What is an NFT? – ARTnews.com

A year has passed since NFTs entered mainstream culture. Earlier this week we brought you an article on the NFT highlights of 2021. For those who haven’t quite caught up over the past 12 months, we’ve put together a refresher course on 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 onto the blockchain, every transaction from transfers to sales is recorded on the chain, creating an easily accessible ledger of provenance and price history. The main effect of NFTs is to make it easy to own and sell digital content. In the past, for example, digital artists could build large social media followings, attract freelance commercial work, and perhaps sell prints and other merchandise of their designs, but they struggled to monetize digital art directly as consumers asked: Why should I buy what I can screenshot for free?

While the technology behind NFTs made it easy to trade and sell images online, it is really the NFT community that must be credited with creating a market for these digital assets, because technically, as many critics point out, digital images that have been converted into NFTs can still be saved or screenshots at no cost.

How does it work?

Typically, creators (or, if you prefer, artists) will stamp their work on 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 the NFT is sold.

The ability for artists to collect returns on resale value automatically is part of NFT’s draw for artists (all platforms make their money by receiving a small percentage of royalties through the smart contract). But the process is not perfect: technological errors can mean that the parties do not always receive royalties. And a smart contract does not have the legal weight of copyright – it would take a relevant court case 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 the blockchain, but the artwork itself is most often not stored on the chain because storing so much data is too labor-intensive 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 lead to some confusion as to where the value actually lies. However, there are works that are not only stored in the chain, but 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 earning NFTs from their work, there are obstacles. The most prohibitive thing is perhaps that mBuilding an NFT is not free, and the cost increases the more congested the Ethereum network becomes, and the more computational effort required to do the job. The economic cost of the necessary computational effort is the “gas tax”, which is constantly fluctuating. Currently, it costs around $70 to create an NFT on Ethereum. The NFT creator doesn’t always make the mark; certain platforms will offload this process and the subsequent cost to the consumer.

What are some of the problems 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, and reported that $15 was the average selling price of 75 percent of NFTs, with only 1 percent of NFTs reaching prices higher than $1,500 . However, this data should be taken with a grain of salt. It is highly skewed because the majority of the data points date from a time before NFTs were adopted at today’s scale.

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

Preventing theft is an ongoing challenge: artists who have held off on making NFTs have often seen their work marred by unknown parties, and only a few NFT marketplaces confirm the creator of a piece before allowing it to be sold. Artists who have complained about this issue online have been told to make NFTs of their work just to stop theft, an imperfect solution that makes artists feel like they are being forced to make NFTs. Additionally, many artists have refused to create NFTs on moral grounds.

One reason some artists have held back on creating NFTs is because they don’t want to profit from the polluting infrastructure of Ethereum. Basically, cryptocurrencies like Ethereum use huge amounts of electricity to operate. Currently, a single transaction on Ethereum uses as much electricity as a house does in a working week, according to Forbes. Although there are alternative cryptocurrencies with a much lower environmental footprint, such as Tezos, they have yet to be widely adopted (and the NFT platform built on Tezos was recently disbanded). Some NFT platforms purchase carbon offsets to mitigate the impact, but the actual impact of carbon offsets is debatable. The majority of the NFT community has looked past the environmental impacts because Ethereum 2.0 is coming, which will use a significantly less polluting infrastructure. It is said to arrive in early 2022, although 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.)]

Do NFTs constitute 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 different 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 rift 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 issues of technology versus medium, it is also clear that the NFT market has elevated certain types of aesthetics and processes. Artistic values ​​in the NFT community have changed, expanded, contracted and evolved again over the past year as collectors, mostly outside the art world, evolve their tastes in step with the changing market. Collectors do not just build private collections for their own pleasure. The majority of collectors are more analogous to stock traders, betting that particular collections will increase in value, making them perfect for flipping, or as stable stores of 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, the majority of the content featured is categorized as games and collectibles, although there are large parts of NFTs where the line between collectibles and artwork is blurred – as in the modern, traditional art world . There is a higher profit margin to be found in works sold as art rather than as collectibles, and as long as auction houses, collectors and other institutions know this, it can be difficult to clarify the line 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.