unscrupulous traders buy and sell a product for the purpose of providing misleading information to the market to attract attention and increase interest.
Currently, the key problem is the lack of a regulatory framework. The NFT market is unregulated, and the purchase of a token cannot be legally formalized. You actually spend a certain amount of money, often a large one — yet you do not acquire the right to ownership. Exclusivity is doubtful as you do not own the item but the token which is stored on the web.
This can be compared to buying a star in the sky or a plot of land on Mars. What initially sounds appealing has almost no practical use. NFTs currently have no scope of application; they are not a means of payment, a financial asset or an investment tool.
Purchasing digital art objects in the hope that you can profitably resell it later and make extra money is a risky strategy as the price of an NFT depends only on demand and relevance. There is no guarantee that a token bought amidst the hype will not lose its value and the interest will not vanish as fast as it emerged. Also, all transactions are made with the use of cryptocurrency, which has recently been unstable and changed in price.
What’s next?
So far, NFTs remain a controversial topic; they can be viewed as a way of financially supporting your favorite author or performer through purchasing their work, or as a way of collecting art objects in a digital format. Such assets are more convenient to store, and you just have to send a link to show your collection to your friends.
Trends are changing, and in a few years people across the globe may start collecting crypto art instead of vinyl records. The NFT technology itself is quite prospective; it is most likely to change and transform to find application in other areas. Time will tell what happens next, when the NFT hype wanes and allows the market to advance in normal conditions.
By Valentin Preobrazhensky, CEO, LATOKEN