NFTs Are Transforming The Global Art Market, But Are They Worth The Hype?

You wouldn’t be the only one bamboozled to learn a digital collage, made from 5000 computer-rendered images created over 13 years by an American artist known as Beeple, fetched more than US$69 million ($110m) last year at Christie’s auction house. Even the artist penned a shocked “WOWOWOW” on his Instagram feed.

Christie’s was the first major auction house to offer a purely digital work in the form of a non-fungible token (NFT) and since then many other auction houses and galleries have followed suit.

Sam Gaskin, news editor for global art platform Ocula, has been closely observing NFTs, as many of Ocula’s followers are art professionals and collectors with a vested interest in how the art world is changing.

“Art NFTs dramatically transformed the global art market in 2021. Out of nowhere, they suddenly made up 16 per cent of global art sales by value. Suddenly, a whole new category of digital artists were being taken seriously, and more than 200,000 new art collectors emerged to support them,” says Sam.

Locally, Webb’s was first off the mark, offering two NFTs in January, made — or in tech speak, minted — from the original glass plate negatives of two black and white photographs of the famous New Zealand artist Charles Frederick Goldie. The buyers of these NFTs also received a framed contact print of the image and the original glass plate negative in a custom-built pine box.

Charles Ninow, Webb’s head of art, says the auction generated more than $100,000 and the next NFT auction of a collection of Don Binney NFTs, each accompanied by the original drawing, more than $400,000.

In both sales, Webb’s chose to offer buyers a tangible sweetener along with the digital offering, which Charles says worked well to pique interest.

While secondary art auction houses are navigating ways to incorporate fine art NFTs into their offering, so are primary market places such as Glorious Digital, which has courted well-known local artists who fit its luxe ethos. Think Heather Straka, Lisa Reihana and Fiona Pardington — whose recent sell-out of 100 NFTs of a photograph of a pair of taxidermied huia was an instant sell-out at $1800 each, most of which were snapped up in the pre-sale offering to its founding member club.

Although digital art has been around for more than 50 years, the ease of copying digital images has made it difficult to establish a digital artwork’s provenance — in other words, establish the work’s creator, ownership history and appraisal value — thereby making it impossible to value the medium.

NFTs have solved these provenance problems and, as a result, have become a secure way to buy digital artwork, that could be anything from pixel art to sounds, moving pictures, a ticket or a digital rendering of an existing painting, sculpture or installation.

Manawarahi: Female and Male Huia Lovers MTG Hawke’s Bay (2022), an NFT by Fiona Pardington.

Art makes up just one segment of the NFT pie, other sectors like gaming, sport and collectables all utilise the technology; you might have read about crypto punks (crude digital renderings of punk characters) or bored apes (garish ape cartoons) — these fall into the collectibles category and often come with social sweeteners, like access to exclusive clubs, and can be volatile in value. Then there are sports videos, memes and even tweets, all have been sold as NFTs for as little as $1 to many millions of dollars.

Veve.me is an example of a New Zealand company that is a global leader in the world of NFTs via its publishing of digital collectibles from famous brands such as Star Wars, Batman, Spider-Man, and more.

Jonty Kelt, founder of tech investment company Fantail Ventures, has been in the tech space for more than 20 years in London, New York and New Zealand, and invests in, and advises firms about, digital assets. He explains an NFT has value because the buyer and the community believe it to have worth, which is also true for art, rather than any intrinsic value; demand and proof of authenticity drive the price.

“A digital art piece could be 10,000 Jpegs someone dreamed up last night, arguably worth next to nothing, or an extremely valuable work from a respected artist. The spectrum is vast, but with quality and engaged communities they will stand the test of time,” Jonty says.

And to evaluate quality in the context of fine art, Sam adds it pays to have some healthy scepticism and look at the strength of the artistic idea.

“There are a number of sub-par projects earning far more money than more creatively robust artworks. Collectors need to evaluate NFT projects on their own terms, independent of the name attached. Are they beautiful, challenging, original, iconic, funny, or tragic? Do they move you or break new ground? Big-name artists could easily fail to create great NFT projects just as no-name artists can succeed.”

Charles adds the best NFTs will always be interesting conceptual art. “Good ideas transcend fashion,” he says.

Jonty makes the point, real collectors aren’t necessarily buying art to make money, but because the piece moves them, or they want to own it for status. “Of course, an increase of value is a bonus but it’s not the main driver.”

As for the recent blip in the NFT market, it was to be expected, he says. “Just like any market in its infancy, ups and downs are par for the course and in fact useful for clearing out the rubbish. But one thing is for sure, the level of creativity and capital that has entered the NFT space will ensure the technology is here to stay and evolve in ways we cannot yet imagine.”

Sam agrees. “I think NFTs will become much more popular over the next decade as our online presence becomes more integrated with our real-time lives. As the technology becomes cheaper, more secure and easier to use over the next decade, I believe most of us will own NFTs of some sort.”

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Although currently it’s still complicated for the average person to mint an NFT and expensive tech expertise is needed to develop one, Jonty believes there will come a time similar to what occurred in the web development space with Wix and Squarespace where you’ll be able to mint one at home.

“We’re still very much in the early adopter phase of NFT technology, kind of where dial-up internet was at.”

Figures out on tech media resource Cointelegraph report NFT collectors have already spent US$37 billion to June, meaning this year’s spend, despite the recent market blip, will still be well up from last year.

And yet you wouldn’t be alone in confessing you’re still in the dark when it comes to completely understanding NFTs. Even Glorious Digital’s art director James Blackie, a fine art adviser with 17 years’ experience as a gallery owner, initially fobbed off art NFTs due to a lack of understanding and turned down the opportunity to work with Glorious, before leaping into the space.

