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How Do NFTs Work in the Art World?

Beyond proving the authenticity of the artwork they represent, NFTs-based artwork is one of the most popular assets for collectors.

Beeple, Everydays The First 5000 Days. Sold for $69.3 million Beeple / Christie’s

When Bitcoin was first introduced in 2008, it offered a new decentralized peer-to-peer payment system as an alternative to exchanging funds in a very centralized world, weakened by the 2007 financial crisis. A few years later, Ethereum took the use of the blockchain further, with Smart Contracts. Recently, a new kind of token has become popular, especially in the world of art and collectibles – they’re called NFTs, or Non-Fungible Tokens. NFTs have recently boomed, with sales surging to $2.5b in the first half of 2021, according to Reuters.

ART

Beyond proving the authenticity of the artwork they represent, NFTs-based artwork is one of the most popular assets for collectors, as well as speculators. Actually, some analysts consider that the rising prices and increasing accessibility of crypto trading are two factors that have helped drive interest in the NTF art market. Some NFT enthusiasts are indeed seeing collectibles as an investment opportunity to take advantage of rising interest and price fluctuations, with many trading platforms developing their own NFT marketplace to allow investors to widen their crypto trading range.

Grimes, Gods in Hi-res. Courtesy of the artist.

How are the blockchain and NFTs helping the art world?

This new kind of token empowers creators, by turning their digital artwork and collectibles into objects that can be easily identified and exchanged on the blockchain, as NFTs enable easier authentication, storage, and exchange of unique objects on the blockchain. That’s why they are so popular in the art business, which relies on selling unique objects whose provenance are verified by galleries or auction houses before the sale.

The blockchain is reshaping the art world by providing a new way to ensure the origin and value of an art piece, which also helps prevent fraud and counterfeit. Why? Because the blockchain technology is an open-source technology offering a new way of transferring assets, values, and now ownership.

As explained by the giant accounting and auditing company Deloitte, “the intermediary is replaced by the collective verification of the ecosystem offering a huge degree of traceability, security and speed”. The blockchain technology acts as a distributed ledger which tracks all transfers and actions happening on its network without allowing any party to modify or delete entries once they’re recorded on the blockchain. This offers transparency and traceability – two requirements in the art industry.

Andrés Reisinger, Matsumoto. Courtesy of the artist.

Bottom line

The use of blockchain in the art world has rapidly increased with the rise of NFTs or Non Fungible Tokens, as they provide a unique digital token representing an asset that cannot be copied and altered in any way.

As explained by Seth Price and Michelle Kuo in What NFTs Meanfor Contemporary Art, an NFT isn’t something that can be exchanged for something similar. While one dollar or one Bitcoin has the same value of another dollar or another Bitcoin coin, a NFT is unique and non fungible, which means that it cannot be exchanged with any like entity.

Art NFTs, which represent an artistic creation that could be fully digital, or a tokenized version of something that exists in the real world, is allowing collectors and investors to benefit from a high-er degree of authenticity and transparency, because they’re used to digitally codified the owner-ship of art pieces. Moreover, the use of blockchain with NFTs isn’t only helping to provide proof of originality and to bring more transparency to the art market, it also allows collectors to benefit from a more direct connection with the artists they like.

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