NFTs: Between Cryptocurrency and Art

At first glance, Christie’s March 11 auction seemed like yet another episode in art’s never ending telenovela of collectors scrambling to secure a masterpiece. The bidding opened at $100. The final price reached over $69.3 million. But the artist was not Warhol and the medium not canvas. The London-based auction house’s highest-selling lot of 2021 so far can hardly even be called an item. The piece in question, Beeple’s “Everydays – The First 5000 Day”, is a completely digital work of art — a non-fungible token, or NFT.

On a fundamental level, NFTs are a form of cryptocurrency. They are stored in digital wallets and secured with “keys,” which are essentially long passwords. With the current technology, they would require millions of years to hack, making them essentially unstealable as long as their owners don't share the keys. The major difference between NFTs and regular cryptocurrencies is that, as the name suggests, they are “non-fungible,” or unique. A single bitcoin is a single bitcoin. That is not the case with NFTs, as they contain different information, which in turn determines their value. Cryptocurrencies and NFTs could be compared to canvases and paintings. Two identical, blank canvases are fully interchangeable, or in other words, fungible. Two paintings, even though they might exist on canvases, are not. In short: unlike other cryptocurrencies, NFTs are unique and contain unique data, which means they can be used to store information about and to sell art.

The wording here is crucial. The files containing the digital artwork are simply too large for any cryptocurrency to hold. The data stored in an NFT is not a copy of a painting, a video, or a song, but rather a link to it on an outside platform. That way, it’s more akin to a purchase certificate from the work’s creator that lets the token’s new owner loudly proclaim to the world: “I got this first.”

“What the buyer gets is essentially a long string of numbers and letters. It’s a code that exists on the Ethereum blockchain that will be dropped into their Ethereum wallet,” says Noah Davis, Christie’s expert on post-war and contemporary art, in an interview with CNBC while noting they will get separately “a gigantic JPG.”

There’s nothing preventing the work linked to in an NFT from being distributed by people who don’t own it. There’s nothing preventing the work’s author from distributing it, as the purchase of an NFT more often than not doesn’t mean obtaining copyrights from the artist. Vignesh Sundaresan, the man who bought the NFTs “Everydays,” decided to share it online, in full resolution. What’s more, they still rely on the traditional web for hosting the actual, digital artworks, which means that if a domain goes down, the token is reduced to nothing more than a proof of purchase.

If the owner of an NFT doesn’t own the rights to the work (other than the one to display it), and others could easily get it — in this case the JPG — for free, then why spend millions on it? It’s easy to dismiss NFTs as a fad, the art world’s equivalent of fidget spinners, especially in an era when adding the word “blockchain” to the name of an ice tea company makes its stock price double, but the ease is deceiving. Buying a photograph, just like buying an NFT, does not have to mean buying the copyright. A perfect copy of it could be printed with ease, and the image is likely accessible to the public — And yet it’s not unheard of for one to fetch millions of dollars at an auction. Similarly, a first edition book, just like an original NFT, is going to be more expensive than a reprint, even if the design isn’t changed.

“I don’t think it’s a one-off … NFTs clearly are more than just an emerging, nascent collecting space,” says Davis. The words don’t seem like a mischaracterization considering the fact that this “cryptoart” has undeniable advantages over its traditional counterparts. Thanks to the cryptocurrency aspect of NFTs, purchases can be done with absolute privacy, an important consideration for the art-selling world, where most vendors and buyers choose to remain anonymous. The digital form eliminates the need for storage and insurance, and it also makes it easier for emerging artists to market their works directly to their audiences — in a way, levelling the field and reducing entry barriers. The blockchain technology allows for NFTs to be designed in such a way that the artist would receive royalties every time a token is resold. The egalitarian aspect is hardly limited to creators themselves. NFTs make art collecting more accessible than ever, with purchases possible in an instant without the need to leave home, a trend noticed even by Christie’s. “Of those 20+ initial bidders, only three were known to Christie’s,” Davis says.

Non-fungible tokens represent a sharp break with the tradition. They stretch the definition of ownership, force us to rethink what it means to collect art, and rely on technology that, to many, seems esoteric. For other phenomena such challenges could prove insurmountable, but NFTs manage to achieve something paradoxical; at the same time, they make life easier for newcomers and benefit the establishment of the art world.