NFTs—a bubble or revolutionary tool to disrupt the art market?

Let’s start with the basics. What does non-fungible mean? 

Fungibility is referring to interchangeability. Non-fungible means non-interchangeable, or unique. Both physical and digital items can be considered non-fungible, for example diamonds are considered a non-fungible asset as each is unique and can’t be replaced with something else. For perspective, Bitcoin is considered fungible because each one holds the same value and one can be traded for another just like stocks or dollar bills. 

What is the ‘token’ in NFT? 

The ‘T’ of NFT, tokenising is the process of adding a unique identifier to any good that proves ownership and authenticity. NFTs are also powered by blockchain, a secure digital ledger that tracks transactions. An NFT in the art world is most often a digital item with a unique identifier, meaning it is an original piece. In theory, NFTs can be anything—a video, an image or even a tweet. There have even been cases of people selling virtual love as an NFT. 

The key differentiator is the non-fungibility component. Although a digital item may be copied millions of times, an NFT is an original. Similarly, there are forgeries of Picasso’s oil paintings, but there is only one original.

Has the art industry embraced the rise of NFTs? 

The art industry has had mixed responses to the rise of NFTs. Auction houses like Christie’s have shown enthusiasm, being the first house to sell a major NFT piece titled ‘Everydays: The First 5,000 Days’ by American artist Mike Winkelmann, better known as Beeple. The piece was sold for US$69 million at auction, setting a new record in the digital art realm. Trading has continued to rise, and the first half of 2021 saw US $2/.5 billion in sales. 

NFTs are also revolutionising the industry through traceability and transparency. Historically, art galleries and auction houses are shrouded in secrecy as they generally do not disclose the reserve price of an artwork to the buyer. This enables a prestige culture within the art community, and as a result, a lack of transparency and education in art as an investment. NFTs help to disrupt this as they are traded on an open market where transparency is built into the model. Royalties and revenues can also be earned by artists from secondary sales as all transactions are traceable. 

However, critics say that NFTs may negatively impact the traditional art market including patronage and appreciation of the arts, as buyers and collectors choose to invest more in the digital sphere and less in traditional techniques. As NFTs often require very little effort to be created, artistic mediums like painting, sculpture and drawing may fall to the side as digital art takes the lead. 

Are NFTs disrupting the traditional art industry? 

NFTs have undoubtedly reshaped the art industry in a short period of time through renewed methods of authenticity and distribution. The industry has transformed the buying and selling process for artists and creators allowing them more autonomy within a new community, while also lowering the barrier for entry by people from non-artistic backgrounds. They challenge the meaning of ownership and have shaped expansive marketplaces where everyone can be a creator. 

But will NFTs continue to rise in popularity? Or will people begin to poke holes at their objective or subjective value? It is true that for many, digitisation and uniqueness cannot be conflated regardless of whether a digital item has a stamp of authenticity or originality. Perhaps the industry will shift into its own sub-asset class over time, rather than stay competitive with tangible art. But bubble or not, no-one can argue that the market is surging, and galleries, collectors and individuals alike are paying attention.