The Art of the Non-Fungible

 

The Art of the Non-Fungible:

How Creativity and Technology makes Art pay

What is this about?

• For many artists and creative professionals, maintaining control over their work and generating a reasonable income from their work has become harder in the digital world.
• New uses of Blockchain Technology can create opportunities to overcome these issues and ensure a fair revenue for Visual artists, digital artists, photographers, musicians and other creative professionals
• Protection against ‘knock offs’ and asset fraud or theft can also be enhanced.
• New opportunities to create content, creative product, etc. and develop a professional opportunity from your creative skills and talents
• We are only at the tip of the iceberg with this, and there is a lot to discuss on this topic. The applications are not ‘just’ in the arts or creative areas, but this is a field where the greatest initial impact may be seen.
• We are entering a phase where Parallel Ecomonies are being developed - The digital and the analogue. in time, the Digtial will overtake more and more of the analogue - the traditional way things have been done. 

 


Depending on your reading and internet habits, you may have heard about several modern artists getting huge amounts of money selling ‘digital art’ – short videos, graphic images (that don’t exist in any form on canvas or paper) and the like, using something called an NFT.

The obvious question is – what is an NFT?

NFT stands for non-fungible tokens. It’s easiest to think of NFTs as a file format.

When you download music to your phone, or a photo from your digital camera to Instagram, or Facebook, or your computer, the details are stored in a specific file format so that your computer system (or mobile device) knows how to read it and display or play the content.

NFTs are a file format that transfers data and value on blockchain networks like Ethereum. Since NFTs exist on blockchains, these tokens (or files) contain properties similar to bitcoin – namely - primarily digital ownership (a token in a person’s wallet) and transparency (all activity is recorded on a blockchain).

So what does ‘fungible’ mean?

No, it’s not something soft and squishy!. Nor is it a mushroom recipe.

Put simply. Something is fungible if it is easily interchangeable. E.g. You and I could swap $20 notes with different serial numbers, and they would be treated exactly the same. Or I could borrow a kilo of sugar from you (It’s jam-making time again!) and then go to the supermarket and buy a replacement bag of sugar, and they would be interchangeable. In both cases, you could say that the items given and received are ‘fungible’.

In comparison, an item is said to be non-fungible if it is unique. Lots of items are non-fungible, including diamonds, houses, and baseball cards. No two of these items are the same; e.g. diamonds have different colours and cuts, while two apartments with the same floor plan in a block of apartments are different because they are on different floors or have different vistas.

So an NFT is simply a token (or piece of information) that is unique. A common example of an NFT might be a digital trading card or piece of digital art.

Characteristics of NFTs

NFTs are simply a way to transfer information (data) that provide various benefits because they are created on blockchain networks. While Blockchains in themselves are a whole separate, detailed discussion, a blockchain is essentially a digital ledger of transactions that are duplicated and distributed across the entire network of computer systems on the blockchain. This distributed network makes it difficult, if not impossible, to duplicate, forge, or defraud the system’s records.

 

While the value of an NFT can vary depending on how it’s used, generally speaking, NFTs provide the following characteristics:

·           Unique – The key trait of non-fungible tokens is that they are unique, and this can be verified on a blockchain. i.e. if you only create ‘one’ version of an item, it cannot be truly duplicated, as the token itself cannot be duplicated.

·           Permanent – NFTs have permanent information and data that is stored within the token. This information can include a message, image, music, signature, or any other piece of data.

·           Programmable – An NFT is just a piece of code on a blockchain. This means it can be programmed to have various qualities. One of the most useful qualities of NFTs to date is that royalties can be programmed (or built-in) to the tokens. This means an artist obtains a royalty on all secondary sales of their artwork. (Unlike the situation artists have now, where they may see their work selling for tens or hundreds of times the original sales price, and they receive no additional benefit from these sales.

·           Permissionless – NFTs can be used multiple ways if they exist on a ‘permissionless’ blockchain like Ethereum (not all NFTs are on Ethereum). For example, Sorare – a sports trading card game – has third-party games, i.e. (not built by the Sorare team) that use Sorare trading cards. Again, this creates opportunities to on-use and on-sell or licence products for additional activities. Imagine purchasing a Lionel Messi trading card and using this in your gameplay in Fifa21, or a Nick Riewoldt AFL trading card and using this in an AFL game on the Playstation – but also knowing that the ‘card’ has an inherent trading and collectors value (and could also be used in other game systems). It’s not just ‘tied’ to one console game!

·           Digital Ownership – whoever possesses an NFT in their Digital wallet owns and controls the NFT. Digital assets like domain names (Google.com) aren’t actually owned by Google, but instead by middlemen like GoDaddy or Verisign, even though they control the rights to the asset.

These qualities empower various new use cases for NFTs, some of which are outlined below.

Typical Use Cases For Non-Fungible Tokens

Art

Digital art has taken the world by storm over the past several months. Digital art, combined with the digital property rights of NFTs (verifiable ownership) and perpetual royalties for artists, makes NFTs a 10x improvement upon the current system. Most recently, the global auction house Christie’s auctioned an NFT-based work of art created by Beeple for over $69 million, the top NFT artist by sales volume.

 

And, don’t think it is just ‘young new artists on the cutting edge of technology’ that are heading in this direction. Look at this for an example by someone caling themselves The Unknown Artist. Its all just a little bit pythonesque!

Digital Trading Cards

Sorare and NBA Top Shots are two of the most popular sports trading card collectibles. Sorare cards can be used in Sorare’s fantasy football (soccer) leagues while NBA Top Shots by Dapper Labs is developing a game that uses their NBA NFTs. Other digital trading card games include GodsUnchained, which resemble strategy games like Magic the Gathering or Yu-gi-oh.

