news 2021 — The Year of the NFT A year has gone by since NFTs entered mainstream culture. But many still wonder – What is an NFT? An NFT, or stands for non-fungible token, is a unique unit of data employing technology that allows digital content — from videos to songs to images — to become logged and authenticated on cryptocurrency blockchains, primarily Ethereum. After content is logged onto the blockchain, every transaction from transfers to sales is recorded on-chain. This creates an easily accessible ledger of provenance and price history. Generally speaking, NFTs is making it easy to own and sell digital content. Previously, for example, digital artists could build up large followings on social media, attract freelance commercial work, and sell prints and other merch with their designs. However, artist faced the challenge of monetizing digital art directly, since consumers could simply take a screenshot of the artist’s work. While the technology behind NFTs made it easy to trade and sell images online, it is really the NFT community that has to be credited with creating a market for these digital assets, because technically, as many detractors point out, digital images that have been turned into NFTs can still be saved or screenshot without cost. Artists typically will mint (create an NFT) their work on an NFT marketplace, and create a smart contract that will be stored on the blockchain. The smart contract lists the creator of the work and ensures that the creator, or other parties, receive royalties each time the NFT is sold. The ability for artists to collect returns on resale value automatically is part of NFTs’ draw for artists (all platforms make their money by receiving a small percentage of royalties through the smart
A popular NFT work in New York.
contract). But the process isn’t perfect: technological glitches can make it so that parties don’t always receive royalties. And a smart contract does not have the legal weight of copyright — it will take a relevant court case to see how the law regards smart contracts. Smart contracts are stored on
Perhaps the most prohibitive is that minting an NFT is not free, and its cost increases the more congested the Ethereum network becomes, and the more computational effort is needed to do the job.
blockchain, but the artwork itself is most often not stored on-chain because storing that much data is too laborious and expensive; accordingly, most smart contracts contain a link to the work they ArtDiction | 6 | November/December 2021
represent. This means that many NFTs comprise two parts, the smart contract and the asset itself. This can cause some confusion about where the value actually resides. However, there are works that are not only stored on-chain but are also created using blockchain tech (more on this below). While artists are constantly encouraged by their peers to make big bucks making NFTs of their work, there are obstacles. Perhaps the most prohibitive is that minting an NFT is not free, and its cost increases the more congested the Ethereum network becomes, and the more computational effort is needed to do the job. The financial cost of that necessary computational effort is the “gas fee,” which is constantly fluctuating. Currently, it costs some $70 to mint an NFT on Ethereum. The NFT creator doesn’t always do the minting; certain platforms will offload that process and the subsequent cost to the consumer. While NFTs have had a positive impact on many artists, there isn’t enough data available yet to see if NFTs are benefiting the many or just a select few. Detractors call NFTs a Ponzi scheme. The only comprehensive study of NFTs published so far collected prices from
