The Wild World of NFTs

You may have heard about an artist named Beeple selling an "NFT" for $69 million a few weeks ago. NFT's are "non-fungible tokens," a definition that may not explain much! In this piece, I will try and provide a birds-eye view introduction to this wild new world. 

If you read some of the recent articles about the NFTs, you'll see mention of "blockchains." Skipping all technicalities, the important thing about blockchains—the thing that makes them so useful—is that many, many computers are involved, working together, to store information. There are vast numbers of copies of that information. The fact that there are so many computers involved means that if the owner of one of them, or even a sizable group of them, wants to cheat by changing the stored information, he (or they) can't. This is because a larger number of computers still have the correct information and will refuse to accept the change.[0]

For instance, if the information that you own a particular amount of digital money is stored in a blockchain, nobody can change that information. You own it and can trust that you will continue to own it.

Now, digital money is "fungible." One digital coin is equivalent to another, the same way any particular dollar bill is equivalent to any other. So digital money can serve the same role as dollar bills in online transactions. If a merchant accepts one person's Bitcoin, every other person's Bitcoin is identical, and the merchant will accept it.

But "non-fungible" pieces of information can also be stored in the blockchain, such that there is only one and no other one is equivalent. Or there could be a set of such pieces of information with a limited number. If the piece of information is a "non-fungible token" representing a work of art, then it's helpful that information can be stored in it specifying one person as the owner.[3] And nothing can change that because it would mean messing with more computers than it's possible to mess with.

So, provenance is established. The record of provenance is stored in the blockchain. In the ordinary world, the provenance of the Mona Lisa is well-established. There's probably paperwork stored somewhere in the Louvre going back to da Vinci. But everybody agrees that the one in the Louvre is the original. Now, suppose somebody makes a copy that is so exact that even the best experts can't distinguish it from the original. The copy would nevertheless have little value. It's the provenance that matters for value.

Everybody trusts the provenance of the Mona Lisa that's in the Louvre. But everybody can also trust the provenance of an artwork represented by a non-fungible token in a blockchain.

Now, some people are using NFTs to represent the provenance of physical works of art; that information is just as secure there as it would be in a vault in the Louvre. So there's a reason to do that. But I don't personally think that, for most works of art on the marketplace, there is serious question about their provenance such that that's the most important use for NFT's.

My personal opinion is that the primary art-related value is for digital artworks, where every copy is absolutely identical to the original and there is no hope of telling them apart except for information stored somewhere that says who owns it. And there's no better place to store that information than on a blockchain. And there are services out there such that it is trivially easy to store that information there.

Why would anybody want to buy digital art? With traditional art, you can hang it on a wall or put it on a table and see it whenever you want. But with digital art, you can see it whenever you want to; it's just in your computer. For instance, it could come up whenever you're not working and take over your computer screen through "screensaver" functionality.

But I think their value is also analogous to things like baseball cards. For reasons having nothing to do with the physical characteristics of a cardboard card, certain rare ones, such as early Mickey Mantle cards, become very valuable over time. People don't hang them on a wall for their aesthetic virtues. They just want to own them because they're both rare and significant, and have value due to how rare and significant they are.

That's what happened with the Beeple NFT that sold for $69 million a few weeks ago.[1] It's a digital image. But because the artist had notoriety by the time Christie's auctioned it, and because the auctioned image contained images of earlier works of his for each day from an early point in his career, it was unique. In that way, it was analogous to a rookie season Mickey Mantle card. So it sold for a tremendous amount of money.

But another way I think NFT artworks will be valuable in the future is with "digital canvases" such as the Meural[2]. You hang them on the wall as if they're paintings. Such canvases can be beautifully colorful and can display any work of art. You see a Van Gogh in the frame at the page linked at [2]. But of course, Van Goghs lose something in that kind of representation. The translation to digital form can't retain every nuance of a physical work.

Still, a frame like that has the advantage that beautiful artworks can rotate through it... so you can have Van Gogh during the day and a Picasso at night if you want. Or a different great painting every 5 minutes.

But now consider artworks that are created specifically for a digital context. I visited a museum recently which was showing the works of an artist who has been well-known for many years but had started working on an iPad. There were many works of his being displayed in digital frames on the walls, all of which were created on that iPad. They looked great. I felt that they were real art, and worth displaying on one's wall in a digital frame. And provenance would matter: for a given work, you could own the only NFT for that work.[4] If other people showed the same image on their walls, it would be analogous to you having an original physical work by that artist, from the period when he still used a canvas and brushes, and others showing extremely well-done copies. Only yours would have the value associated with that artist's work.

