Where does value come from? Is it inherent to a tangible object? Is it in the manufacturing; the advertising behind it? Whatever you believe, it all comes down to effort, the effort put in by someone to create something. The input and output of human creativity. This article explores effort in the digital art space and the role of Non-Fungible Tokens (NFTs).
What’s an NFT? In short, it is an immutable unique verifiable digital object within the system it was created on. Think of it as a “Contract of Support” or a “Contract of Appreciation” as encouragement for the creator and to give provenance to their digital work.
Digital assets have been around in many forms: authenticity certificates, ringtones, music, audiobooks, video, Downloadable Content (DLC), and now NFTs. The population’s underlying motivation is the insatiable need for some to collect and for others to customize. In the past month, there have been several high-profile, high-priced NFT sales. Although framed in USD currency, these were actually paid in Ether (ETH). In the last five years, the USD value of Ether ranged from $10 to $2k USD.
Who Wants to Be a Pixelaire!?
What follows is a break down of three sales using input and output, the aforementioned USD range, and the ‘Price per Pixel’ (PPP) for each of the images above:
Beeple — Everydays: The First 5000 Days
Input: 2007–05–01 to 2021–01–07 (13.8 years)
Output: 21kx21k JPEG
Value: ~42k ETH ($420k — $85m USD)
Sale Date: 2021–03–11 (~$69m USD) to MetaKovan
PPP: 0.00009 ETH ($0.0009 — $0.18 USD)Larva Labs — CryptoPunks
Input: 2017–06–01 to 2017–07–01 (1 month)
Output: Total: 2400x2400 PNG
Single: #7804 24x24 PNG
Value: 4.2k ETH ($42k — $8.4m USD)
Sale Date: 2021–03–11 (~$7.57m USD) to Peruggia
PPP: 7.3 ETH ($73 — $14,600 USD)Pak — Alpha
Input: 2020–02–05 (1 Day)
Output: 1x1 PNG
Value: 55.555 ETH ($555 — $111.11k USD)
Sale Date: 2020–07–23 (~$15k USD) to MoCA
PPP: 55.555 ETH ($555 — $111.11k USD)
The commonalities here are that all the participants have a particular interest in the currency used and its supporting system. Cryptocurrency enthusiasts that want to prop up new markets dependent on the network they have a stake in. Most interesting is the Beeple and Metakovan sale where they are both business partners (2% or 200k tokens and 59% or 5.9m tokens respectively) in a company that sells tokens against Beeple’s art for its open art project. Conflict of interest? Collusion? Christie’s doesn’t mind with their $9m USD payout.
What was actually bought? Artwork? Token? Technically, it’s a link to data representing the NFT. Some NFT projects do this better than others. For instance, CryptoPunks is an index into an address array and all data that is unique is kept off-chain in centralized servers. CryptoKitties on the other hand actually contain unique data in their NFTs and adds gamification to their contract. There are other platforms allowing for further creativity like Async.art and their programmable art approach. In terms of the data (metadata) being pointed to, the best approach has been decentralized file storage, the most popular being InterPlanetary File System (IPFS). This technology takes into account the content rather than the location or the name of a file. The format of the metadata files has not been standardized.
Unfortunately, the majority of marketplaces and platforms all use the Ethereum network. It’s currently a wasteful and costly legacy decentralized blockchain that could very well be a base level layer-1 network but that remains to be seen. Technology evolves at a fast pace and it is hard to believe major changes in scalability, security, and sustainability can be done in a reasonable time without incidents.
The waste is in its inefficiency using Proof of Work (PoW) to provide a secure state to all involved. The tradeoff is security over availability. The most basic analogy is to imagine if participants A and B own an acre of forest and they are both presented with a business opportunity rewarding the first to cut down 100 trees. Let’s say A reaches the goal and wins the business contract, B throws away all their 99 cut trees and the competition begins again anew.
Costly, not only environmentally but also because of the procedure of the transactions. Even before a sale is made a creator is already paying to mint the NFT on the Ethereum network. At recent USD prices and the extra fees of some platforms and marketplaces that range is $100-$600 USD. Any owner of a future contract has to take into account those fees before supporting a creator. Even before that can be done both the creator and their supporters have to go through a process of wallet creation and obtaining the cryptocurrency with a user interface (UI) that leaves much to be desired.
