Non-fungible tokens (NFTs) are revolutionizing the art world.
For centuries, buying, selling, and collecting high-value works of art has been a way people have grown and showcased generational wealth. Historically, as an artist's value increases, collectors buying and selling that artist's works in the secondary art market have been rewarded. But the artist could not benefit from an increase in the demand for his or her work beyond initial gallery sales.
Artists creating NFTs now have the option to knit smart contracts into the digital fabric of their works. Smart contracts allow for the assignment of if/then logic to digital assets. For example, an artist can add code to an NFT that says, “if this work is ever sold, automatically send me a percentage of the sale price, forever.” This concept is revolutionary. Now artists can recuperate royalties on works sold in the secondary art market. With NFTs, both the current collector and artist stand to benefit if an artist's value increases.
How does NFT collecting work?
If you purchase an NFT, you are technically the digital asset owner, though the copyright does not transfer to you. This means that other people can see, download, and use your digital image, video clip, song, etc., from the internet. As is the case with other tangible collectibles, it's evident that NFT collectors are willing to pay for the reward associated with the ownership of a work, even if they're already able to download, use, and view that work.
One way artists are providing more value to NFT owners and increasing demand amongst collectors is by offering “unlockable content,” accessible only to an NFT owner. Unlockable content encourages interested collectors who want access to more than the NFT file to make a purchase. Examples of unlockable content outlined on OpenSea include higher resolution files of the work, information for redeeming physical items included with an NFT purchase, access keys, and more.
NFT smart contracts on blockchains
Within the context of the art world, NFTs solve several problems at once. First, the blockchain stored guarantee of authenticity logged during the purchase of an NFT ensures that ownership and verification of the original NFT are traceable. This traceability lowers the likelihood of replications, increasing the scarcity of the digital object and increasing the resale value.
Second, the opportunities afforded by smart contracts extend beyond primary artists receiving ongoing royalties from the sale of their NFT. Some artists use smart contracts to incentivize their studio employees with a guaranteed percentage of sales included in NFT works to offset a lower hourly pay rate for their studio work. NFTs provide an opportunity for artists to distribute percentages of each sale to whomever they choose, essentially offering shares of a digital work of art.
The future of NFTs and the art world
As the NFT-driven digital art market continues to grow, we have no doubt that artists and collectors will find more and more ways to utilize blockchain technology and beneficial mutually smart contracts. It does not surprise us that some artists are seeing correlated increases in demand for their physical art due to their efforts in the digital art market. The rise in NFTs and the growth of the digital art market is just one small part of an already large and rapidly expanding digital asset class.