NFTs: Has the World of Collectible Art Finally Gone Digital?
As we embrace the digital age, where content online can be easily copied and used, it becomes increasingly difficult to authenticate individual ownership. In this exclusive article, Patrick Tan presents the solution to this conundrum, in the form of NFTs.
Thaddeus Chong (not his real name) had been waiting for this day for a long time.
As the anonymous phone bidder at a recent Christie’s auction, he had been waiting to take delivery of his latest prized find – a rare piece by American abstract expressionist Jackson Pollock, for months.
Chong, who attended New York’s finest business schools and made his fortune trading oil futures in the 70s and 80s, first set eyes on Pollock’s work when he was cutting his teeth on Wall Street and vowed to someday own one.
And now that day had finally arrived, he couldn’t have been happier.
Prancing around the expansive living room of his 12,000-square-foot bungalow in a well-appointed neighbourhood in Singapore, Chong couldn’t wait to show his latest acquisition off to his friends, who would be green with jealousy, he surmised.
Then the coronavirus pandemic hit.
And Chong was left pretty much alone (his family hadn’t taken to art in the way that he had) to stare at his Pollock that hung forlornly in his living room, unable to invite anyone over as the island nation went into lockdown.
Even when the lockdown was lifted, Chong, who was accustomed to hosting large, lavish parties as an excuse to show off his extensive art collection, could only have small gatherings of close friends over to marvel at his latest additions.
Chong, who was probably more into art for the bragging rights than anything else started to grow somewhat dejected – what was the point in having something that nobody knew you even owned?
Which is when Chong stumbled on the concept of NFTs or non-fungible tokens.
NFTs are not new, they’ve been around since almost the time that Ethereum, the world’s second-largest cryptocurrency by market cap, has been around.
NFTs are basically digital tokens that can be tied to anything digital, from drawings to songs, digital items in video games and even animated GIFs.
Using blockchain — a decentralised database that stores immutable information and transaction data — NFTs keep track of who owns what piece of digital property that also serves as a public ledger to attest that ownership.
Whether it’s a photograph or a piece of art, a video clip, or a collectible sports card, blockchain becomes the ultimate tracking tool to unequivocally determine ownership.
Let’s say you create a digital painting, that painting can be registered to an NFT on the blockchain, as well as its history of ownership and its unique identification or code.
When someone buys that painting from you, the blockchain will record that new ownership and also serve as a certificate of authenticity not only guaranteeing sole ownership in perpetuity, but ensuring that any copy of that art will not be “re-sold” as a knock-off because the blockchain is immutable and to date, unhackable.
Ownership of Original
One important caveat — ownership of an NFT doesn’t prevent someone else from copying the artwork.
Because anything that is digital can be copied, there’s nothing to stop infinite numbers of copies of your painting being recreated — but none of these digital copies of your painting will be the original – because the blockchain will only reflect the one NFT.
And therein lies the magic of NFTs.
Whereas the art industry spends millions of dollars each year authenticating art and tracing provenance of highly-prized pieces, NFTs allow creators to confirm authenticity and lock that certification in perpetuity.
True, there’s nothing to stop anyone from making a copy of your digital masterpiece, but only one (or however many “originals” you decide to issue) will ever exist.
NFTs are designed to give their owners something that can’t be copied — ownership of the work, though most times the artist still retains copyright and reproduction rights, just like with physical artwork.
To put it in terms of physical art collecting, anyone can buy a Monet print, but only one person can own the original.
Whereas previous generations had an attachment to the physical, including physical art, photographs, books and other collectibles, Millennials and Gen Z are far more comfortable with the ethereal, especially digital works.
Imagine an entire generation that has grown up comfortably with the idea that you watch movies and listen to music that you don’t own, rent your house out to people you don’t know, and ride in a car that doesn’t belong to you, and the concept of digital ownership becomes an extension of that theme.
How does it work?
Armed with your digital painting, you hand it over to a dealer who can get it authenticated (basically check if it’s really you who created it) by looking at its blockchain history (if one exists) and then making it available for people to bid on.
Since the digital painting is yours and trackable on the blockchain, every time it’s sold, you as the creator, get a cut of the transaction.
Imagine if the descendants of Monet could collect royalties from each time his painting was on-sold!
And with the rising price of cryptocurrencies over the past year, demand and interest for NFTs has never been higher.
Canadian singer, songwriter and visual artist Claire Elise Boucher, better known as Grimes, recently sold some US$6.6 million worth of digital artwork.
And in early March, a digital video clip of NBA basketball star LeBron James attracted a winning bid of US$200,000.
NFT fever really reached its zenith when on March 11, Christie’s auctioned off a piece of virtual art, a digital collage titled Everydays: The First 5000 Days for a cool US$69.3 million — the third most valuable piece of art ever sold by a living artist.
To be sure, some of these heady NFT prices are because of the recent spike in cryptocurrency prices — most NFTs are transacted in Ether, whose price has shot up by 570% in the past year.
Everydays: The First 5000 Days was paid for using Ether, which was trading around US$1,800 at the time that the auction was held by Christie’s.
And given that many of the investors into NFTs were early investors into Ether or have existing bags of Ether lying around, the recently achieved NFT records can’t necessarily be equated in dollar terms, without at least factoring in that some of that Ether was acquired at relatively low prices.
Regardless, it still begs the question why any collector would pay money for something that can be easily copied.
The answer is simple – ownership.
Do you own art, or does the art own you?
Sure, anyone can download a digital copy of any digital work, but ownership is an exclusive and expensive club.
Because the blockchain ensures the certainty that it’s yours forever and that everyone knows because the blockchain is transparent, NFTs provide a unique value proposition that has just come into maturity.
Ironically, because it’s easier to make digital copies, the demand for the original will be even stronger — NFTs create digital scarcity in an age of internet abundance, and there’s an intangible value to that.
As was witnessed in China, demand for designer knockoffs (regardless of their quality) fell significantly as Chinese became wealthier and more demanded to own the originals created by French or Italian fashion houses.
One of the obvious benefits of buying art, is that it lets you financially support creators that you like, and that’s true with NFTs as well. Buying an NFT typically also comes with some basic usage rights, like being able to post the image online or even better, setting it as your profile picture, so everyone will know you own it.
But more importantly, there are bragging rights with NFTs and a blockchain entry to back it up.
Ultimately, knowing that you own the original imbibes an unquantifiable sense of satisfaction that collectors are willing to pay for.
There will always be people willing to pay for fakes, but in a world that feels increasingly commoditised, even more are likely to shell out for ownership of an original.
NFTs are just an extension of the times.
Even if someone owns a Monet, as Thaddeus Chong will attest, not having anyone else know you own it is sort of missing the point.
By Patrick Tan, CEO & General Counsel of Novum Alpha
Novum Alpha is the quantitative digital asset trading arm of the Novum Group, a vertically integrated group of blockchain development and digital asset companies. For more information about Novum Alpha and its products, please go to https://novumalpha.com/ or email: email@example.com