Whether it be Beeple’s artwork, Everydays – The First 5000 Days, which was sold for a whopping US$69.3 million, or the Le Bron James clip that went at US$99,999, NFTs have flooded the news since the beginning of this year. The technology is making splashes everywhere, though not always in a way that lifts it up and encourages its presence. The big money & sometimes surprising value ascribed to assets are being seen as trends that have taken the fancy of those who can indulge in them but not something that is sustainable. However, NFTs do have the power to help many designers achieve financial freedom by allowing them to mint their own artwork as trading tokens.
Although, the environmental impact of the technology brings into question its benefits, if any, which are still unclear to the mass audience. So are NFTs all they are hyped up to be? To understand, let’s deep dive into what an NFT is.
NFT stands for non-fungible token, it is a unit of data stored on a digital ledger, called blockchain, that validates digital assets to be absolutely unique & therefore non-interchangeable. The non-fungible aspect of an NFT refers to its uniqueness and addresses the fact that each token has unique properties which makes an NFT essentially irreplaceable. Think of it like this: a ₹100 note, that can be exchanged with another one, is fungible. Whereas the Mona Lisa is non-fungible, there’s just one original. NFTs can be used to represent items such as photos, videos, audio, and other types of digital items. While copies of these digital items are available for anyone to obtain, NFTs are tracked on blockchain to provide the owner with proof of ownership that is more esteemed than copyright. (Wikipedia definition).
To understand NFTs better let’s take a step back and understand the technology it is based on, blockchain. Blockchain is a type of database where data is stored in blocks chained together; these chain links created between blocks allow for a chronological record of data. Blockchains can be centralized or decentralized, and cryptocurrency is associated with a decentralized database. This technology decentralizes data storage pertaining to transactions, and in the case of NFTs ownership. The way blockchain works is by making the transaction records of authorization, ownership, and transfer publicly accessible by all users. This contrasts with the way a bank would record transactions where just one party holds all power (centralized). This makes the data transparent and verified by many users and also ensures no one point of entry for hackers.
NFTs are based on a decentralized Ethereum blockchain technology, but unlike cryptocurrency, they are non-exchangeable tokens; they are unique and ownership of each comes at a price. So every time you buy an NFT for any digital asset, you hold a token of ownership for that asset which is unique.
What benefits do NFTs have other than certifying the owner of it as a legitimate owner? And what is the use of doing so for a digital asset that can easily be downloaded even if you are not a certified owner? The benefit and value lie in how NFTs change the relationship between a creator and their consumers through scarcity. Scarcity of an asset, any asset, makes it highly valued amongst all. Now combine scarcity with technology like blockchain that is being heralded, by some key influential establishments and individuals, as the most efficient and democratic way to transact albeit once it figures out ways to be environmentally friendly too. NFTs ensure that owners are supporting creators by paying a value that truly matches the demand for the digital asset in the market.
Pre-cryptocurrency era, instead of being able to own a digital asset, we were able to share posters, videos, motion graphics, and animations. We were able to repurpose and reshape these but never call the digital asset our own nor trace back the original creator for it. The NFT technology allows creators to license, sell, or display their digital artwork however they want. To sell their artwork, creators need to get a type of ‘legal’ ownership of their work, so that once the artwork is created it is ‘minted’ or tokenized on the blockchain network. This essentially gives the digital artist recognition for their work.
In addition to this, the technology that makes NFTs possible gives creators a very accessible and quick way to produce & sell their artwork. When multiple copies are made of any kind of artwork, the original piece begins to lose value. However, using NFTs can enable artists to sell copies of their work as editions. NFTs can also create an opportunity to include royalties to the artist. Every time the artwork is sold, the creator can potentially receive a percentage of it depending on the platform. Now if this artwork gets sold multiple times, that’s some hefty income.
Remember when there was a boom in street art? Remember when they were first sold in galleries? NFTs are shaking things up in a similar fashion. Essentially NFTs provide content creators, artists, digital creators & businesses with more earning avenues by commercializing their work.
What was once sought out as limited space is now ebbing of freedom. NFTs allow creators to assert their authorship on the content produced on the network. Think about it, in a time where the internet and the concept of ownership are incompatible, NFTs provide the bridge for connecting those dots.
The idea of selling your own creations online serves to empower and liberate you as an artist. NFTs respond to a system that hasn’t been working for all designers and creators.
As fascinating and exciting as NFTs sound, there are some limitations to how they can serve us as designers. The key drawback of NFTs is that they tend to be unstable. The crypto-based Ethereum technology that is the basis for NFTs is incredibly volatile. The same decentralization that is a cause for glee for many, is the reason for this instability. The fact is that cryptocurrency is owned by no single entity, this makes it hard to govern the supply.
Another limitation is the gas fees. Since cryptocurrency, NFTs, and blockchain all exist on a digital universe, there is a massive amount of computing energy that gets used to process the transactions. Most NFT trading sites require the users to be responsible for paying these fees. For example, It’s rather daunting for a designer who is based out of a remote city to buy a $100 NFT if the gas fee is another $60-100. What’s more is the fees change depending on the time of the day.
Another drawback is that NFT’s require high consumption of energy, this will result in a massive negative ecological footprint if it continues to rise in popularity and a more efficient method to execute them has not been found as yet. And a major drawback of NFTs and cryptocurrencies in general is the fact that most people don’t understand the construct of NFTs, cryptocurrency and blockchain nor the impact that it has. The knowledge surrounding these topics is also changing and expanding on a daily basis making it very hard for a majority of even technologically savvy folks to keep track of.