“I said no to the job initially, mainly because I didn’t understand NFTs. I was a little fearful. I guess because I love objects . . . the surface and texture of paintings and sculpture, all those tactile aspects of art. Getting involved in NFTs felt like letting this go, but once I learned more, the possibilities became really exciting. In reality, NFTs are more about growing the art market rather than encroaching on traditional mediums.”

James relishes the story of a client couple in their 80s to illustrate that it’s not only young buyers getting on board with this new way of buying and consuming art.

“They were downsizing, so they had to sell a large chunk of their art collection. They’re all about NFTs now.”

The fact collectors can access their NFT, which most often sits in their digital wallet on their smartphone, allows them to rotate their collection on a smart TV anywhere they go — hugely appealing, not only for downsizers but also for people on the move.

And as for displaying artwork, the gold standard remains the Samsung Frame TV. “I see it as a magical reclaiming of an architectural space. I like the fact people are now reordering their living room around an artwork,” says James.

As for artists, NFTs are opening up an entirely new creative palette, and a way of making money on the secondary market each time their artwork changes hands. “In the past, resale royalties were almost impossible, now most artists are looking at around a seven per cent royalty on every sale,” says James.

Jonty puts it bluntly: “Creatives have been ripped off for centuries. Mostly they’re dead before they start to reap the financial benefits. NFTs guarantee their continued economic interest. And it means artists no longer have to rely on galleries or auction houses to sell their art.”

Gordon Walters’ Maho NFT in a landscape version was offered as an edition of 12 by Glorious Digital and Art+Object.

However, many galleries see NFTs as just an expansion of their artists’ offering, according to Sam.

“Many of the world’s top galleries have embraced NFTs. They have to because their artists are already exploring the space. Damien Hirst and New Zealand’s Simon Denny have already created their own fantastic NFT projects. Galleries can also help collectors find the best NFT projects and collect works safely, avoiding scams.”

Sam thinks NFTs have given a whole generation of artists a new pathway to success, especially those whose practices lean into pixel art and GIFs.

“It’s certainly egalitarian in that more artists can find a market, and more collectors can find the works they want, although there are still insiders who benefit from early access to NFT projects that others don’t have.” Like the members of the Glorious Founding Membership who had first dibs on the Fiona Pardington NFT — which lends a slightly elitist element to the Glorious platform.

The same, however, could be said of the traditional gallery network, whereby existing and valued clients will often be the first to have the chance to purchase new work of a sought-after artist.

From an artist’s perspective, Fiona has found her foray into NFTs intriguing. Her NFT will be backed up with a second, secret NFT that will be given to the purchasers at a later date for no extra charge, allowing her to build her narrative over time.

“My photography is digital but taken through analogue lenses, so I like the idea of combining the tradition of still life with cutting-edge technology. I like the fact that many people find blockchains and NFTs mysterious and a little bit magical. I like having that mystery feed back into my work. Normally with photography what you see is what you get, but playing with time and expectation is fun. Like any investment, there’s an element of risk and I feel I’m making that literal with the promise of the unknown in this work.”

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Leigh Melville, the managing director of Art+Object, is interested in what NFTs can do for contemporary artists.

“NFTs have created a revenue stream for artists that didn’t exist before. The question most people ask is whether an NFT will ever replace a material work of art. I think the material object will always take first place but there is room for both.”

However, art and investment can be tricky partners. Because Ethereum (ETH) cryptocurrency has recently devalued, any artworks bought with that currency are somewhat affected. James says it is very hard to value an artwork when it is tied to a fluctuating currency, but it makes sense for a purchaser to hold that NFT until they know they can make up for that with an even better sale price.

For example, a Fiona Pardington work just sold for 1.5ETH, when purchased for 0.6ETH. Because ETH has dropped, the increased ETH price tag covered the drop, meaning the Pardington price went from $1800 to $2400.

Despite confusing trading variables, Sam says most established artists’ NFT projects have done extremely well, especially in this first phase of collecting. “NFT-native artists like Beeple, Pak, Mad Dog Jones, and New Zealander Richard Parry have garnered strong followings and proven good investments for early collectors. Whatever your approach, buying what you love is always a good idea.”

Jonty says to approach an art NFT investment as you would any investment — do your research, understand the risks and purchase from a reputable platform.

James puts it in a nutshell: “If you’re going to invest in art, don’t necessarily expect to make money — it’s for the soul more than the wallet.”

UNPACKING THE JARGON

NFT (non-fungible token)
A secure, unforgeable digital asset that could represent ownership of any asset, not only art, such as a ticket to a concert,
or even a car.

Fungible
Replaceable by another identical item. Non-fungible means you can’t trade one NFT for another, like you can a dollar, because no two are alike. However, you can sell your NFT on an online global marketplace and buy a completely different NFT, or keep your gains in your digital wallet.

Blockchain
A secure database, or a digital ledger, on a computer network that guarantees the accuracy and security of a contract, eliminating the need for a trusted third party. In the past we have relied on third parties like banks, insurance brokers, galleries, even streaming services to store contracts.

Digital wallet
In order to purchase an NFT you need to download a digital wallet, easily done via an app. MetaMask is one of the most popular. Crypto or digital currency sits and is traded on the same blockchain technology and was launched in 2009. The most well-known currency is Bitcoin but there are many other iterations; the most commonly used for NFTs is Ethereum, otherwise known as ETH. Currently .1 ETH is equivalent to NZ$1744.

NFT marketplaces are online platforms for selling and buying NFTs. A few of the trustworthy and established global sites are OpenSea, Foundation and Rarible. Locally, Glorious Digital is a trustworthy marketplace to purchase fine art NFTs on the primary market.