The result of all this is that the world of NFTs provides a new avenue for artists to create and sell their work. It has different characteristics from the traditional art world, such as eliminating the need for artists to convince gallery owners to display their works. (However, other means will then be necessary to develop the awareness of potential buyers, and those means are being developed now by entrepreneurs.)

 

[0] In reality, nothing is perfect. People have had digital money stolen. Also, there are nuances such as "Proof of Work" vs. "Proof of Stake" that affect what roles all those different computers have. I am trying to be as high-level here as possible to communicate only the absolute basics.

[1] https://www.nytimes.com/2021/03/11/arts/design/nft-auction-christies-beeple.html

[2] https://www.bloomingdales.com/shop/product/meural-winslow-digital-canvas

[3] Actually, the information is stored at an "address" on the blockchain; and the owner of a coin knows the address and keeps it secret. The fact that someone could discover the secret is one of the vulnerabilities by which one can steal digital money or NFTs. For instance, you might print out the address and keep it in a safety deposit box; somebody might break into the bank vault and get the information.

[4] An artist can also create the equivalent of limited edition prints by creating a fixed number of NFTs that are identical except for ownership information.

Comments

[sri]

" An artist can also create the equivalent of limited edition prints by creating a fixed number of NFTs that are identical except for ownership information."

Gary, Good ideas. Two problems I can see with using NFTs for non digital art.

1) transformation from real-world to digital form is hard to standardize. Changing the focus of the camera or the magnification for a picture can result in multiple hashes for the same art, and NFT/blockchain cannot fix that problem.

2) Short of destroying the real art work, possession of the real art can change, and break the NFT.

Just some thoughts.

[Gary Robinson]

Hi Sri, nice to meet you. "" An artist can also create the equivalent of limited edition prints by creating a fixed number of NFTs that are identical except for ownership information."

Gary, Good ideas"

Just to be clear, that's not an idea of mine, that's already being very actively done on OpenSea and elsewhere.

I agree with your comments about associating physical art with NFTs. I don't think that's the future of NFTs. BUT, I do think that as things stand right now, a non-digital artist who publicizes her work by creating NFTs for it may be able to make sales she wouldn't have had access to otherwise. Not sure about how effective it really would be for marketing, but I do think it's plausible that it could help.

[sri]

Hi Gary, Good to meet you. :-) Lynne forwarded me this article, and I was curious about how this could work for non-digital art. Being a software person, I have no idea of the non-technical side of this concept, but was interested in how provenance could be established if the source material was not digital.

I understand that art purchases made as investment, provenance of valuable art is mostly about securing the investment. But I am unable to comprehend the value of NFTs outside of provenance, from the art viewer side of the equation.

I think this is mostly due to my ignorance of the art domain, but I cannot see why a viewer on the web would care if they are looking at a real or a copy of some digital, if access to view the art is universal. I am sure I am missing something obvious.

[Gary Robinson]

Why would a viewer care if he was looking at the Mona Lisa, vs a copy that was good enough that he couldn't tell the difference? A collector would pay a lot more for the original Mona Lisa than for a known copy, no matter how accurate. Same with NFT's, with the only difference being that it would be literally impossible to distinguish the one not backed by the NFT. For an average viewer, though, that difference is moot, because they wouldn't be able to tell the difference between the Mona Lisa and a really great copy.

So I think the key is that some people are collectors. They would care. People who only want to see the image wouldn't.

That being said, I think it IS possible for the NFT to be digitally signed in such a way that the true buyer could be sent a private key that would unlock the full resolution image, and anybody could see the image in less resolution. I think there is stuff like that being done, where anyone can see a rough version of the artwork, but only the buyer of the NFT gets the key. If Lynne wanted to do that, I could look into it.

[Gary Robinson]

Also, the first purchaser gets to know he's supporting the artist! That would matter to some people, such as myself...

[Gary Robinson]

I also had the thought that maybe I missed your point completely and ranted nonsense in my last comments! It hadn't even occurred to me: Why would somebody want to view the NFT-backed identical copy of a digital image if they are NOT a collector??

I can't explain it, but I do note that I'd be far more likely to go view the real Mona Lisa than a copy that was, to my unsophisticated eye, exactly identical to the original. Maybe a lot of people wouldn't feel that way. I don't see a logical reason to want to view the original in such a case, but my feeling is that I would.

[Gary Robinson]

Upon further reflection, it seems like it's for the same reason I'd go pay a museum to let me see a rock sample from Mars, but wouldn't go to so a rock sample from an iron-rich American desert which would be visually indistinguishable to me from one from Mars. There's just something about something being "the real one".