Of course, when selling an NFT at high ETH prices (thousands and millions of USD) that cost is insignificant. As a new creator it’s a huge barrier to entry. It’s ridiculous that it’s even recommended to wait for the right time of day so that transaction fees are lower. Current popular curation platforms and marketplaces have become invite-only to subdue the flood of people trying to capitalize on the hype amplified by bots and flippers. Leaderboards amplify top creator sales through positive feedback loops. This creates further barriers to entry for legitimate creators.
Let’s move away from the spectacle and focus on the positive. Output data is visible and the underlying technology is invisible. What’s great about the modern blockchain space, and the beauty of decentralization is that none are beholden to any particular technology; especially with no stake in it. Using the most popular blockchain is only really supporting that technology and not the efforts to support creators. It is fascinating seeing enthusiasts hold on to older inadequate technology because of special interests. Technology prioritizes individual sovereignty over centralized control and interest.
There are already implementations of better low-cost and eco-friendly technologies. EOS and the Wax sidechain are already available. Polkadot and NEAR are being tested for releases that lean more on decentralization than EOS does. Wax labels itself as the “King of NFTs” and targets video games and entertainment properties. AtomicHub uses Wax and allows finer controls in the construction of NFTs. It’s more effort than some platforms and marketplaces but it has the ability for single and multiple creators. Multiple creators could act as a collective that can be hosted on a portfolio or a series of portfolios creating a webring. When a sale is made, 2% is collected for platform commission fees; a very different approach than what was seen before.
There is no getting around needing to create a wallet and to obtain the respective cryptocurrency. But 2–3 clicks is better than navigating around different sites to set up to create or support. If Ethereum ever gets its act together there are bridges in all these implementations that allow transferring from one blockchain to another.
It’s becoming obvious that the browser is the primary viewer into the digital world and supporting that attention would benefit browser creators. Brave is the only browser positioned to possibly become the default gateway for individuals to interact with cryptocurrency without the friction previously mentioned. Imagine creators using attributes on semantic tags to allow patronage and buying of certain data? This would bypass sites that use a virtual currency to visualize appreciation that can not be exchanged for monetary value. The preferred end result is a micro-transaction system that cryptocurrency can support if done correctly. This opens the door to creators who create value on a platform and receive benefit from that mutual relationship.
Scarcity is a Lie
In established tangible markets, the term ‘scarcity’ is used to denote value. Further value comes from the owner protecting that scarce resource. Tangible collectors can buy, sell, and trade but not copy. Digital removes all that and keeps the effort to produce. Traditional market ideologies do not apply in virtual space. Only through artificial means can the term ‘scarcity’ exist in digital. Scarcity in technological terms means unpopular and outdated. This is the democratization of the markets that the general population have trouble wrapping its head around. New systems need new terminology. A new perspective with a society approaching concepts differently. No more warehouses on ports selfishly housing a total of $100b USD collections for tax purposes.
Plurality is Prestige
Technology allows the propagation of information. Perfect copies that transfer without any restrictions. Not a single copy but as many copies as needed by anyone who cares to duplicate it. Value is determined by the number of holders of the content rather than a one-of-a-kind owner. No more power dynamics of limiting access. The output from one can be enjoyed by all. Think of it as free advertising; digital word of mouth. A true mental shift where popularity conveys value in society.
Auction houses show that 96.1% of sales are from male creatives. There are no women in the top 40 highest-selling artists. Creatives in top NYC galleries are 80% white. Statistically, there is very little chance for a creative to succeed because of a combination of factors that are outside of their control.
Most creatives make a living by doing client work. Now through NFTs they have direct access to supporters. In conventional markets, these creatives usually only receive compensation from the initial sale while a supporter has the ability to resell the creative’s output usually at a much higher value. NFTs allow creatives to be compensated in secondary markets. Currently, platforms and marketplaces have a range of 5–15% in royalties but the real power lies in the creative community; demanding sustainable and transparent platforms where creatives get the majority of the sale and supporters get 5–15% in royalties are well within their power.
There is a chance here for creatives to come together and stand up for their convictions to make this opportunity more equitable. As mentioned before the overall goal should be to bring about a micro-transactions system that supports creatives. The focus of this article was on digital art but this applies to all creative endeavors: cultural creatives, fashion, jewelry, music, etc. What a beautiful story it will be if it is creatives that free us from institutions, corporations, and corruption.