Introducing Non-Fungible Tokens (NFTs): What are they, Why are they Important, and How to Trade them for Maximum Profit Part 2
Why is the NFT Art Market Blowing Up?
Since every NFT is one-of-a-kind and has a unique value, it is easy to prove that the purchased works are genuine. NFTs have an advantage over written proof of authenticity as they are almost impossible to forge. When an art piece is tokenized, it is placed in a digital wallet of the creator of the piece. The wallet is stored on a blockchain. Once the art piece is sold, the NFT is moved from the artist’s wallet into the wallet of the buyer.
The change of ownership is recorded on a blockchain, by adding a new block with info about the sale and a timestamp. This transfer is then confirmed by a network of computers, through complicated mathematical algorithms. If the piece is resold, another block is added on the blockchain with a new timestamp, sales details, and the name of the new owner. Similar to written provenance, the blockchain forms a chain of transactions. If one computer in the blockchain network tries to forge the ownership records, other computers will notice the fraud and reject the change, therefore ensuring the NFT’s authenticity.
And by following the artworks blockchain URL, anyone can see how the artwork changed hands, all the way back to the original owner – its creator. In order to ensure that a digital art piece is authentic, all a collector has to do is to trace the URL of an NFT, all the way back to the artist’s wallet.
It is important to mention that sometimes artists issue several NFTs for the same art piece, thus creating a limited edition of digital artworks. For example, an artist can create 50 or 100 digital tokens for an identical piece. But even then, every buyer is given a separate, unique token, which can be later sold on the NFT art market. The collector can see exactly how many identical digital artworks exist in the series. Artist is guaranteeing that the series is limited and that he or she will not make any more tokens, therefore ensuring scarcity for the piece.
New Paradigm of Revenue Structure on the Art Market
Nowadays, creating a non-fungible token is easier than ever, as many digital platforms are offering the services of minting. All an artist has to do is upload a picture of the piece with dimensions, title, and the creation date and press mint. The platform will then validate the information about the artwork and create a new block on a blockchain with the given information. Then an artist can determine the price and offer a piece for sale. NFTs are a great way to monetize videos, memes, and all other digital assets that were almost impossible to trade before.
However, NFTs have changed the paradigm of the artist’s revenue as well. Now, the artist’s revenue doesn’t end at the first sale. NFT has managed to change the revenue structure by enabling artists to continuously earn money every time their art piece is resold on the secondary market. Many NFT sales platforms are offering royalties for every resale of the art piece.
For example, a Foundation, (an NFT sales platform where the celebrated Nyan Cat was sold) is offering 85% of the final sale price to the artist upon the first sale, but also a 10% royalty for every resale, which will be sent back to the artist’s wallet. Since the whole system is digitalized and the royalties are embedded into the NFT, buyers can not avoid payment even if they tried to. Royalties upon resale of the artworks are common in Europe, but they are almost unheard of outside of the continent.
In the United States (with an exception of California) and many other parts of the globe artists only earn money upon the first sale. Even if an art piece is resold for millions of dollars, its authors won’t see a dime of it, as all the money goes to the seller.
By establishing royalties for every resale, the NFT platforms are allowing artists to continuously earn money from their art, therefore permanently changing the artist’s revenue structure. And the 10% threshold is even more generous than the European average, where royalties usually span between 4% and 0,25% of the sale. The fact that just one NFT that’s repeatedly sold and resold on the market can provide an unlimited financial gain, has attracted many artists to try out the new technology.
Final Thoughts: NFTs are Here to Stay
NFT’s are changing the way the art world functions in so many ways. First, they can be used as undeniable proofs of authenticity, enabling both artists to protect their works from forgeries, but also ensuring that the buyers are getting an original they paid for. Then they are providing a safe way of purchasing and trading digital art pieces, therefore fueling the interest in this art genre.
But NFT’s are also creating a new and transparent way of selling and buying art. With so many NFT marketplaces out there, buying and selling an NFT has never been easier. Anyone can enlist an artwork for sale. That means that artists can now offer their pieces directly to the buyers without the need for gallery representation or an auction house. By cutting off the middlemen, artists will get more money for themselves, as platforms are only keeping a small fraction of the price for their services.
And the resale royalties are enabling an artist to earn money for their work over and over again. But not only artists benefit from this new paradigm. Collectors can have a lot of benefits as well. They won’t ever have to worry about storing and preserving the piece since it is residing in the digital world.
NFTs, bring a whole world of new art pieces to their fingertips. There is no need to visit exhibitions or auction houses, to keep up with the latest trends in the world of art. Art can be sourced directly from the artist, without the need for a middleman. The lack of gallery provisions and buyer premiums are making these art pieces more affordable than ever. However, galleries and auction houses have a reason to support the trend as well.
First, the expenses of selling an NFT are much lower than when selling a physical art piece. Since the storage, the presentation and the trade are all taking place in the digital world, the costs of storing, handling, and photographing an art piece are cut down to a minimum.
The support of almost all art market players, alongside steady prices and ongoing demand, is a certain indicator that NFTs are not just a bubble waiting to burst, but a profitable, long-term investment.
The NFT value expands beyond its financial value
With all that hype about NFTs and their investment potential, many people forgot that NFTs are valuable works of art in their own right. Many artists of today are experimenting with digital technologies making art pieces for the NFT art market specifically. These art pieces have their own aesthetic and value that spans beyond their investment potential.
They represent clever depictions of our surroundings, convey messages and emotions, or push the boundaries of art to new heights. As NFTs become more and more popular, art lovers will get used to them more and more, which will force them to focus more on the aesthetic value of the piece, than on the novelty of the medium.
In the future, the value of NFTs will be inseparable from the value of the artwork they carry. In other words, when the media hype is over, the future of NFTs is as bright as the future of the art pieces minted and tokenized.