How NFTs are changing the art market

Exchangeable is a description no artist wants to hear about their work. So far, this has mostly been true of digital art. For a long time, the art market seemed to be one of the few areas where the digital could not take a leading role. Non-Fungible Tokens (NFTs) are changing that: NFTs are cryptographic assets based on blockchains. This creates unique digital works whose creators and provenance are easy to identify. Digital artists now create reputable artworks, collectors rely on authenticity when acquiring them. NFTs are creating a secure foundation for the art market.

The first NFT is created by Kevin McCoy and Anil Dash in 2014. It is a video of McCoy's wife, Dash buys it from him for four US dollars. Larva Labs take the next decisive step in 2017 when they release the CrypoPunks − 10,000 small portrait images of digital figures, represented with large pixels. Originally, these NFTs were free, with only the gas charges to be paid by the buyers. As the popularity grew, so did the prices: One year later, the »punks« already cost up to 5,000 US dollars. The most expensive work in this series to date sold for almost 7.6 million US dollars in March 2021.

The Corona pandemic caused interest in digital art to rise. In 2020, revenue from NFT sales exploded, and in 2021 it was almost 10 million US dollars a day. The date for the history books is 11 March 2021: at auction, Christie's sold Beeple's Everydays: the First 5,000 Days for 69.3 million US dollars. The bidding started at 100 US dollars, and a total of 33 bidders drove up the price. Beeple is thus the third most expensive living artist in terms of auction prices, after Jeff Koons and David Hockney.

NFTs quickly established themselves as a medium, being exhibited and sold alongside paintings and sculptures. Even experienced market experts are surprised by this meteoric rise. Surveys show that buyers see NFTs primarily as an investment. Even more so than with other works of art, the proportion of »non-art« buyers is extremely high. The Ukrainian government proved how serious NFTs really are: it financed the defence of its country partly through NFT sales.

From the beginning, market specialists feared a speculative bubble. So far, the NFT market peaked in August 2021. One year later, an NFT cost on average only one tenth. An NFT curated by Snoop Dogg made headlines: someone bought it for 32,000 US dollars and auctioned it again in May 2022 − with an estimated value of 25 million US dollars. The highest bid, however, did not exceed 210 US dollars.

Experts disagree: for some, the NFT business has already collapsed, others see it still coming. The value of NFTs is closely linked to cryptocurrency prices. So a renewed rise cannot be ruled out. What is certain is that although the hype is over, digital works are proving to be an elementary part of the art business. An example: Damien Hirst produced 10,000 artworks a year ago − once as a small painting, once as an NFT. Buyers had a year to consider which one they wanted to keep before the other was destroyed. In October 2022, Hirst burned 4,851 paintings: so about half chose the NFT, the other the physical work.

The mutability of digital art seems to be an argument that this is the medium of the future. At least that's how Beeple sees it, as his 3D NFT sculpture HUMAN ONE proves. And other changes will influence the market: it is estimated that a quarter of people will spend at least an hour a day in a metaverse by 2026. NFTs and cryptocurrencies form the basis for the virtual economy within the metaverse. They become an everyday part of many people's lives, which means that demand and value are likely to rise again accordingly.

Not often enough do people talk about the huge energy consumption when it comes to topics like digitalization or streaming. Digital artist Memo Akten sheds some light on NFTs: he analysed 18,000 NFTs and presented the results on his site cryptoart.wtf. Akten found that the average CO₂ emissions for the creation of an NFT are slightly higher than the monthly emissions of an EU citizen.

Banning this art form is certainly not sensible. Its contribution to climate change is too small for that, considering the global economy. But the "scandal" of climate-damaging NFTs is having an effect. The status quo of global climate catastrophe cannot remain. Either people return to pre-industrial times in a united and conscious manner or they evolve. Regarding digital artworks, Beeple brings itself back into the game.

In a media-rich move, Beeple has vowed that his future NFTs will be carbon neutral. He wants to offset the emissions by investing in renewable energies and nature conservation projects. Other artists are collecting money through an initiative as a reward for whoever can make crypto-art more sustainable.