The concept of NFTs is profound, in a way where it should enable designers, creators to earn money from their work and exercise ownership, & to protect their work from being used somewhere else without their knowledge/permission. But it has not actually been the case, it has rather brought a lot of commercially exploitable hype.
As much of a saving grace as NFTs sound, earning thousands of dollars off your artwork can be a rarity. And there’s a chance a good portion of that money doesn’t go to you. This is because there are numerous fees levied to NFT creators, both upfront and after the sale, by the companies that enable the transaction as well as the platform that generated and maintained the NFT.
That being said, you can still earn a rather hefty amount and the pros outweigh the cons by a longshot. To get started, you’ll need a crypto wallet, one where you can store some Ethereum. Most NFT platforms base themselves on the Ethereum blockchain and hence having that ETH is necessary.
Once you create a wallet, connect it to an NFT platform like Rarible, OpenSea, or Foundation. Each one has its own pros and cons list and it’s recommended that you do your own research before you decide on a platform to upload your work. Once you’ve connected your wallet with the platform, upload your work. That was easy right? Three simple steps and you’re already at uploading your work. You can upload the digital file as a PNG, GIF, WEBP, MP4, or MP3 file, and up to 30MB in size.
Next, you set up an auction and choose either of the three alternatives – Fixed price, timed auction, and unlimited auction. ‘Fixed price’ allows you to set a price and sell it to someone immediately (like Amazon). ‘Unlimited Auction’ allows people to carry on making bids until you accept one. And finally, ‘Timed auction’ is an auction that only takes place for a particular amount of time.
Once you’re done with a few more formalities like describing your NFT and setting in a few more options, comes the difficult part. Difficult because this is the part where you have to pay a fee to the platform to generate a token for your file as well as a fee to list the item in the marketplace. These fees vary from platform to platform and at times due to the fluctuations in cryptocurrency, also vary from time to time. If you went on platform A and paid X dollars to generate and list your artwork on the platform, chances are the next time you come to upload your work the fee might be a little different.
But before you go off minting art, there is something you need to keep in mind. Even though NFT platforms grant designers immediate access to global audiences, having a pre-existing online following will help artists gain a higher exposure in the market. It is important to have a community that is enthusiastic about the work you create and provides a strong support system for you. To do this, first, take some time to understand the market and research on latest trends. It is also a good idea to engage with others on social media platforms so that you can be an active member of the community. The trick here is to make sure you convert your audience into buyers. Then when you feel ready is when you should get started. So it’s recommended you don’t rush just because you feel it’s a bubble and you feel like you want to cash out before it bursts. NFTs have been here for years and are not going anywhere. The hype may be high right now and it may die down in the future, but the technology is here to stay.
The concept that the mainstream retail investor will start buying these non-fungible tokens, is a bit implausible. The majority of people still don’t understand what NFT really is, or how to own them and what does it mean to own these real or intangible items – such as graffiti or a tweet. Once the hype dies down, however, NFTs would certainly bring a lot of real value beyond the budding blockchain economy.
A creator’s main objective is to expand the accessibility of the work they produce. To get more exposure, eyeballs on their art or creations, are vital and the main purpose of Art. For artists to earn from their work, the ownership rights of their work must be limited. Artists have been struggling in terms of ownership & compensation for their work since the dawn of internet, & in this digital economy, NFTs have the power to help them to commercialize their work on the blockchain, though it is evident that NFTs are of more immediate value to collectors than to average people. But going forward, once NFTs become more affordable, more people will want to join the movement.
According to data from DappRadar, more than eighty-five thousand NFTs were traded per day in May. The total value of these transactions was $5.8 million! It would seem NFTs are here to stay, at least for now. But how does this impact our future? There are multiple things to consider before we can answer this question. Even though NFTs are non-replaceable and have a unique ownership structure, they are ultimately traded on platforms owned by a single entity. This begs the question, what would happen to the NFT, the value of the NFT, and the ownership rights of the NFT if the platform were to shut down tomorrow. This leads us to another interesting point: if a technology, whose entire existence relies on being independent of any central authorities, exists on a platform that is controlled by a single user then to whom does the IP of the asset really belong? Is an NFT trading on Rarible the Intellectual Property of the creator or does it belong to the platform Rarible?
Despite the ambiguity, there seems to be huge scope for NFTs in the future for physical products. For example, Nike recently filed a patent for a new line of blockchain-based sneakers called ‘CryptoKicks’. According to this new patent, Nike can attach a digital asset to a unique identifier for each pair of sneakers. This means that traders can now trade a physical Nike shoe or even a digital asset version of it. And that’s not all! It might even be possible to combine or ‘breed’ two digital shoes to create offspring that can then be made into a physical pair of sneakers.
NFT is a powerful technology with huge potential that can effectively solve issues around ownership and authorized usage of digital assets, albeit with limitations as is the case with any new technology. It’s a technology that is ever-evolving so there is definitely a real gap in the way the market functions. Currently, it seems as though the NFT technology sits behind a fog of fads and trends that explains very little of the actual power the technology holds, or the effects its irresponsible usage can have. Our job as responsible netizens should be to dig deeper, ask more questions, and unveil the mystery surrounding NFT, its use, and its practical applications in ways that users can easily consume, benefit from, and responsibly use to their betterment and advantage. In our US Design Studio, we have been researching in the NFT space and implementing our design processes for different projects. Stay tuned to our website to know more about it.