All you need to know about NFTs.An NFT or non-fungible token is fundamentally a digital “Certificate of Authenticity”. They can be assigned to almost any kind of digital file but currently, the largest market for NFTs is in the form of digital art. Non-fungible simply means incapable of being replaced or interchanged. Through the use of non-fungible tokens, artists can pay to place a copyright on their digital works.
In the same way, the unique characteristics that instill the value of the Mona Lisa could not be replaced with those of the Last Supper; NFT metadata stores the unique information of each file registered. Allowing creators to attach an NFT to any image, video, or audio file they wish to authenticate.
So why are NFT trending?Potential benefits of NFTs surround the artist and buyer. For artists, NFTs provide copyrights protection discouraging fraud and legitimizing digital art as a valuable investment. It also minimizes the need for traditional channels of exposure, lowering upfront costs for artists.
Currently, the market for authenticated one-of-a-kind digital art is decentralized and intermediary-free. Which has encouraged several investors to purchase these certified works for thousands or even millions of dollars. The highest-grossing NFT to date is made by the digital artist BEEPLE. The piece is a collage of works he created over the last 13 years called Everydays – The First 5000 Days which sold for $69 million.
It could seem ridiculous or outlandish that a jpeg could be worth millions but BEEPLE essentially sold the ownership to a compilation of his life’s work as a digital artist. It’s no more ridiculous than a Banksy piece rising in value after it was shredded to pieces.
NFTs have revolutionized digital artwork because they bring security to the market. Investors are given the ability to obtain something unique and unrepeatable in the digital realm. While artists have access to a simplified verification and monetization of any original work. This has created real-world opportunities in Italy being referred to as possibly a “New Renaissance-Era” for Italian artists.
A Global NFT Exhibition was held in Rome on Saturday, 15 January of this year, and brought several digital artists from around the world into the spotlight. It was held in Palazzo Merulana, presented by Global Art Exhibition in a collaboration with CulturaItalia. The event consisted of workshops, presentations by digital artists, and an exhibition of their works to educate the public about the potential of NFTs attributed to the digital art format. It was free to participate with a reservation while following Covid-19 protocol. The increase of public interest in NFTs has the potential to encourage many more events of this nature within Italy.
What’s the problem?NFT metadata needs to be stored and blockchain servers are the most secure way to do this. Therefore you need computers to store the data for each file. Thousands of computers that generate an immense amount of heat and consume a concerning quantity of energy. As NFT markets exponentially grow so will the number of computers necessary to host them.
A French artist by the name of Joanie Lemercier canceled the release of 6 digital pieces because they consumed more electricity in 10 seconds than his entire studio did over the course of the last 2 years.
To date, most NFTs attributed to digital art are hosted by a marketplace on Ethereum. Ethereum is a company that owns the technology behind the second most widespread cryptocurrency after Bitcoin. It also owns a majority of the tech necessary for the security and distribution of digital art NFTs. According to Statista as of January 2022, one Ethereum transaction consumes almost twice as much energy as 100,000 Visa Transactions. As transactions multiply and the other NFT markets expand outside of the digital art world these transactions could potentially contribute to environmental consequences including but not limited to energy shortages.
Aside from the global environmental concerns, Italian authorities are facing issues deciphering where NFT digital artworks fit into tax laws. According to Italian law, residents should claim any artwork held abroad in their tax returns but in the case of NFTs, there is not a clear understanding of the conditions that should be implemented around digital works because it is such a novel and unfamiliar market for lawmakers. One potential solution could involve attributing the location of servers containing the NFT metadata as the location of the asset. This concept is currently up for debate and has no so legal backing.
What does this mean for the future of the market?In December of 2021, a company called Bubblehouse announced the launch of a new NFT marketplace that is said to be environmentally friendly and carbon-neutral. The first platform of its kind. The data will be held on a sustainable blockchain that is 99% more carbon-efficient than Ethereum. Eco-friendly NFTs are a possible future but they require severe research and investments which currently cannot match larger established blockchains.
Essentially, The market is in a state of flux. This is in part due to the major benefits NFTs bring to artists and buyers. In addition to the obstacles, they create for lawmakers and environmentalists.
Only time will tell the future of NFTs.
Ph: zmundissima / Shutterstock.com
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