25th May 2021

Delving Deeper into the World of NFTs

Earlier this year, Anil Dash, CEO of Glitch, was interviewed by The Atlantic where he explained how the original purpose of NFTs was to empower artists and to prevent the corporate exploitation of creative professionals. The legacy system for buying and selling digital art has made it difficult for artists to be recognized for their work as images can be easily copied and shared without consent or credit being given. Artists usually have to work with companies that act as a middle-man for transactions and/or promotion on online marketplaces which bleeds revenue that could be going directly to the artist. This can also lead to a lack of recognition and loss of future profits for art pieces that are copied without consent. 

The introduction of blockchain and crypto technologies has provided the art market with alternative options that change the roles of  'middlemen'. By using blockchain to identify, store and verify digital art, creatives can take greater control of the process and see a larger percentage of revenue going straight into their pockets. As Dash explains, the idea was never to become a space for investors, but for digital art to be able to be bought and sold in a reliable way that ensures the creator has more autonomy. Through this system, the artist can be recognized with each future transaction and take a percentage of each sale, which in turn ensures one true owner of the artwork and exposes the others as copies.

The intention, if successful, is to integrate NFTs with the existing economic environment around the buying and selling of art. Simply put, it would be a way for digital art to be identified as original, enabling it to have a similar unique value as physical art. This was the natural next step for digital art if it ever hoped to be used and valued the same way as physical art. Shortcomings remain with the technology that hinder digital art’s ability to mimic these properties of physical art pieces. 

A few kinks relating to the blockchain that is being used need to be ironed out. Dash points to shortcomings in the design of the process: “The NFT prototype we created in a one-night hackathon had some shortcomings. You couldn’t store the actual digital artwork in a blockchain; because of technical limits, records in most blockchains are too small to hold an entire image. Many people suggested that rather than trying to shoehorn the whole artwork into the blockchain, one could just include the web address of an image, or perhaps a mathematical compression of the work, and use it to reference the artwork elsewhere.”

This means that the artwork's value and storage rely mainly on the company or marketplace in which it was bought. If a company like OpenSea or Hub Culture's own Ultra Art goes out of business, the NFT somebody bought today would be at risk of being lost completely - not the artwork itself of course, but the proof of ownership that somebody may have paid for. The logical next step for NFTs to have long-term success and sustainability would be to create a blockchain capable of containing the entire image and not just a link, which would then ensure NFT ownership would not rely on the success of the company you chose to buy from. This might be easier said than done and so maybe some other alternatives need to be thought of. Another solution is to enable portablility across blockchains in the emerging world of defi, where assets can move more easily between wallets, exchanges and marketplaces.

As of now, there doesn't seem to be a great deal of focus on this particular issue, which could call into question the true value of an NFT if the long-term proof of ownership is in doubt. This doesn't seem to be affecting the hype around NFTs nor the rise in prices of NFTs found in online marketplaces. Hype and popularity have replaced artist autonomy in the buying and selling of these works as the NFT frenzy grows. With more cryptocurrencies being bought and held as an asset, the more some individuals want to diversify and invest into other digital assets. The money and the culture from crypto memes and other ideas have spilled over into NFTs, providing a floor of value and investment propping up a questionable array of art.

Like everything corrupted by money, the original vision of what NFTs were supposed to bring to the digital art economy has been eclipsed by the economics. Instead of regular digital art consumers having direct access to artists and directly supporting them, the rapid rise in prices has led to a hyped investment culture. Also, crypto is still not a widely accepted form of payment, so NFT marketplaces are one of the few places where you can use crypto assets - which attracts the attention of the crypto market. 

It is clear the concept of NFTs is an idea that will likely have longevity.  Success involves taking a closer look at the true source of long-term proof of ownership and a focus on the Creator. Over time, consumers, investors, and artists will not be satisfied with their work hinged on the success of an online marketplace, or if the code they own is simply a link and not the image itself. The rise in prices and the buzz around NFTs could lead to a bubble as many fear that some NFTs are overvalued. This presents a problem if the bubble bursts and suddenly investors are holding something almost worthless. Another important aspect is the energy usage it takes to run blockchains and the marketplaces themselves. Much like cryptocurrencies, these digital assets require a lot of energy and can be damaging to the environment as a result because they run on the same core protocols. 

The future of NFTs can be in doubt, although it seems that while it may be overhyped right now, there is an underlying intrinsic value which was the original vision of Anil Dash and his partner Kevin McCoy. If some of the issues in the blockchain can be fixed and the NFTs return to being about the artists and valuing their work, then NFTs could be a great and useful tool to improving the work of digital artists and creators.