How NFTs Transformed The Art Market

Created in 2017, Non-Fungible Tokens (NFTs) invaded the art world, especially digital art. But how have they made it possible to buy or sell a unique work? How has this dimension revolutionized the NFT art market? And why has it generated such speculation, coupled with an ecological disaster? Artsper gives you the key to understanding NFTs and its stake in the art world.

NFTs and uniqueness: A fundamental principle

In order to understand the NFT art market, we must first understand what a non-fungible token is. “Fungible” is a specialized word in finance and economics, meaning: “easy to exchange or trade for something else of the same type or value”.  Non-fungible things are not possible to exchange. For example, a photograph of the Atlantic Ocean is fungible, while the ocean itself is unique and absolutely non-fungible. The NFT works on this principle: to propose a unique object that is not exchangeable with something similar.

The NFT art market, a revolution in the art world

While digital content was in essence duplicable, NFTs have made it possible to number and make each work unique. The “token” in NFTs represents a specific amount of digital resources one can own, buy, sell or trade. For the first time, digital works could gain rarity and obtain a certificate of authenticity. It became possible to sell a digital work as an original. Thanks to this system, the NFTs brought about a revolution on three levels in the art market. First, for the digital artists, who finally found a way to get paid for their work. Second, for the art world, because the purchase of art has become more democratic. And finally, for the global market, because a new parallel market has opened its doors to art collectors and resellers. The NFT art market, which until recently had very limited legitimacy, has now rocketed exponentially.

The explosive phenomenon of NFTs

In just 2 years, the impact of NFTs has increased the value of the digital art market by a factor of 10. By 2020, the NFT took off, generating up to $10 million per day by 2021. The first digital artwork to hit the headlines was the 9 CryptosPunks from Larva Labs, which sold for $16 million. Then it was Beeple’s turn to break all records in February 2021. Everydays: the last 5000 days sold for $69.3 million at Christie’s auction. Then, in November, Beeple created the first 3D NFT sculpture, Human One, which sold for almost $29 million.

At the same time, NFTs are also taking on classic masterpieces. In May 2021, the Uffizi Gallery in Florence collaborated with Cinello, an IT company that reproduces masterpieces into digital art, to reproduce and sell the first digital copy of a Michelangelo painting, the Doni Madonna. This NFT painting was purchased for €140,000. Yet the most expensive NFT work today is The Merge by digital artist, Pak. It was purchased by 28,983 people, for a total value of $91.8 million.

NFT art and speculation: A weighty innovation

Even if NFTs have allowed digital art to take open up a new world, it is also a market that weighs heavily on us, especially on the environment. When we say NFT, we mean crypto-currency, we mean computers, we mean very, very, very complex lines of code. And unfortunately, these digital puzzles consume an astronomical amount of electricity. Digital artist Memo Akten, for example, calculated the carbon footprint of a typical NFT. The result is overwhelming: it requires about as much as a month’s worth of electricity for an average EU resident. The same goes for the Ethereum crypto-currency, which consumes as much as a country the size of Libya. It’s a level of energy consumption that the world can’t afford to expend or to waste.

Is the party over for the NFT art market?

If NFT art has reached heights, it is mainly because it has seduced many investors and artists. It opened the doors to a new market and made possible the speculation of digital works of art.  While keeping the economic model used for the physical pieces, these are subjected to the same fragilities as the institutional market. The result? Many specialists feared a speculative bubble, which ended up bursting in May 2022. While the NFT price peaked in August 2021, it was worth 10 times less in July 2022. A plumet as furious as its rise. What will the future hold? It is still very difficult to predict.