By Marissa Trew, Marketing Manager, TZ APAC
The art world has traditionally been an immersive experience. Buyers and sellers of art congregate at galleries and at international art fairs; they walk through countless rooms of paintings, photography, sculptures, and thought-provoking installations.
Now, with the ubiquity of technology and the rise of digital artwork, enthusiasts have a new medium for enjoying and valuing art online. NFTs (non-fungible tokens) have taken the world by storm as of late, largely erupting from the high-value sales of digital artwork such as Beeple’s “Everydays: The First 5000 Days.”
In Southeast Asia, hybrid art fairs such as Art Moments Jakarta and Art Fair Philippines offered attendees the opportunity to engage directly with digital art NFTs, build their understanding of what they are and their value proposition, and consider buying them.
Despite much of its mainstream traction, public understanding of NFTs remains relatively limited. What exactly is an NFT and how does it differ from any other digital file? Are they environmentally damaging? Are they a new asset class? Does its underlying technology serve any purpose beyond the art world?
What is an NFT?
An NFT represents something that is non-fungible (it cannot be replaced) and exists on a blockchain. An NFT can be bought, traded, or sold, and each and every NFT is entirely unique, verified by its own immutable digital signature. This can help to not only establish an NFT’s authenticity but also track who owns it over the course of time and multiple transactions.
How does an NFT have value?
When an artist makes a drawing or painting, it is definitively unique; it is one of a kind. and can never be perfectly replicated. Subtle differences will always exist. Photographs and prints are replicated more easily, but artists often choose to create limited supply, in order to generate value from its scarcity. By contrast, digital works have always been infinitely reproducible and typically free to access; that’s usually a good thing until it comes to generating value for their creators.
Scarcity is a large driver of value in art and collectibles markets — whether in the form of a prized painting or a limited edition baseball card. The emergence of NFTs has successfully created this aura of uniqueness for digital artworks in an online space, increasing their perceived value.
Big players are taking notice and getting involved. Billion-dollar fine art auction houses like Sotheby’s and Christie’s have both made major forays into NFT sales, generating hundreds of millions of dollars in revenue as a result. Independent creators are equally engaging in the fervor, albeit at a smaller financial scale, but at an incredible rate. This is evidenced by the meteoric rise of platforms like Hic Et Nunc, one of the largest and most active NFT marketplaces that exist today.
The rise of sustainable and “clean” NFTs
“Proof-of-Work” algorithms that power blockchains like Bitcoin and Ethereum have long been under fire for their environmental impacts, with some assessments claiming that “mining” new coins expends as much energy in a year as some nation-states. As a natural result, NFTs that are minted on higher energy-consuming blockchains have, by association, been criticized for contributing to the problem.
Alternatively, “Proof-of-Stake” networks like Tezos have begun attracting high interest from digital creators, for being exponentially more energy efficient (requiring less than two million times less energy to run than Ethereum). Coupled with its low gas (or ‘transaction’) fees, Tezos has become the preferred blockchain to mint, trade, and sell NFTs among creator communities spanning visual art to music and collectibles. Consumers, too, are becoming more conscious about where they interact with NFTs.
The “cleanliness” of an NFT ultimately comes down to the efficiency of the blockchain it exists on. Therefore, an interest in NFTs and a social conscience need not be mutually exclusive.
NFTs for all: from creators to gamers
Filipino creators have recognized that NFTs are the ideal medium to demonstrate their talents and to share them with the world. For example, Alibatta Records became the first Southeast Asian company to release music via NFTs. While musicians have long been able to monetize their work online, many rarely make any significant money from streaming. Payment per stream from services like Spotify can be as low as a fraction of a cent, making it an impossible platform for up-and-coming musicians to depend on for any significant revenue.
NFTs are able to empower musicians (or any creator for that matter) to better monetize by granting them direct ownership and control over the intellectual property, licensing, and distribution of their work, for example, earning royalties in a more equitable manner. Moreover, they can use NFTs to cultivate their fan community by offering them unique digital experiences.
Beyond the art space, many “play-to-earn” video games like Axie Infinity — enabling players to earn NFTs in the course of gameplay that can then be sold — have boomed in the Philippines. The game has become such a powerful income-generating tool, some have quit their day jobs to play full-time.
Even more broadly, NFTs also have implications for decentralized finance and the growth of the Metaverse — online spaces where users can interact with each other and participate in a virtual world.
Challenges and questions
NFTs exist at the intersection of creative industries and technology, faced with a unique set of challenges. New ideas often take time to permeate the popular consciousness, and incidental setbacks are inevitable. After the dotcom crash of the early 2000s, some pundits opined that the internet had been little more than an expensive fad, failing to predict the role the internet would have in our world today. In a similar vein, blockchain and NFTs are enduring a similar kind of growing pain, where its rapid rise is raising criticisms and questions that need to be resolved before it can become truly mainstream.
The blockchain technology that NFTs exist on is just over a decade old. When computers had been around for a decade, they still filled entire rooms, cost millions of dollars, and operated off punch cards. When the internet was a decade old, it consisted of a few dozen ARPANET terminals in the United States. Technology takes time to mature, and in many ways, both blockchain and non-fungible tokens are new ideas still in their infancy.
In the months and years ahead, they will change, improve, and grow. It may take a few years before we realize the full potential of what NFTs are capable of and how they will impact everyday life, well beyond the creative sphere. The innovation, ingenuity, and enthusiasm that people have expressed about this technology demonstrates not only how valuable it is rapidly becoming in society, but also how much capacity for growth there still is.
TZ APAC Pte. Ltd. (“TZ APAC”) is one of the leading adoption entities supporting the Tezos ecosystem in Asia. TZ APAC designs value-added blockchain transformation strategies for enterprises and creators with a bottom-up approach, working closely with blockchain experts and other stakeholders in the Tezos ecosystem. TZ APAC is supported by the Tezos Foundation and is headquartered in Singapore.