Updated: Dec 29, 2022
Most people have heard of NFTs (non-fungible tokens) by now, but very few really grasp what they are. They are a slippery concept, and we are yet to see the full potential of cryptocurrency as Web 3.0 emerges (a supposed third generation of Internet-based services collectively comprising 'the intelligent Web'), as the law, the art market and politicians scramble to keep up in the metaverse. But what are the implications of NFTs on the art market?
One of the more positive aspects of NFTs is the decentralisation of currency. The transaction seems more democratic, and not being governed by the state or banks provides freedom from their agendas and unstable economies. Much like how many left-wing supporters became anti-vaxxers due to distrust of the state, I see the same phenomenon in cryptocurrency. There is a similarity of contradictions, as being an anti-vaxxer can be seen as counter-intuitive to left-wing ideas of community care and prioritising those marginalised, whereas cryptocurrency encourages wealth disparity and uses a colossal amount of fossil fuels.
We are currently seeing political parties from the United States incorporating NFTs in their campaigns, such as Republican candidate Blake Masters, who is selling NFTs made with PayPal creator Peter Theil.
Using NFTs to fund a political campaign means being able to circumvent the donor-disclosure required under federal campaign finance laws, and avoids current caps on the amount that can be donated. Which is fine if you love corrupt politics and you don't believe in climate change.
When it comes to cryptocurrency, the negative impacts cannot be overstated. Of course, there are courts and lawmakers working to regulate NFTs, but whether they'll be able to keep up, much like pirating on the Internet, is yet to be seen. Some countries such as India struggle to create policy around NFTs as they are not defined, so there is ambiguity as to whether they are a currency, commodity or an asset. This is without beginning to explore the fact that NFTs almost exclusively use the Ethereum blockchain network, which uses Proof-of-Work (PoW) to verify the NFTs. PoW is seen as one of the most energy-consuming ways of validating crypto transactions, and some users are looking at other methods such as Proof-of-Stake (PoS). Some investors are favouring PoS because it is said to use 99.9% less energy, however, it is unlikely any established cryptocurrency will make the move until forced to. The British Journal of Photography’s new NFT platform ART3 will use Polygon instead of Ethereum, which already uses PoS and calls this ‘exclusively minting’ their products. However, the British Journal of Photography is also saying that whoever owns the token owns the image, which is not legally true.
Due to the criticism that PoW has received, the European Union is seeking to pass a bill regulating crypto use. This included the prohibition of cryptocurrencies that use PoW, although this has now been postponed. The bill includes legislation to regulate cryptocurrencies and safeguard consumers. However, it excludes NFTs from this, meaning there is no protection for artists who have seen their works sold as NFTs without their consent. This is not to say that artists cannot use NFTs to make huge profits, such as digital artist Beeple, but there is no security in a return when it comes to NFTs. NFTs are also used more easily for fraud compared to other types of crypto as ownership is more complex, and they are currently exempt from many taxation laws.
There is also the issue of disintegration. Readers of a certain age will remember Piczo and Bebo, early forms of social media which are now defunct. Any images that were once held on those sites are now gone. NFT’s and all digital art will eventually degrade and become inaccessible, meaning the NFT, which essentially functions as a link or pointer, may eventually point to nothing or to a broken link. This indicates that there is little security as an NFT collector, if you are interested in the art rather than the value of the token itself.
Then there is the question of value. Blake Master attributed value to his NFTs by giving rewards to buyers, much like in a Kickstarter campaign. From invites to parties and hard copies of his books, he uses the tokens as a way to gain access to him and further his desirability as a candidate. This however has nothing to do with the art itself, and arguably NFTs do not have anything to do with art. Nonetheless, digital art sold as NFTs have been auctioned at the houses of Christie’s and Sotheby’s, validating a clear presence in the art market. The commercial art market of today is already something most artists feel disdain for, especially when art is sold for high prices that can be seen to prioritise status over quality. The same can be said for NFTs, some of which are little more than clip art. A series of 100 virtual ‘Pet Rocks’ were sold each for over $100,000, and the same images can be easily downloaded as a jpeg for free anywhere on the internet.
The original 2013 public domain clipart on which the NFT 100 Pet Rock series is based. Image from clipart-library.com
Some users may get rich as the value of crypto increases with the number of investors, but it ends up functioning a lot like a pyramid scheme.
Those who entered into crypto at the beginning are continuing to become richer, whilst newer investors can lose money as they pay to mine for ‘coins’ without return. The value of crypto itself can also be manipulated through platforms like Twitter, which has implications for the value of NFTs too. Elon Musk has been accused of market manipulation by tweeting negatively about the environmental impact of crypto, and consequently, the value of Bitcoin dropped.
Allowing cryptocurrency means enabling the one percent of wealth to control and hoard money. They are beginning to influence NFTs and the everchanging digital art market like never before, as they are investing their riches into the risky currency of crypto. They ironically are also likely to be the only people left when fossil fuel consumption from the nodes (computers) used to create the blockchain finally make most of the world uninhabitable. In conclusion, if politics was not corrupt enough already, NFTs certainly make it easier. NFTs are severely damaging the environment, problematic for most artists and collectors, but are great for anarcho-capitalists, fraudsters and those looking to launder their money.