Non-Fungible Tokens

The art world has been abuzz with news of high dollar transactions in non-fungible tokens (NFTs). Christie’s auction house is selling a work by the digital artist Beeple (Mike Winkelmann). The work, entitled, “Everydays: The First 5000 Days,” is a compendium of 5000 digital pictures he has posted online every day since May 1, 2007. Christie’s will be the first major auction house to offer a purely digital work with a unique NFT — effectively a guarantee of its authenticity — and to accept cryptocurrency, in addition to standard forms of payment, for the work. The blockchain registry Verisart is collaborating with SuperRare, a digital art marketplace, to offer ten auctions of NFTs new artworks by leading artists over ten weeks starting in March 2021. And on March 2, 2021, the musician and digital artist Grimes earned $5.8 million by selling a suite of her artworks in the form of NFTs. The digital artworks were published as “WarNymph Collection Vol. 1,” and launched via a tweet to her 1.1 million Twitter followers. They sold out within 20 minutes.

The music world is also issuing NFTs at a rapid pace. In early March 2021, the band Kings of Leon became the first band to a release a new album as a NFT. According to Rolling Stone the band grossed more than $2 million in sales from the offering in its first week. They were not the first musical act to reap the benefits of NFTs. Rapper Tory Lanez released three new tracks as NFTs. The rapper collaborated with a blockchain company called Bondly.Finance to create 450 song NFTs, all of which also included a chance to meet and greet the star virtually. The tokens sold out within two minutes. Lanez’s collection earned a record $500,000, including resales, in the first 24 hours.

NFTs are also being used to generate income from tweets. Twitter’s founder Jack Dorsey is selling his first “tweet” as an NFT, with the current highest bidder offering $2.5 million as of this writing. Dorsey launched the sale Friday, March 5th, tweeting out a link to the platform, Valuables. The site allows people to sell one-of-a-kind digital certificates of specific tweets, which are “autographed” and verified by the original sender. The auction will end on March 21st, and Dorsey plans to convert the proceeds from the NFT auction to bitcoin and will donate the bitcoin to the charity Give Directly, a nonprofit that lets donors send money directly to people living in poverty. As to why anyone would pay to own a tweet, Valuables states in an FAQ page: “Owning any digital content can be a financial investment, hold sentimental value, and create a relationship between collector and creator. Like an autograph on a baseball card, the NFT itself is the creator’s autograph on the content, making it scarce, unique, and valuable.”.

What are NFTs and how do they work?

A “non-fungible token” is a unique object which cannot be replaced with something else. When you buy an NFT, you are buying a token and the work of art linked to it. The transaction is registered on the blockchain, a non-centralized ledger. Each token is unique to that work; when a token is purchased and registered on the blockchain, there is a permanent record of the sale and proof of ownership.

While anyone can download and copy a piece of art which is on the Internet, only the owner of the NFT actually owns the right to trade the image or musical composition. Digital images have long been copied without any compensation going to the artist; while this is a violation of the artist’s copyright, the unauthorized downloading of images is hard to police and it is expensive to enforce an artist’s rights.

What do you do with an NFT?

You can display it on your computer, print it out or resell it. While anyone can print out or display an image from the internet, that image does not belong to them and they cannot trade it, so NFTs protect the artist’s authorship and make a secondary market possible. The market for NFTs is growing rapidly and expanding into many areas of art and commerce.

NFTs make it possible for an artist to profit from their digital work in the secondary art market, as many NFTs are attached to “smart contracts” (self-executing agreements) providing resale royalties (a percentage of the profits) to artists when their works are resold for a profit. The artist Kenny Schachter has produced NFTs; one, entitled “That’s All Folks”, a cartoon image of Donald Trump wearing a clown’s nose and incorporating the Looney Tunes logo, was offered in an edition of five. All sold for $500 each. They have since been traded, at a profit, and Schachter has received a resale royalty upon each trade.

NFTs also make it possible for artists to fund their non-digital art projects, much as an IPO can fund a start-up company. Sterling Crispin is a sculptor and conceptual artist. He is launching an NFT which is a diagram of the physical sculpture he intends to create. The sale of the NFT will enable the production of the sculpture, and the two are meant to stay together, according to Crispin. The opening bid is set at approximately $4,700, which the artist based on the production and shipping cost of the work. Crispin views the NFT as both plan and provenance for the physical work and intends that both stay together.

NFTs are a way, right now, for artists to fund their projects and obtain resale royalties when their NFTs are resold for a profit. While 70 other countries around the world offer support to artists through resale royalties, in America artists must fend for themselves. NFTs may accomplish what Congress and state legislatures have been unable or unwilling to do – to fund artists’ continuing careers through the institution of a resale royalty scheme.