Digital art NFTs: The digital answer to collectibles?

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  Quantumrun Foresight
• April 13, 2022

Insight summary

The rise of non-fungible tokens (NFTs) has opened new doors for artists, providing opportunities for global exposure and financial stability in the digital art world. By utilizing blockchain technology and cryptocurrencies, NFTs enable artists to earn royalty fees from original works and resales, reshaping the traditional art market. This trend has wider implications, including the potential to change perceptions of art, stimulate creativity, offer new investment opportunities, and create new avenues for marketing.

NFT art context

The 2021 investor craze for non-fungible tokens (NFT) has redefined the art landscape and ushered in a new era of collectibles. From digital memes and branded sneakers to CryptoKitties (a collectible game based on blockchain technology), the NFT market provides digital collectibles for everyone. Similar to how expensive collectible items like artwork or memorabilia from famous persons are regularly bought and sold with a certificate of authenticity commissioned by an independent authentication service, NFTs serve the same function in the digital realm.

NFTs are electronic identifiers that verify the existence and the ownership of a digital collectible. NFTs were first created in 2017 and, like cryptocurrencies, are supported by blockchain technology, thereby making the ownership history of an NFT public. In a relatively short space of time, the NFT landscape has attracted more people to its online marketplace than highly funded high-street galleries in the real world. Opensea, among the largest NFT marketplaces, drew 1.5 million weekly visitors and facilitated USD $95 million in sales in February 2021. 

Kevin Absoch, an Irish artist renowned for his alternative art, has shown how real-world artists can capitalize on NFTs by making a profit of $2 million from a series of digital images that focused on the themes of cryptography and alphanumeric codes. Following many high-value NFT sales, Stanford University art history professor, Andrei Pesic, acknowledged that NFTs had accelerated the process of valuing digital goods in a similar way to physical goods.

Disruptive impact

For many artists, the traditional path to success has often been fraught with challenges, but the rise of NFTs has opened doors to global exposure on digital platforms. The sale of a digital collage by Beeple for USD $70 million at Christie's in March 2021 is a prime example of how NFTs can elevate an artist to the highest levels of the art world. This event not only highlighted the potential for digital art but also signaled a broader acceptance of this new form of artistic expression.

Utilizing blockchain technology and cryptocurrencies like Ethereum, NFTs offer artists the chance to earn royalty fees for their original works. This aspect of NFTs is particularly appealing for artists looking to transition into digital work, as it provides a continuous revenue stream from resales, something previously unattainable in the traditional art market. The ability to earn from resales is driving up the value of digital art within the online economy, making it an attractive option for both established and emerging artists.

Governments and regulatory bodies may need to consider how to support and regulate this growing sector to ensure fairness and authenticity.They may also need to adapt their legal frameworks to accommodate this new form of asset, considering issues such as intellectual property rights, taxation, and consumer protection. The trend of NFTs is not just a fleeting phenomenon; it's reshaping the way art is created, bought, and sold, and its impact is likely to be felt across various sectors for years to come.

Implications of digital art NFT

Wider implications of digital art NFT may include: 

• The perception of traditionally subjective art forms changing radically with the rise of NFTs.
• The accessibility of NFTs stimulating new realms of creativity, and broader participation in digital art and content creation, as other forms of digital content such as videos become sought after and valuable.
• NFTs becoming an investment for those who purchase works from upcoming artists. Individual investors also have the opportunity to easily buy and sell shares of individual artworks.
• Art streaming platforms can distribute art in ways similar to music, allowing artists and/or the investors who bought their art to profit from art streaming royalties.
• Blockchain technology eliminating the need for artists to use the services of commission-seeking intermediaries such as curators, agents, and publishing houses, thereby increasing actual returns for NFT sellers and lowering purchase costs.
• NFTs creating a new avenue for marketing companies, brands, and influencers to explore multiple opportunities to engage customers, fans, and followers with unique experiences that span the digital and physical worlds.
• Replicas, copies, and fakes of famous NFTs becoming available for purchase, with hackers and scammers seeking to capitalize on the digital illiteracy of select art buyers and the popularity of expensive works and their resell value.

Questions to consider

• Given that the value of NFT ownership is exclusive to the buyer, do you think NFTs have longevity in holding or increasing their market value and as a possible investment class?
• Do you think NFTs will provide new impetus for artists and other content creators to design new works so that they may profit from their work?