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NFT Mania: innovation frontier

11 May 2021

April French Furnell

Would you pay $69million for the first purely digital work of art ever offered by a major auction house? That’s how much a Non-Fungible Token (NFT) titled ‘Everyday: The First 5000 Days’, created by Beeple or artist Mike Winkelmann who made one piece of digital art every day for 13 years, sold for at Christie’s in March this year. The buyer, Singapore-based blockchain entrepreneur Vignesh Sundaresan or ‘Metakovan’, described it to CNBC as “a significant piece of art history”. But others argue it is a JPEG file and a hyperlink - i.e. not worth the price tag.

Fad or not, there is no denying the NFT art market has become an industry overnight. In reality though big-name artists were ‘in’ digital a decade ago. David Hockney could be considered to be one of the first digital artists having used his ipad for art in his green period back in 2010 which was shown at the Royal Academy. The only thing missing was a blockchain which undoubtedly will be rectified soon. Cryptokitties, the ‘original gangsta’ NFT, developed by gaming company Dapper Labs was also making NFT history in 2017 buying and selling adorable cats or ‘kitties’.

Website nonfungible.com confirms the commercial rise. It shows hundreds of millions in sales. On the back of this ‘goldrush’ Citywealth’s April French Furnell asks: Why are NFTs growing in popularity and what should investors know before adding them to their art collection?

“First and foremost, it’s not something you can jump into without doing your research” said Bernadine Bröcker Wieder, CEO of Vastari Group, a global exhibition site to show works of art. Vastari helps museums and art industry professionals evaluate technological developments. Bernadine points to the fact that there is a growing pool of NFT art advisers that can be called upon for assistance and perhaps a tip off on a bargain to boot. “It’s a good time to get involved in the NFT market, but it’s also risky as there are so many moving parts. If you buy through an auction house, you can rest assured they will have done their research but the auctions are not necessarily where the best deals will be. This is where a good adviser comes into play”, said Bernadine.

Bernadine’s advice for those looking to get involved is to start with the artist, and then select the NFT. For her, the ability to connect with artists directly is a vital attraction of NFTs. “For the artist, NFTs create a new form of patronage. For many of these digital artists, it was their side-gig, but through selling their works as NFTs they can now work full-time. Investing in their NFTs, is enabling that artist to spend more time making art. I think of it as buying a future in the artist’s practice”.

While speaking with the artist enables the collector to have a deeper connection over a piece of artwork, it also serves as an important part of a collector’s research. As James Brockhurst, a lawyer at Forsters, explains: “Potential buyers should research the credentials of the provider, especially if taking part in a token pre-sale. They should also research the supply cap. For example, if an artist sells 20 NFTs as part of a collection, the tokens may attain collectible status. If however the artist floods the market with hundreds of new NFT works, the investment will lose value. Investors should also make efforts to negotiate prices directly with the seller, rather than purchasing at the listed price.”

Citywealth's Editor Karen Jones, who is a ‘real life’ art collector and alumni from the Courtauld Institute of art adds her point of view: “A good metric for my purchases has been spending time on sites like Nifty Gateway owned by the Winklevoss twins, Opensea and Makersplace to see who they are highlighting; putting my own art history lens on artworks and sticking to ‘lots’ with 100 or less. Whilst it is a new market, the whole point of blockchain is peer-2 peer sales which means buying direct without an advisor, exactly as with bitcoin. Many prices are in the hundreds of dollars not millions so it’s easy for new collectors to DIY and-more established institutions to experiment. I recommend just having a look and not getting too caught up in the rights or wrongs: you could be helping to make art history. Next stop: purchase a tv screen to show them on.”

