NFTS + DIGITAL ASSETS

​Appraising NFTs and Digital Asset

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The NFT market for digital art took the fine art market by surprise. For some it was the Christie’s Beeple sale in 2021, when Everydays: The First 5,000 Days sold for $69.3 million that first brought digital art and NFTs to the public’s attention. But long before that sale there was a community of cryptocurrency artists working outside the mainstream art world making art for their supporters using generative art to create collections of PFPs. In 2017, trailblazing collectibles such as CryptoPunks, CryptoCats, CryptoKitties appeared on the Ethereum blockchain, generating millions of dollars in transactions. With the market shifts during the Covid-19 pandemic, the influence by social media, the growth of the crypto community, and the prestige of the Beeple sale, NFT prices took off. In that period, new platforms and applications such as Decentraland, NBA Top Shots NFTs, Bored Yacht Club, and Art Blocks appeared, bringing incredible momentum to the NFT market for digital art.

During 2020 – 2022, the NFT market and the traditional art world began to move closer together as traditional art galleries brought to market their own Web 3 platforms. Major auction houses like Sotheby's and Christie's endeavored to bridge the gap between the traditional art world and the NFT crypto community by hosting high-profile auctions of NFT artwork, bringing greater visibility and legitimacy to the NFT market, attracting new investors and collectors to this emerging collecting catagory. Additionally, Art Blocks and Pace Gallery joined forces to support generative art, collaborating on projects for their new NFT platform, Verso. By the end of 2022 the market was hit by a series of scandals; the collapse of FTX exchange and crash of the cryptocurrency market, high profile hacks of millions of dollars worth of NFTs stolen from digital wallets made the news and interest in NFTs dropped like a rock. The scandals cast a pall over new digital art projects and innovative development in the space, creating a truly volatile moment.

The next phase for digital art and NFTs will be less about speculation and more about art. NFTs are built on the same technology as cryptocurrency and point to media assets. Their data allows for a decentralized method for recording transactions. An NFT can be thought of as an irrevocable digital certificate of ownership and authenticity for a given asset, whether digital or physical. They point to digital files that are stored off the blockchain such as digital artwork or media files on the IPFS.29 For on-chain generative projects, the NFT is both integral to the artwork itself and the proof of its ownership.

The advent of internet made it possible to share and copy anything online, destroying the scarcity business model for media. NFTs have restored the ability to create markets for digital goods. With the blockchain, digital art can have a unique identifier and while the art could be download or viewed by anyone on the internet, there can only be one owner. The value proposition for NFTs was that it offered a trusted mechanism to enable a market for digital art and a range of other digital based experiences. For artists, NFTs offered the promise of resale royalties something the traditional art world did not provide.

Missing from the criticism of NFTs is an understanding that NFTs are not the art. What they are referring to is digital art; whether it’s generative art, augmented or virtual reality, moving image or a digital still image. Some media based artworks are secured with an NFT, which it is a certificate of authenticity that represents ownership while others are not. Many media based artists in the traditional art do not use NFTs, they have their own system for selling work through the galleries which includes an analog certificate of authenticity. If collectors lose their certificates, the artwork can’t be resold and it loses its value.

Digital based works can be reproduced which has always been the drawback to building a sustainable market.
NFTs offered a way forward to create markets for digital artworks by offering an immutable way to secure the provenance and ownership. They also offered a way that they could be sold and traded online that never existed before. NFTs have multiple use cases, they could provide provenance for physical artworks and utility to digital art including memberships and special drops that create added value.

Tying NFTS and digital art to cryptocurrencies has presented many challenges. Ethereum is the most common cryptocurrency for purchasing art but it’s highly volatile. This makes pricing and valuing NFTs unpredictable. Certainly, digital artworks can be secured with NFTs on the blockchain without having to be purchased with cryptocurrency. Already most digital art platforms offer work arounds for those that don’t want to make a purchase with cryptocurrency. In the future, digital artwork will be listed on multiple trading platforms including the major art auction houses with the option to pay using multiple types of currency. Pricing will not be tied to one currency, and this will provide more stability. The infrastructure around securing digital wallets and storage is improving, making it more user friendly for the public.

NFTs, smart contracts and digital wallets are here to stay, this is just the first phase in the build out of Web 3 which now includes AI. Artists have always been interested in adopting innovative materials into their practices. New tools and materials serve to energize their creativity. We are in a period of intense experimentation with art and technology that brings new tools with every passing year to an artist's repertoire.

Regarding the appraisal of NFTs, the various attributes of a given artwork as well as its unique data should be taken into consideration. Comparing metadata and attributes (rarity) of different NFTs helps to create a narrative to support value.

For more information, please refer to my essay on appraising Media Art in the upcoming publication, ( to be published September 2024)  Appraising: The Definitive Guide To Valuing Fine Art, Decorative Arts & Collectibles, Vol. 2, published by the Appraiser’s Association of America.
 

 

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