NFTs: the next stage of the evolutionary (block)chain in the art world?
Posted on 03 Feb 2022 by Emily Peyton
Disclaimer: The views expressed below are that of the individual author.
Non-fungible tokens (NFTs) are representations of unique digital assets on the Ethereum blockchain, a digital record of transactions involving cryptocurrency. This can become rather complicated, requiring regular dives into the nearest dictionary, but the most important definition is that of non-fungible which, according to Merriam-Webster, means something that “cannot be copied, substituted or subdivided”. Imagine the Mona Lisa for example, while innumerable prints, photos and copies of it exist in the world, only one is the original.
NFTs usually appear in the form of art pieces, photos, or videos. The most well-known examples include “Everydays: The First 5000 Days” by Beeple, one of the most expensive NFTs sold to a single person at $69.3 million. In pursuit of that same success is everyone from multimillion dollar brands to independent artists, with increasingly obscure and ridiculous results. Pringles has released new a flavour named ‘Cryptocrisp’ that, it must be stressed, are not tangible so unfortunately cannot be eaten. Other ventures include virtual toilet paper by Charmin, although the proceeds of this one supposedly go to charity.
The most expensive NFT at the time of writing is “The Merge” by digital artist Pak, which sold for $91.8 million and was bought between 28,983 collectors. While astronomical, this price still pales in comparison to those of physical art like ‘Salvator Mundi’ by Leonardo da Vinci which sold for $450.3 million in 2017. While the prestige of the artist undoubtedly plays a role in price, the story of this piece going missing and presumed destroyed before being discovered 500 years later contributes to its value in a way that is impossible for digital art to recreate, non-fungible or otherwise.
Despite this, digital art can hold as much value and meaning as physical. However, the motivation for creating it should be considered, especially when the art spoken of has been criticised for its lack of creativity and (ironically) uniqueness. It is difficult to give NFT creators the benefit of the doubt when they are directly contributing to a manufactured scarcity solely for the purpose of profit.
Some argue that NFTs give power to smaller artists, providing them with another source of income and thus contributing to the addition of more art to the world. However, the former accessibility of creating and purchasing digital art lends itself to the idea that it was introduced as a tool to combat the elitism of the traditional art world. Hence it becomes apparent that using digital art to inorganically replicate said elitism on a virtual platform is fundamentally immoral. This is at best disheartening for artists who create for the sake of passion and at worst a striking representation of hyper commodification as a product of late-stage capitalism.
They also claim that NFTs actually make art collections more accessible and lessen the elitism indisputably present in the art world, but this notion is paradoxical when considering the purposely finite nature of NFTs. Some argue that it is unfair to portray NFT creators as the only artists creating for monetary gain, when notoriously capitalist physical artists, such as Jeff Koons, enjoy acclaim for their innovation - surely this is simply the next step in the evolutionary artistic process?
Yet, unlike traditional physical art, the value assigned to NFTs is almost unrelated to the time and effort on the part of the artist, or even public opinion. Instead, factors such as utility and previous ownership determine value, meaning the perception of its artistic value hardly plays a role. All that is left to determine artistic integrity and value is motivation - of which NFTs are arguably found wanting.
Alongside their contested presence in the art world, NFTs have proven controversial in the legal and environmental spheres. Environmentally, NFTs themselves are a lesser issue compared to the blockchain technology on which they depend. The ‘mining’ of cryptocurrency is the process by which new currency is made and transactions are validated which requires a vast amount of electricity. This is because the current ‘mining’ system, known as the ‘proof of work’ approach is competitive, so many people race to complete the same operation at once to be rewarded with cryptocurrency. Concerning Bitcoin specifically, its environmental impact is exacerbated by the fact that the majority of miners are based in China, where coal constitutes approximately 60% of power.
Despite this rather bleak image, there are conscious efforts for sustainability, such as the movement towards renewable energy. As of 2020, a University of Cambridge study found that 76% of cryptocurrency miners use electricity from renewable sources. [1] However, the most immediate remedy proposed and soon to be implemented by Ethereum is a switch from the proof of work to proof of stake approach. Proof of stake requires an individual to pledge some of their own cryptocurrency in order to participate in the system. A ‘validator’ is then randomly selected from the participants to carry out the task, eliminating the element of competition and minimising energy usage.
Given the youth of cryptocurrency and further novelty of NFTs, regulations are lacking and vary depending on jurisdiction. This cannot, however, be solely attributed to age, as a major obstacle faced when attempting regulation is the decentralised nature of the blockchain. Therefore, there is no singular organisation recording transactions and the blockchain ledger itself is ‘distributed’ meaning it is shared across multiple locations, including different countries. Furthermore, distributed ledgers are not recognised by UK law, hence there is little buyer protection against ownership disputes, loss, or fraud.
Another complexity faced by those involved in NFTs is understanding exactly what rights the buying or selling of one confers upon an individual. This is due to the frequent inclusion of ‘smart contracts’ in which the contract terms are written in code, enabling the contract to execute itself when conditions are met. However, this may mean that if terms are not communicated clearly between the parties as well as being encoded, one party may not be aware of their rights with regard to intellectual property, royalties, and resale as they tend to differ on a case-by-case basis.
While hesitant to regulate this emerging sector too heavily, the UK have adopted a more assertive approach in terms of anti-money laundering measures. Businesses who fall under the description of “cryptoasset exchange providers and custodian wallet providers” now have to register with the Financial Conduct Authority and are subject to their supervision and reporting requirements. Moreover, certain art market anti-money laundering rules could apply to NFT sales above €10,000 such as registering with HM Treasury and nominating an anti-money laundering compliance officer. Therefore, although the world of cryptocurrency may appear lawless at first glance, policy is being implemented. Even where the worlds of art, finance and technology collide there may be hope yet.
Ultimately, it is easy to understand what makes NFTs so desirable, as they perpetuate the idea that the ordinary person can participate in a world previously reserved for the elite, so long as they have enough disposable income to manage the unique challenges of cryptocurrency of course. There is also a sense of community that comes with being one of a select few to own a particular NFT, albeit likely as manufactured as the scarcity that prompted their purchase. These factors, while not inherently dangerous, often cause people to involve themselves with cryptocurrency without the proper awareness of risks or regulations they could be violating because of its allure and accessibility. This could easily enable exploitative or illegal activity as many lack the proper legal and commercial resources to understand what they have entered into.
Williamson and Rapeport of Withers LLP propose a link between the popularity of NFTs and the COVID-19 pandemic, specifically in response to the closure of art galleries which has limited access to art, whether to purchase or simply to view. While this may well play a role, the upsurge could also be attributed to the glorification of tech entrepreneurialism by figures like Elon Musk. They perpetuate the idea that investing early and taking risks is essential for success, which is a dangerous path to follow as said success often comes at the detriment of the environment, morality, and other people’s lives.
[1]3rd Global Cryptoasset Benchmarking Study,Apolline Blandin, Dr. Gina Pieters, Yue Wu, Thomas Eisermann, Anton Dek, Sean Taylor and Damaris Njoki
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