NFT: the new artistic revolution?
In less than two years, NFTs or "non-fungible" tokens, which are part of the cryptocurrency universe, have made their mark on the art world.
What is an NFT? How does it work?
NFT stands for "non fungible token". Behind this somewhat technical vocabulary is actually something quite simple: an NFT is a digital token registered on a blockchain.
The specificity of the NFT compared with other tokens and cryptocurrencies is that it is "non-fungible", i.e. not replaceable by another token, in other words it is a unique digital object.
To understand what this implies, let's take the case of a €10 banknote. There are more than 2 billion 10-euro notes in circulation, and their distinctive feature is that they all have the same value: 10 euros. They are interchangeable, so they are "fungible" objects.
To make sure we've understood correctly, let's take the example of a drawing. Lucie is an artist and has drawn a series of whales in ten copies. Each drawing is different from the others, none replaces the other, they are all unique. We will therefore say that these drawings are non-fungible, i.e. they cannot be replaced by one another.
And this is where NFTs come into play.
To guarantee the uniqueness of Lucie's whale drawings in their digital form, we can record them on the blockchain and turn them into NFTs (Lucie could also have drawn her whales directly on the computer). How can we do this? By doing what is known as "minting". This term comes from the English "mint", which means "to mint a coin", which should be understood as creating money or monetising an asset. In the example, if Lucie wants to sell her whale drawings this is the process she will have to carry out.
The "mint" therefore corresponds to the creation of the NFT of the whale drawing and its registration on the blockchain. From now on, your ticket is recorded on an unforgeable digital register that can be consulted by anyone with a computer and an internet connection. The blockchain recognises you as the sole owner of this photo. You can use your NFT as you see fit.
Why are we talking about NFTs?
Now that you've normally understood what an NFT is and what technology is used to create them, it's important to understand why we're talking about them so much today.
A few figures on what the market represents: In 2021, transaction volumes on NFTs reached $44 billion - notably via the use of Ethereum's native currency, ether - according to several reports. While sport, luxury goods and gaming are all affected by the phenomenon, it is above all the art market that is concerned. And with good reason: the "unique" nature of NFTs refers directly to the uniqueness of a work of art.
One of the most emblematic cases is that of artist Beeple. In 2021, Christie's auction house sold one of the artist's works, "Everydays - The first 5000 days", for $69,346,250, making him the 3rd most expensive living artist on the planet behind David Hockney and Jeff Koons.
The rarity of a digital token defines its market value. As an example, the famous collections from the Yuga Labs studio, Bored Ape Yacht Club and Mutant Ape Yacht Club have only 6,400 and 13,000 owners respectively. The uniqueness of these NFTs has a huge impact on their price. Some have sold for several million dollars.
But this type of NFT and these prices are quite exceptional. While no "average" price is available, most NFTs, even in art, trade at prices around a few hundred euros. According to a survey by KPMG France for the Association pour le développement des actifs numériques (Adan), 3.5% of French people have already bought NFTs. This figure would be around twice as high for crypto-currencies.
NFTs, an artistic revolution?
The big novelty with crypto-assets and NFTs is digital ownership. From now on, you can be the owner of a physical asset and also... a virtual one! This obviously opens up enormous opportunities for artists. Any designer, painter, singer or other 'creator' can create one or more NFTs and sell them directly to potential buyers. Does this mean the end of art galleries? Not quite.
On the model of traditional art galleries, other "online galleries" have sprung up. The best known of these is undoubtedly OpenSea.
In 2022, the American exchange platform, valued at just over 10 billion dollars in 2021, claimed to have 600,000 "artists" or resellers of works and almost 120 million visitors per month! With so much traffic on these platforms, the exposure is potentially enormous for artists (and owners), even if their numbers are also proportionately much greater than in a "physical" gallery.
In addition to the income from the sale of works, NFTs have a considerable advantage for artists as they allow them to continue to receive "royalties" on each sale. How do they do this? This is provided for in the information inherent in the NFT contract. As soon as the "owner" wishes to sell the work, the artist will automatically receive a percentage of the transaction.
For collectors, the advantage of NFTs is that they can shop from a distance. Some works are NFT only. Others are an NFT with a physical variation. It is no longer necessary to invest in a safe to protect your precious works. Digital wallets, commonly known as "wallet", are secure and allow everyone to keep control of their properties and financial assets in general.
These new works are not without consequences for the art market, which has begun to take account of this development in order to adapt to it.
The case of museums: taking NFTs out of the virtual world
Digital art now has its museums. In Seattle, in the United States, a museum dedicated to NFT opened its doors at the beginning of 2022. But it's not the only one. In Paris, the NFT Factory, which is due to open soon, should also enable artists to exhibit their work.
The idea behind the museum is simple: to take works of art out of the virtual world and let the public enjoy them directly, exactly as with "classic" exhibitions. Since the Covid crisis, some institutions, and not the least, such as the British Museum, have rethought their business model and turned to the sale of NFT in order to diversify their income.
There are also "dematerialised" museums only accessible in the... metaverse (yes yes). In particular, there is talk of using this alternative virtual world, in order to present and use NFTs. These museums are supposed to offer virtual but immersive access. The dematerialisation inherent in the metaverse does not allow physical access to the various art objects, but the underlying technology calls into question the notion of accessibility to certain collections. That's a whole other subject, but the metaverse is not just a game, as some people like to think; it already acts as an art gallery in several cases (Decentraland, Multiverse...).
Why do NFTs have value?
The question of the value of NFTs gives rise to much debate, as it does for 'classic' works of art. A fairly simple way of defining the value of an NFT is to look at its price. But is that enough?
What is certain is that the NFT market, like the crypto market, is highly speculative. Certain works of art such as Beeple's or NFT collections (Bored Apes, etc...) are particularly high-profile and very popular. So it's supply and demand that define the market price.
Artists play on the unique character of a work, on the story they tell via their collection, and also on what the NFT can offer in the way of services (access to specific events, for example, if you own an artist's work) to entice buyers to snap up. However, make no mistake: the risks associated with NFTs are very much present and the volatility of crypto-assets is something investors need to take into account.