When taking stock of the last few months in the global art market, it is clear that the COVID-19 pandemic has left its traces. Whilst the traditional art industry is experiencing a recession caused by the global health crisis, a new way of owning art has entered the art market: non-fungible tokens, or NFTs. The most successful digital artist using NFTs to date is Mike Winkelmann, also known as Beeple. His work “Everydays – The first 5000 Days,” which sold for an astonishing $69 million in an online Christie’s auction, makes him the third most valuable living artist, after David Hockney and Jeff Koons. But are NFTs in the art market here to stay?
Non-fungible tokens are unique and irreplaceable data units that can be bought and sold on blockchains. They may be part of the so-called Ethereum blockchain, which is also used to trade cryptocurrency. Ethereum blockchains have enabled all different kinds of artists to sell their work, boosting purchases of digital arts. The buyer receives an ownership certificate for NFTs such as digital images, video clips, or even tweets. This transfer is then recorded on the blockchain, giving the buyer the right to own it, yet leaving the copyrights to the artist. However, downloading digital images remains open to the public. Furthermore, artists can sell more than one NFT for a particular artwork, thus generating more income.
After Beeple shook up the art market, many artists have been following the NFT trend, some of them being equally successful. This development coincided with the global pandemic experienced by many in lockdown, and many artists were left with no other choice but to present their paintings online. Investors jumped on the new method of trading artwork and began collecting digital art NFTs, and supply and demand have been growing at a rapid rate.
In addition to platforms like Instagram that serve as intermediaries between seller and buyer, many specialized NFT platforms such as OpenSea or SuperRare have emerged as well. The success of such platforms in creating an efficient marketplace speaks for itself: 2,000 new NFTs have been launched since the beginning of this year, compared to 49 NFTs during the same period in 2020. This sharp rise led to a host of new artists entering the market and to NFTs reaching a market share of 11%. Apart from Beeple, other artists such as Pak or Mad Dog Jones have also earned millions of dollars by selling their work as NFTs. After the great success at Christie’s, big players such as Sotheby’s and Philips quickly recognized the utility of this new art asset management, launching NFT sales themselves and eventually introducing NFTs as a new division of auction sales.
This flourishing of the market is made possible by blockchain technology, which tracks ownership to confirm the authenticity of buyers and sellers on the Internet. In simple terms, this means that each digital work of art can be paired with a predefined number of owners only. Although digital artwork that has been sold as an NFT will remain accessible for the public to copy and redistribute, blockchain is being used to create ownership restrictions to create market scarcity.
Given that NFTs and blockchains managed to keep the art scene interesting and active throughout the crisis, this new development has an exciting future. But this new technology has one big downside: its environmental impact. Ethereum transactions consume as much power as the state of Qatar uses in a year, leaving behind an enormous carbon footprint. Moreover, an NFT’s average carbon footprint is equal to the monthly electricity usage of an average European citizen. According to a recent study published in Nature Climate Change, Bitcoin could elevate the temperature of our planet by 2 degrees Celsius on average within a timeframe of only 16 years if it were to be implemented on a broader scale, such as for daily commodities. These high levels of electricity consumption are caused by transactions like minting, bidding, canceling, sales, and transfers of NFTs.
As a response to the negative environmental impact, other platforms committed to producing art in an environmentally friendly way started to launch digital art, and Ethereum engineers are actively working to reduce its energy consumption. Another way to make the technology around blockchain and therefore NFTs more climate-neutral are carbon offsets with the help of specific tools that help artists calculate their emissions. Nevertheless, NFTs will continue to have a significant ecological footprint, and the responsibility to conduct business in an environmentally friendly way lies with the artists themselves. However, it remains questionable whether the transfer of NFTs has a larger environmental impact than shipping tangible artworks.
The trend of art being sold in the form of non-fungible tokens will have a clear impact on the market in the near future and could even mark the beginning of a new chapter in the art trade.
The integration of NFTs as a lucrative asset to the art investment portfolio, the proliferation of online auctions, and the increasing use of cryptocurrency as a preferred payment method all point to a more digitized future art market. To keep up with the fast-developing world of art, it will be crucial for traditional institutions to start offering cryptographed art, such as NFTs, to the wider public. Digitalization is in the fast lane like it has never been before and the art world is being carried along with this trend. Therefore, it will be of utmost importance for local auction houses, national museums, and the creative industries in general, to sell and provide NFTs if they want to survive throughout future generations.
Edited by Andrea Gutschi; Photo Credits to Jessica Ruscello, Unsplash