What is an NFT? – ARTnews.com

A year has passed since NFTs entered mainstream culture. Earlier this week, we gave you an article on the NFT highlights of 2021. For those who have not fully figured it out in the last 12 months, we have put together a refresher course in the basics.

What is an NFT?

An NFT, which stands for non-fungible token, is a unique unit of data that uses technology that allows digital content – from videos to songs to images – to be logged and authenticated on cryptocurrency blockchains, primarily Ethereum. Once content is logged on the blockchain, each transaction is recorded from transfers to sales on the chain, creating an easily accessible ledger of origin and price history. The main effect of NFTs is to make it easy to own and sell digital content. In the past, digital artists could, for example, build large followers on social media, attract freelance commercial work and perhaps sell prints and other goods with their designs, but they had trouble making money on digital art directly, when consumers asked: Why should I buy what I can screenshot for free?

While the technology behind NFTs has made it easy to trade and sell images online, it is actually the NFT community that needs to be credited with creating a market for these digital assets, because technically, as many critics point out, digital images have become converted into NFTs can still be saved or screenshots free of charge.

How does it work?

Typically, creators (or, if you prefer, artists) will characterize their work in an NFT marketplace, which includes platforms such as OpenSea, SuperRare, Nifty Gateway, Foundation and many others. Minting is the act of creating an NFT, which means creating a smart contract that will be stored on the blockchain. The smart contract contains a lot of important information: it lists the creator of the work and ensures that the creator, or other parties, receive royalties every time NFT is sold.

The ability for artists to collect returns on resale value automatically is part of NFT’s draw for artists (all platforms earn their money by receiving a small percentage of royalties through the smart contract). But the process is not perfect: technological flaws can make it so that the parties do not always receive royalties. And a smart contract does not have the legal weight of copyright – it will require a relevant lawsuit to see how the law views smart contracts.

[Learn more: Intellectual property lawyer Jeff Gluck on copyrights, NFTs, and why some artists aren’t getting their royalties.]

Smart contracts are stored on a blockchain, but the artwork itself is most often not stored on the chain because storing so much data is too laborious and expensive; Consequently, most smart contracts contain a link to the work they represent. This means that many NFTs consist of two parts, the smart contract and the asset itself. This can cause some confusion about where the value actually lies. However, there are works that are not only stored in the chain, but which are also created using blockchain technology (more on this below).

[Learn more: The ins and outs of NFT technology and its many weaknesses.]

While artists are constantly encouraged by their peers to make big money by earning NFTs from their work, there are obstacles. Perhaps the most insurmountable is that mBuilding an NFT is not free, and the cost increases the more congested the Ethereum network becomes, and the more computational effort is required to do the job. The financial cost of the necessary calculation effort is the “gas tax”, which constantly fluctuates. Currently, it costs around $ 70 to make an NFT on Ethereum. The NFT creator does not always make the mark; Certain platforms will relieve this process and the subsequent cost to the consumer.

What are some of the issues with NFTs?

While NFTs have had a positive impact on many artists, there is not enough data available yet to see if NFTs benefit many or just a select few. Opponents call NFTs a Ponzi scheme. The only comprehensive study of NFTs published so far collected prices from 2017 to April 2021, reporting that $ 15 was the average selling price for 75 percent of NFTs, with only 1 percent of NFTs reaching prices higher than $ 1500 . However, this data should be taken with a pinch of salt. This is strongly skewed because the majority of the data points date from a time before NFTs were introduced on the current scale.

[Learn more: Researcher Andrea Baronchelli breaks down his new NFT research.]

Preventing theft is an ongoing challenge: artists who have been reluctant to create NFTs have often seen their work marked by unknown parties, and only a few NFT marketplaces confirm the creator of a piece before letting it sell. Artists who have complained about this issue online have been asked to create NFTs of their work just to stop theft, an imperfect solution that makes artists feel compelled to create NFTs. In addition, many artists have refused to create NFTs on a moral basis.

One reason some artists have been reluctant to create NFTs is because they do not want to profit from Ethereum’s polluting infrastructure. Basically, cryptocurrencies like Ethereum use huge amounts of power to operate. At the moment, a single transaction on Ethereum uses as much electricity as a house does in a work week, according to Forbes. Although there are alternative cryptocurrencies with much lower environmental footprints, such as Tezos, they have not yet been widely used (and the NFT platform built on Tezos was recently disbanded). Some NFT platforms purchase carbon compensation to mitigate the effect, but the actual effect of carbon compensation can be discussed. The majority of the NFT community has overlooked the environmental impacts because Ethereum 2.0 is coming, which will use a significantly less polluting infrastructure. It is said to arrive early in 2022, although the deployment has been “imminent” for years.

[Learn more: The intricacies of understanding NFTs’ environmental impact, explained (take it with a grain of salt, this was written in March when the situation was much different.)]

Is NFT an artistic movement? A medium? A genre?

Yes and no. Digital art, new media art, software and blockchain art all represent genres that benefit from various specific digital media. Work created through any digital medium, or even traditional media, can become an NFT. However, there are cases where an artist will use blockchain and smart contracts to create the artwork itself, and it is only in these cases that NFTs represent a medium. In particular, it is only under these circumstances that the breach between smart contract and artwork is healed, because they are one and the same.

[Learn more: Art Blocks founder Erick Calderon on using blockchain technology creatively.]

Regardless of the question of technology versus medium, it is also clear that the NFT market has lifted certain types of aesthetics and processes. Artistic values ​​in the NFT community have changed, expanded, contracted and developed again in the last year as collectors, mainly outside the art world, develop their tastes in step with the changing market. Collectors do not just build private collections for their own enjoyment. The majority of collectors are more analogous to stock traders, and bet that certain collections increase in value, making them perfect for turning around, or as stable stocks with the value of their cryptocurrency.

[Learn more: New media artist Rachel Rossin on minting her DNA.]

Although we have discussed NFTs through the lens of art, most of the content that is characterized is categorized as games and collectibles, although there are large parts of NFTs where the boundary between collectibles and works of art is blurred – as in the modern, traditional art world . There is a higher profit margin to be found in works sold as art instead of as collectibles, and as long as auction houses, collectors and other institutions know this, it can be difficult to clarify the boundary between these two categories. But 2021 left little room for wider debate as the confusing and new market developed at lightning speed; In 2022, the art world and the public can come to their own conclusions.