The artists currently performing well in the market are those drawing upon ‘techno-nostalgia’, explained Bernadine. It plays well to those who are ‘crypto-rich’ and have a passion for maths and technology. Take for example, CryptoPunks, one of the most popular NFT projects online. A single lot of nine are up for sale with Christie’s on the 13th May. Created by Larva Labs, they began as an experiment with a software programme to generate thousands of different, strange-looking characters. Each is a 24x24, 8-bit-style pixel art image with a unique combination of randomly generated features. View all 10,000 CryptoPunks here. Each CryptoPunk is owned on the Ethereum blockchain by a single owner. At the time, the CryptoPunks were offered for free, with the founders of Larva Labs – Hall and Watkinson – claiming 1,000 for themselves.

Due to the randomly generated features, there are some scarcer features such as nine light-blue-skinned alien Punks, 88 green-skinned zombie Punks, and one alien smoking a pipe which has been dubbed ‘wise alien’ which sold on 11 March 2021 for the equivalent of $7.5million. (For those keen to know more, Larva Labs have just announced a new project - Meebits. Find out more here.)

The rarity of certain NFTs is an important consideration for investors – “if you do seek an investment return from them, then the item needs to be both highly desirable and extremely rare”, said Chris Clothier, fund manager at CG Asset Management. He cautions: “investors should not assume that they will turn out to be a profitable investment, and as with many collectibles, they will probably turn out to be worth considerably less than was paid for them. That doesn’t mean people shouldn’t buy them, just that they should be accounted for differently”, he said. He advises that in terms of mental accounting, consider it part of your P&L, and not on your balance sheet.

One of the sticking points of NFTs is that many of the works are using the Ethereum blockchain, which because of increased usage and purchases in ETH, its token or money, it has become overtly expensive (‘gas’ fees to approve the transactions) for those purchasing the NFT, but also for the artist when minting the work.

As a result, new platforms have launched such as ‘Hicetnunc’ on Tezos blockchain. Bernadine recently purchased her own NFT through the platform and had positive reviews saying that she could choose not only where the work was minted but which chain it was saved on. She thinks it marks a movement whereby artists and collectors will have discussions prior to the works being minted.

From a legal standpoint, there are other important considerations. “Your investment and your NFT only ‘exist’ so far as the security and integrity of these third-party devices and software can be upheld” said Rudy Capildeo, Partner and art law and luxury asset specialist at Charles Russell Speechlys. Some early owners of Bitcoin who lost their wallet passwords will know the pain of their losses to know how important this is.

“NFTs give rise to a myriad of unresolved legal issues: to start off with, the blockchain transaction is only as secure as the company hosting it; will that company still be around tomorrow?  Quite what you buy also tends to vary from platform to platform but buying an NFT will not always transfer ownership and does not give the buyer exclusive rights in the image”, added Anastassia Dimmek, a lawyer at Hunters Law.

Despite some technical points however, there is a lot of fun to be had by engaging with NFTs.

Featured NFT artist

Artist CryptoZR (Liu Jiaying) has been creating works using blockchain technology since 2016 and her art has a real sense of participation. Talking exclusively to Citywealth, she said: “Crypto is a whole new field. To me, it does not only create artworks, but also spawns a whole new world”. Describing her project ‘Greed is Good’, she said: “I modified smart contracts, so instead of reducing the number of coins, each individual could transfer and receive more coins to another address. Later on, some engineers continued to transfer as much as 1 trillion to their own accounts, which eventually led to the collapse of the system, and the coins were rendered worthless.”

Her latest project is TopBidder, adopting the theory of ‘Radical Market’ to modify the underlying agreement of NFT and create a new auction asset type, known as "rNFT" (radical NFT), which sets the artworks free from ownership. While the artist continues to be the real owner of an artwork, every collector can earn 30% profit in price difference immediately. In the agreement used by TopBidder, there is no closing date for this auction. Whenever a collector bids more than 10%, the works will be automatically transferred to the new collector's wallet. TopBidder was launched on 24 April 2021 and the first work auctioned there is my work Yap721, currently with a bid of 30.12 eth (as of 28 April 2021).

