What Are NFTs, and How Are They Transforming Digital Art?

Discover the fascinating universe of NFTs, how they benefit the art world, the risks they pose, and why people are concerned about their environmental impact

NFTs have taken the creative world by storm in recent weeks and prompted many questions. To fully get our head around this new technology, we need to put the current conversation into context.

In February this year, the Nyan Cat meme sold for $600,000. On March 1, visual artist and musician Grimes sold some videos for $6 million. And on March 11, a single jpeg file sold for $69 million.

Aside from receiving a lot of attention over recent weeks, the creator of this jpeg–digital artist Mike Winkelmann, best known as Beeple–has become a record holder: 'Everydays: The First 5000 Days' is the third most expensive artwork to be sold by a living artist.

What do all of these works have in common? Well, they don't exist in the physical world and have conquered the mainstream.

What is an NFT, and what does it have to do with these sales?

In short, an NFT (non-fungible token) is a unit of data that functions as a unique signature, a digital certificate that certifies the authenticity of a creation. It can be an image file, a song, a tweet, a text posted on a website, a physical item, and various other digital formats.

Luiz Octávio, CEO and founder of Dux Cripto, works on the development of NFTs and explains that the technology "is a form of decentralized certification," which is why it is so important.

Bianca Pattoli, originally from Brazil, is the London-based founder of Menta Land, a creative studio for NFT projects that turns artworks or marketing actions into tangible items within the blockchain universe. She notes that "an NFT is the equivalent of the deed you receive when you buy a property. The deed contains all the information about this property (how many rooms it has, its measurements, whether it has a garage, etc.). You only own the property if you are in possession of the deed. The deed doesn’t actually contain the "property itself, or even a picture of it; you just have a detailed description of what you bought."

NFTs are highly secure and cannot be duplicated, making it possible to identify an original digital artwork. NFT certificates are created based on Ethereum, a blockchain, and are traded using a cryptocurrency called Ether.

What is blockchain?

In short, according to the Binance Academy: "Blockchain is a special type of database to which data can only be added (it cannot be deleted or changed).”

As the name implies, "it is a chain of blocks where the blocks are fragments of information that are added to the database. Each block refers to the previous block and usually contains a combination of information about transactions, timestamps, and other data that confirms its validity. Because all of them are linked, the blocks cannot be edited, deleted, or modified in any way, as this would invalidate all subsequent blocks."

Luiz Octávio adds some more details: "Blockchain is like a big collaborative ledger in which we store various types of files and information. Every time we need to register new information in this blockchain, it is necessary that this information is spread amongst a network of validators all over the world. If the majority of these validators verify that the information is legitimate, the data is inserted into the network. This is what we call validation consensus".

But what does all this mean in practice?

Through this technology, artists and creatives can generate a certificate of authenticity for their digital work, which had been easy to copy in the past. This thus increases the value of their work.

"NFTs have the potential to empower and liberate artists. It's the first time a digital artist can have this kind of ownership of what they are producing. Artists have never had so much access to art and music, yet at the same time, these arts have undervalued. NFTs respond to a system that hasn’t been working for everyone," says Bianca Pattoli.

Collecting and exclusivity

This technology also grants digital art access into a world that has existed for centuries: the world of collecting. Certain works of art and objects gain value and status for being exclusive, unique, and impossible to replicate. NFTs, therefore, can make digital art incredibly valuable.

For the designer and creative vice president of Fbiz, Ícaro de Abreu, NFTs allow us to assert our authorship of content produced on the network. "It's good to know that you are the owner of the original file, especially given how the internet and the concept of copyright are so incompatible," he says.

We can take a look at collectible Pokémon cards and Magic: The Gathering cards as an example of how this system works in the physical world. Every year, thousands of copies of these cards are released, but certain editions become sought-after within the fandom because of a specific feature or the card’s scarcity.

In Bianca's opinion, NFTs are shaking things up in the same way that street art did when it was first being sold in galleries. Not only are they shaking up the art world but the entire creative universe.

Recently, the NBA began selling short videos of moves from basketball and iconic moments. These videos, which are nothing more than digital collectibles, are turned into NFTs and sold to sports fans.

It’s an opportunity for a fan to have an original product that has more value than the same video on YouTube. NBA Top Shot, the name of the project, is innovative because purchases can be made with dollars instead of cryptocurrencies, making the process easier and serving as an example for similar projects.

