There’s a lot of negative press about NFTs and cryptocurrencies in general. This is usually along the lines that NFTs and cryptocurrencies are nonsense, ponzi schemes with no underlying value. Conversely, NFT art is threatening to eclipse real-world art in terms of sheer market value. So what’s going on?
Our culture comes from a time when today’s digital things used be only physical. Think paper photographs, vinyl records and CDs. It’s difficult for some people to let go of the idea that if there’s nothing physical, there’s no value. However, if you look at something as ubiquitous as bank accounts, most of the money isn’t physical. It’s just a data record backed by a very trusted party that owns digital financial instruments that are assumed to have value.
Every day, people buy branded products such as clothing and food where the underlying physical object is no better than an unbranded equivalent. In these cases people are buying into something that reaches beyond the physical. They are buying into cultural values, identity, belonging and sometimes satisfying the urge to collect.
It’s also easy to fall into the trap of thinking that if you own a NFT of some digital art, you own the JPG file. You don’t. In fact, all you have is a data record that points to a JPG file somewhere. Anyone can access the data file. How can this have value?
What’s happened in the case of music and digital art is that the files themselves now have no value. You can rip and copy music but you don’t own it. Digital copies of old, physical masterpieces can be downloaded from the Internet but you don’t own the art. No-one really owns the file but they can own the legal right to do things with it such as print the digital art or listen to the music.
An artist can sell a NFT that directly links you to them and the artwork. This has value to the consumers who are fans. You can now legally use the digital art in a greater range of settings such as printing and public display. This has value to the consumer. The NFT provides a way to provide direct, irrefutable patronage, that itself, has (financial) value to the artist and (patronage) value for the consumer.
Humans have an innate habit to collect. We gain satisfaction from collecting similar things whether they are teaspoons, hobby railway engines, real cars, art or NFTs. For some, this collection habit also extends to enjoyment from bragging about having particular items. It doesn’t have to make sense to you. All this has value for these types of collector.
Anything that has value usually also has value as an investment. And so, NFTs can be purchased in the hope they will increase in value. This also has value for investor-type collectors.
Provenance and uniqueness are two factors that affect the value of all art in both the physical or digital worlds. Knowing where an item has been and how many, for example the number of traditional prints, is important. The blockchain provides this ledger of irriffutable history. For artists, NFTs provide a way to trace a digital asset back to themselves as the creator. For me, I like the idea that NFTs will exist beyond my lifetime.
The volatility of cryptocurrencies and some bad actors have lead to the belief that they, and by implication NFTs based on them, are intrinsically bad. Cryptocurrencies have always had large swings. It’s the nature of the ecosystem. This can present opportunities for some types of collector. There will always be bad actors in any ecosystem that involves value, particularly at the start. I remember when it was perceived that the ‘Internet was for porn’ and never to put a credit card into a web page. Things change.
If you separate NFTs away from digital art they become even more powerful. They provide an irrefutable link between any two (or more) things. Think of things like car ownership, proof of vaccination, citizenship, insurance or indeed proof of anything. Digital art is just the start.