If there is one lesson to learn about NFTs it is that it is fast moving. “That’s the cool thing about it”, said Bernadine. There is a new platform opensea.io, which is creating a secondary market of works across all chains – “a bit like an amazon or ebay for NFTS”, Bernadine describes. While lazy.com – the creation from Mark Cuban, owner of the Dallas Mavericks and an avid art collector – is a digital gallery for users to display their NFTs. It’s designed to allow collectors to sign up via their Metamask wallet used by the Ethereum blockchain.

A further area of development is collectibles. Chateau Darius, the wine label, recently launched its own NFT, the 26-year old winemaker Flavien Darius Pommier who took over the family’s vineyard four years ago said: “We followed many artists and then we came to the conclusion that if some people were ready to acquire artistic works virtually by being full owners of them, why not bring our wine to life through this new exchange system in which we believe?”

He added, “We are now launching NFTs for each of our vintages and we will do so from now at every physical harvest at the vineyard (usually in September). As wine can't be tasted online, each NFT sold also allows you to receive 2 bottles of our wine (a mix of two vintages). NFTs are a way for people to own wine, and we keep and conserve it for them.”

So, what’s next for NFTs? The creativity is limitless. As to whether you are ready to pay $69million for a digital piece of art, that might be a stretch of the imagination, but as Chagall said: “Great art picks up where nature ends.” And the blockchain will pick up where oils, gouache and charcoal end.

 

Read on for a Blockchain art history from Karen Jones #cryptokaren

Forbes, the business magazine, sold a non-fungible token (NFT) of its most recent cover of the Winklevoss twins for a staggering $333,333 to a buyer called “mondoir”. The NFT is called “Merchants of the Metaverse” and refers to Cameron & Tyler’s history within the technology and crypto industry. Karen Jones, Editor, Citywealth says publishing skills easily lend themselves to this new marketplace with graphic design and video embedded in their culture.

A test version of CryptoKitties was unveiled at ETH Waterloo on October 19, 2017, an Ethereum hackathon. As of December 2, 2017, Genesis, the first and highest selling cat was sold for ETH246. 9255 (~US$117,712) on that day. The concept was developed to help showcase uses for the Ethereum blockchain. Dapper Labs who invented crypto kitties are also big in sporting NFTs with TopShots their officially licensed NFTs featuring smart digital highlights and players from NBA games. They have had 3million transactions and $500mn in sales and are now the number 1 DAPP (decentralised application on the blockchain). https://nbatopshot.com/

Sporting fan NFTs. These as well as fan tokens giving fans voting rights have shown fans how to engage with blockchain technology. DAZN a sports subscription video streaming service with top sporting events it to rival Sky and BT sports, recently featured ppv boxing match Canelo v Saunders for a £1.99 monthly fee but also sold memorabilia sporting NFTs at 100 a time for 0.09 ETH ($370). For the uninitiated it shows that the revenues that can come from sporting fan tokens or memorabilia far outway the ppv income.  https://daznboxing.io/

Following the Canelo v Saunders bout on 8th May which you can see here, held in Dallas - https://www.youtube.com/watch?v=oD5Xw-JYCBs  - DAZN offered NFT''s to go with the match as collectibles - see here https://opensea.io/assets/0x495f947276749ce646f68ac8c248420045cb7b5e/69208789200216951769366063301950903931594320778910349241631506782965936947300

Tip: Beeple through nifty gateway ran a $1 giveaway of 100 of his prints (despite selling for hundreds of thousands each) as a promotion – so it is worth signing up to the NFT sites for super offers and giveaways. https://niftygateway.com/collections/beepletwo

View editor Karen Jones NFT galleries. She also owns two crypto kitties.

 

If you are interested in finding out more, join our Tomorrow Club or WP Club for regular crypto talks from Karen Jones in an 'Ask me Anythng' format. Book your place at the Tomorrow or WP Club today. 

 

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