Provenance Tracking and Digital Certificates of Authenticity

Various items, especially collectibles and high-value items come with digital certificates.  For e.g. if you spend $5,000+ for a Luis Vuitton Handbag, and received a NFT ‘certifying that this is a genuine product, insurance and re-sale issues could be reduced because you could certify the item’s true value.

These certificates are currently often either stored as paper records or digital pdf copies. The benefits of digitizing these certificates and issuing them as NFTs means that any can verify the authenticity of the digital certificates and nobody can alter the information or misplace the document.

There is already a pilot program with the NBA that would authenticate memorabilia, such as in-game worn jerseys that are sold during an NBA game via live auctions. While there’s always the possibility of a physical object being tampered with, digital NFTs can act as a better and more automated certification than existing practices, giving buyers greater surety that what they are buying at an auction is ‘genuine’ and collectible.

Gaming items

Gaming assets are already digital in nature, so creating them as digital assets that individuals can own presents various benefits. There are multiple game studios building games that run on blockchain rails. Also, there are several platforms like Enjin which are building their own platforms that facilitate game development including the issuance, or minting of gaming assets.

One of the first uses of NFTs was in an online game called Cryptokitties, where you collect and breed ‘furrever friends’ online. Each kittie created is unique, collectable, and can be bred with other kitties in order to create more kitties – and (in pure monetary terms) increase the value of your initial investment in the process. The more you work on it, the more kitties you can create, and look to resell depending on popularity, rarity etc. What sounds like a trivial online game for little children, or a 21^st century Tamagotchi experience, has generated over $32 million in re-sales and has almost 100,000 players. (NBA topshot has generated over $300 million in re-sales.)  Over $250 million has been traded in NFT’s in the last 12 months – not including the Christies Art Auction!

Domain Names

Blockchains inherently make for great asset registries, and one of the largest digitally native assets are domain names. Domain names are digital assets that map IP addresses to more human-readable names (e.g. 13.57.64.34 to Messari.io). Ethereum Name Service, Unstoppable Domains, and Handshake are three projects taking different approaches to enable domain names on blockchains.

Ticket sales / Countering Scalping and counterfeiting.

Concert tickets or ‘major event tickets’ could be put onto the Blockchain via NFT’s, creating a situation where re-sales have a price restriction on them so that they cannot be resold for a higher price (or that any excess funds paid are automatically paid to the artist, not the NFT holder).

 Another option is that the ticket attached to the NFT is not activated until the holder approaches the event venue, to diminish the possibility of re-sale / scalping or ticket theft. I believe that the Euro 2021 Football championships are looking at this for ticket sales, using a QR code to ‘activate’ the ticket within proximity of the venue.

Content

Music, blogs, tweets, memes, and other digital content can all be issued as NFTs. While that doesn’t in itself make the content valuable, it does present unique opportunities for digital ownership and on-chain royalties. Although the distribution of content may remain free for blogs or music, NFTs present unique monetization opportunities for crowdfunding content or selling a blog/song similar to how one might buy vinyl records or old edition books. Decentralized publishing platform, Mirror is enabling writers to crowdfund blogs and sell them as NFTs. Other experiments include the Kings of Leon selling albums as NFTs that provide additional value including lifetime concert tickets or exclusive experiential artwork for an album.

For aspiring recording artists, the presents the possibility of not just ‘preselling’ an album via preorder facility or crowdfunding the recording sessions, but adding the enticement of ‘ownership’ of the recorded material for future royalties or fees generated from licensed use of the material via the NFT.

 So why is this any different? And what is the point?

 

The nature of NFTs mean that the token can be programmed in a number of ways. One aspect is that the original creator of the token (i.e. the artist that created the original work) could program the token to continue to receive royalties on each ‘re-sale’ or transfer of the token. So, if it is tied to an artwork that is sold and resold numerous times, the Artist can continue to receive royalties in the repeated ongoing sales of the artwork. Or they can provide a perpetual royalty to a charity or other third party of their choosing.

 

Another possibility is the opportunity for a gallery to raise funds for the purchase of a specific artwork, and ‘tie’ the donations or funds raised with that specific artwork. The gallery may choose to sell the artwork in the future (or lease it to other galleries for exhibition) – but only with the approval of a set majority of the token holders. This gives the donees’ ownership’ status over the work (perhaps more for ego or philanthropic purposes – saying that ‘I own a piece of a Picasso hanging in the national gallery for instance) while the Gallery gets to acquire an artwork that it would otherwise not be able to do.  Orchestras could use this method to purchase instruments like Stradivarius Violins – and link the token to certify its value and authenticity.

 

This could also be done by private investors in a consortium or investment fund – investing in high quality musical instruments or key artworks, and ‘renting’ these works to major galleries, or enabling a far wider ownership of significant works of art – imaging saying you own a ‘share’ in a Picasso on the same way that people own a ‘share’ in a racehorse!

 

For musicians, who have seen revenue from music sales battered by the streaming of music (Gary Numan is quoted as receiving only 37 pounds from Spotify for 1 million streams of his music) the ability to create a tangible product of worth to fans that they will pay ‘good money’ for, is invaluable.

Creating a NFT with items from the Artist embedded in the token like limited edition videos (like Kings of Leon), limited edition vinyl pressings, merchandise rights etc.can create new revenue streams that are in the direct control of the artist, and not subject to the ‘ticket punch’ of a Spotify, Apple, Google or the like on the way through.

 We are only at the tip of the iceberg with this, and there is a lot to discuss on this

 If you have a creative idea that you think could benefit from being ‘Tokenised’, lets talk about it, and see what can be done.

 Who knows, you might have the next multi-million dollar artwork, ready to take the world by storm!