NFTs provide artists, content creators, and companies with more freedom and new avenues for financing their work, which they would otherwise not have access to. "We will see this more and more: no longer will large centralized networks, like Spotify and YouTube, have so much power, and the system will become decentralized," says Luiz.

Where do I start?

If you are an artist and would like to experiment with NFTs, where should you start? For Luiz Octávio, the secret is to "experiment and explore the possibilities of the technology without any expectations of making a short-term profit."

Bianca agrees and adds: "There are many artists and brands that want to start out but don't really know how to. You need to first analyze what you have. Go through the NFT ecosystem. You can’t expect the ecosystem to adapt to what you have. First, you need to get to grips with how the market works, the rules of that game, and then dive in."

For Luiz, this is something that will endure and go through different cycles, such as the one we're experiencing right now. "This cycle can be euphoric, but then it can experience a drop. Afterward, we will experience more euphoria. We need to approach it calmly and carefully, looking at NFTs as something to be explored on a long-term basis rather than feeling compelled to do something now," he says.

For those who want to venture into this market, various platforms–such as Foundation, Rarible, and Superare–operate as marketplaces and facilitate buying and selling with cryptocurrencies. Illustrator and animator Joseba Elorza, known as Miraruido (@miraruido), began researching the topic in January this year and discovered Foundation, currently the most popular platform. "Unlike galleries that contact you, marketplaces like Foundation and Superare ask the interested artist to apply, fill out a form, submit their work, and wait to be contacted," the artist explains in this Domestika article.

Miraruido adds that the first payment an artist must make is to cover the costs involved in generating the NFT. "The prices of this process can range from $40 to $120, depending on the time and the number of people using the system," describes illustrator and animator Miraruido before clarifying that no one knows exactly how these costs are calculated.

What risks does this technology pose?

The world of NFTs is interesting, fascinating, and full of opportunities. However, it also poses some risks. One of them is the stock market bubble, which is currently on the rise but can fall or change at any moment. For Icaro de Abreu, any new development presents a risk, as different scenarios have not been thoroughly explored. "Could someone taking a risk end up losing? Yes, there’s no doubt about it. But those who take risks also get ahead and reap any rewards," he believes.

With over 20 years of experience as a digital expert, entrepreneur Seth Godin recently wrote on his blog that NFTs would be like Kindle books and YouTube videos: "The vast majority will get 10 views, not a billion.

Concerns about the environmental impact

Not just NFTs, but all cryptocurrencies and blockchain-based technology have come under fire because of their impact on the environment. All blockchain carry out what is known as “proof of work,” which is a way of validating information on a network and which uses extremely high levels of processing power to solve complex mathematical calculations and guarantee that the encryption of a block is valid.

These processes can be transactional, writing, or generating blocks, or they will be carried out by miners, who verify that a block is valid. Advancing technology means that more powerful processors and computer parts are needed to extract this information, which ultimately generates enormous energy consumption and an unprecedented impact on the environment.

This is an issue that has already been raised by several experts, such as Brazil's Carol Souza. She warns us about the dangerous impact technology is having on the environment while also pointing out that other industries have an even greater environmental impact, yet this is not being taken into account.

Creative director Gabriel Suchowolski, better known as Microbians (@microbians), recently joined Foundation. He also draws attention to this issue.

He explains that there is an alternative underway. Ethereum 2.0 is a platform update that now processes NFT, which uses a new validation protocol called “proof of stake” and promises to reduce energy consumption by 99%.

"Every new technology, and current technology, have an impact ... these words, for example, are now sent from my computer that is connected to the internet and uses different servers to reach your screen.

This also has a cost. In the same way that new technology must work efficiently–whether we’re talking about NFTs, Ethereum, or mining–all of this must also work efficiently. The idea is to keep reducing energy consumption. Anything we can do to lessen our impact on the environment, such as lowering consumption and managing energy consumption better, is the right way," Microbians says.

Alternatives that consume less energy are already being created and tested, such as Tezos, an ecological cryptocurrency. When we find ourselves facing a problem, there will always be solutions on the horizon that set out to reduce our impact.

Whether you're a fan of NFTs or not, discussions on the topic will continue to become more nuanced and complex. Like any new technology or concept, people are both baffled and excited by it. The important thing is to continue the conversation and learn as we go.

What are your thoughts on NFTs? Leave your comments below!

English version by @eloise_edgington.

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