The NFT market crashed,and now everyone is questioning the utility of NFTs. Some even say that it is just a fraud, particularly those familiar with the dynamics of cryptocurrencies but not with the peculiarity of the art world. While NFT technology starts being regulated by governments and gamers are trying hard to avoid the entrance of NFTs into their world, everyone has their opinion and personal interests regarding NFTs, andfor the public, it is difficult to understand what is going on. Particularly in the art and crypto environments, dominated by information asymmetries and gatekeeping mechanisms, the risk is to lose the bigger picture.
So let’s dig into the issue: it has been said that NFTs are bad investments and that people from the art world have been pumping up prices, fooling buyers into collecting assets that will lose value very quickly.
This might be true, many people from the art world have surfed the wave and leveraged on high prices only because people were willing to buy NFTs. They gambled over a very complex technology, sacrificing quality, making art for the “wrong reason” (is experimenting ever a bad reason to make art?). As a professional working in the art world, I can tell you that the art market is a highly complex entity that cannot be compared with any other. Therefore, before ditching NFTs altogether, you might want to hear what people from the art world have to say:
Spoiler: NFTs are an excellent innovation for many reasons,
even if their value crashed.
First thing first, I would like to stress the point where this misunderstanding comes from: the absence of intermediaries. Cryptocurrencies leverage the fact that the whole system does not require intermediaries and that transactions can happen only thanks to an algorithm. Satoshi Nakamoto’s invention was indeed created to exchange value and money in a different way from the traditional and institutionalized system, and he did it with Bitcoins. It was an incredible innovation, a form of transaction that works simply thanks to a mathematic algorithm without involving third parties and allowing anybody to make any transaction, no discrimination, no gatekeepers. It is the future.
Suppose we only consider the absence of intermediaries as a term for evaluating NFTs. In that case,everyone will be disappointed (everyone IS disappointed) in seeing how NFTs require way more mediation than expected. But it is not the blockchain technology requiring intermediation; it is just the fact that art would not exist without mediation. At least not in the way we know and in the way in which we value art. The point is that the art world, since its existence, has been working according to rules that differ from the market for any other good. NFTs cannot change the complex evaluation and exchange of artwork, and since 2020, the two environments have started finding compromises and adapting their roles according to new needs and mechanisms.
Secondly, NFTs are not the artwork, they are a technology that allowed significant innovations for both digital and physical art, and of this revolution, the absence of intermediaries in the transaction is only a small part (a flawed one, which needs improvementfor sure, but still an advancement from how things were before). Before NFTs,digital art and digital artists struggled with having their work evaluated, purchased, and had copyright issues due to the infinite possibility that each user on the web could copy and use digital images. Once the digital image wasposted, the authorship of that work was not enough for the artist to receive returns on his work.
NFTs, by associating aparticular string of data to the first ever minted artwork, assured the artist the existence of a unique copy of his art, regardless of the number of times this image was copied, used without paying by users on the internet. Without “singularity” and “originality", the artworks have no value. NFTs provide both simply by associating a string of files with a digital file.
There are flaws in this system, and I understand that, for example, anyone could mint as an NFT an image that they find on the internet. It is possible, and it is widespread. And here, the “free from intermediaries” fails. To avoid copyright infringement, artists need someone who shuts down illegal copies, but this is no new in the art world. The presence of swindlers is older than the internet, and copyrightis a complex issue. If the NFTs system is not perfect, at least it is a step forward for all the artists who finally have the authorship of their art recognized and remunerated.
Another critical element that the art world benefits from NFTs is that transactions are public. This means that the authorship certificate of an NFT is publicly registered on the blockchain. This helps the whole environment because it will hopefully lead to a democratization of the art market, allowing more people to enter. In the physical world, transactions, deals, and copyright certification were all happening privately, leaving an incredible information asymmetry. With NFT technology, transactions are public, thus, the information they embed is accessible to anybody (without infringing privacy and anonymity, which is another essential pillar of the whole blockchain technology).
Lastly, NFTs have made a great revolution for artists regarding how theyare remunerated: with NFTs, each time an artwork is re-sold, artists receive a fee, which they are supposed to receive also in the physical systembut often they do not receive at all. Through smart contracts, this fee can be automatically given to artists through an algorithm embedded in the NFT itself, which automatically gives a fixed fee to the artist at every purchase made within the blockchain, which finally can have a fair remuneration on their works, even after the first purchase.
If we strip NFTs from the hype and the financial value, more than strings of codes are left. A new way of doing arts transactions has dramatically improved the art system’s digitalization process.
We don’t know how NFTs will perform as a financial asset in the future, but from an artistic point of view, that is not the point.
According to the ART+TECH Report, only a quarter of art NFT collectors thinks the investment return is important. And the main reason collectors buy NFTs is more related to the artistic value of the project: 90% of respondents to the report said that appreciation of the art was the most important factor when purchasing art NFTs and a solid artistic concept is the most critical ingredient of a good art NFT, and only 28% said that the potential to make aprofit was significant when deciding what art NFT to buy.
Art and technology have always had a problematic relationship, and both have been underestimating eachother. What is still missing in the equation is divulgation, information on what it means to buy art, and to buy digital art on one side, and to invest in cryptos on the other. There is no art without mediators because arts need it,but this doesn’t mean that art will not exist in a future where transactions are done without intermediaries.