NFTs, or non-fungible tokens, have somehow managed to capture the public imagination like no other crypto trend has before. Even as the price of Bitcoin was skyrocketing to new all-time highs, the global headlines were focused on the $69 million Christie’s auction of Beeple’s art collection, and names including Eminem, Grimes, and Jack Dorsey have famously minted and sold their own NFTs.
However, after the explosive hype of early 2021, it now seems that the initial boom is starting to die down. According to Reuters, NFT volumes dipped in April for the first month this year, with monthly sales down by around 37% compared to March.
Art commerce pundits, meanwhile, have been quick to point out that the drop is a sign of the bubble bursting. Perhaps that’s true, especially if you’re judging based on the premise that the cryptocurrency markets have plenty of form for boom-and-bust cycles.
Are NFTs Art or Crypto?
Perhaps we should be hesitant about calling a top, especially based on a few short months of peak trading. On further examination, the Reuters report highlights that, even if NFT trading in April represents a significant dip, the volumes now are still exponentially higher than they were last year, illustrating that there’s still significant value changing hands.
Zeev Farbman is the CEO of Lightricks, a unicorn app company specializing in visual creation tools for mobile. As such, Farbman has particular expertise when it comes to predicting what’s important to digital creators.
Zeev Farbman
In comments he sent me via email, Farbman agrees that it’s right to be wary of calling the current NFT boom a bubble, pointing out that “Similar to cryptocurrencies themselves, it is very hard to predict if NFTs are a passing fad for the super-rich or if there is potential for a real marketplace.”
After all, Farbman reminds us, “The market for real art includes strong elements of speculation, profit-seeking, elitism, and exclusivity, and has existed for a long time, regardless of its real artistic value.”
This is an intriguing point, as the similarities between the crypto and art markets could make it difficult to discern which path NFTs are following. Many people are quick to assume that NFTs are simply replicating a typical crypto boom-and-bust cycle.
But the briefest glance through art-related headlines of recent decades shows that NFTs are attracting the kind of controversial investment we commonly see in the physical art world.
After all, art is highly subjective. Consider Damian Hirst’s bisected cattle, Tracey Emin’s underwear-strewn bed, or Banksy’s built-in, pre-programmed shredder. Investors consistently prove that they’re more than willing to pour millions into pieces that raise a question so common among critics, it’s become the industry’s best-known cliché: “But is it art?”
Large Head, Long Tail?
If the NFT boom is simply a case of life mimicking art, then does that mean that the future will involve an NFT market similar to today’s long-tail art markets?
“There are ways to monetize digital artwork for large sums of money by creating a marketplace for collectors who try to identify talent early on,” asserts Farbman, “or creating induced demand by introducing a real (or imagined) sense of ownership and curation.”
But he goes on to point out that this only works if the market doesn’t become flooded. From this perspective, he believes that “Artists who can create truly unique and fascinating art which cannot be easily imitated in style by other artists will have better chances of monetizing their work.”
“Of course,” Farmban continues, “the art itself is not the only criterion for success, and factors such as hype, trend, reputation, etc. have always been important in the market.”
This is where the utility of NFTs becomes important.
Creating New Value in Digital Media
The market value of digital art has been close to zero until now, simply because anyone can replicate it and attempt to pass it off as their own.
NFTs represent a turning point in protecting digital intellectual property, as it’s the first time digital artists have been able to protect and monetize their work. By introducing the scarcity factor, digital artists can create new value from work that they’d previously only produced for fun or to pass the time.
From this perspective, the longevity of the NFT art markets may not be in established artists going digital. However, it may represent the point where digital artists can now own their space and establish new markets for themselves.
Zooming out, digital rights management is a problem inherent to many other forms of media, including photography, long-form written content, and to a certain extent, music. By minting a piece of work as an NFT, the copyrights can be enshrined in code, and creators can even ensure they profit from the royalties of any secondary market sales.
Farbman remains cautious, stating that we still don’t know “if this is a legitimate transformation in the way that digital creators can monetize, or whether it’s just another manifestation of the cryptocurrency bubble and a result of the quantitative expansion policy of central banks in light of the 2008 financial crisis and the COVID-19 pandemic crisis.”
However, he’s optimistic that blockchain-based mechanisms are finding use cases that benefit hobbyist and professional digital creators alike, and if the tech continues to evolve, then Farbman is confident that NFT adoption will continue in tandem. “Perhaps more robust integrations will let designers track the status of their NFTs on marketplaces from within the content creation products themselves,” he says.
Content creation apps can take the lead here, even if it’s as simple as a one-way file push functionality. “If there is smooth one-click integration between content creation products and NFT marketplaces, that’s really not hard to envision,” Farbman suggests. “For example, just as there’s a ‘Publish on Instagram’ button, there can be a button to ‘tokenize my work,’ or a ‘sell on SuperRare’ button.”
Owning the Commoditized Ephemeral
Any way you cut it, dismissing the 2021 wave of enthusiasm for NFTs as a bubble at this point seems, at best, hasty. There are plenty of reasons to assume that the NFT art train still has plenty of steam; whether it’s for elite, high-end investors or for broadening the markets to a new generation of creators remains to be seen.
