Navigating NFTs and the Cryptoart Market
A lot has been discussed about NFTs in recent months, from that Beeple sale, to stories of teens making large sums on their own NFT art, to their extremely heavy carbon footprint and the broader potential impact of NFTs not just on the art world, but the world in general. To help give you an overview, we’ve put together this guide to what NFTs are, how they work, central concerns, and what artists should consider before creating and selling their own NFTs.
Beeple’s collage, Everydays: The First 5000 Days, sold at Christie’s. Image: Beeple
What are NFTs?
There’s a lot of hype around NFTs. But what are they and how do they actually work?
Let’s start with the basics. NFTs — non-fungible tokens — are essentially blockchain-based records that act as certificates of ownership and authenticity for digital art and other digital assets. A digital artwork is authenticated through a process called ‘minting’, issuing a one-of-a-kind (non-fungible) token for the artwork, which becomes part of the blockchain. Once minted, an NFT stays on the blockchain (an immutable and tamper-proof public ledger) forever — unless it is “burned” (permanently destroyed).
NFTs essentially enable the buying, selling and trading of digital art. Not only GIFs, memes, images and videos can be used to create NFTs, but also music, text, and even Tweets.
How they’re created
While a bit of tech savvy certainly helps when creating and selling an NFT, artists can use a number of minting platforms and marketplaces that make the process as easy as possible. In case you’re not familiar, blockchain is a technology that was developed for cryptocurrencies — originally Bitcoin. It’s where transactions are publicly tracked and recorded. For NFTs, the Ethereum blockchain is commonly used, as most of the popular NFT marketplaces support Ethereum. Ethereum’s currency is called Ether (ETH).
Minting NFTs
Minting can be done via a number of different platforms. And most platforms for minting are also marketplaces, which means artists can create and sell in one place. Some such platforms include Rarible — the first community-owned NFT marketplace — MakersPlace, and Foundation. While platforms like Nifty Gateway and SuperRare are currently invitation/application only, OpenSea is open to all creators.
The minting process usually requires payment of a fee — a so-called “gas fee” — which can typically range from $40 to $200. Gas fees are always changing based on supply and demand, so it depends on how busy the network is at the time of your transaction. Essentially, gas fees pay for the computing energy required to process transactions on the blockchain. But, as gas fees can sometimes present an obstacle for artists, there are some options available to help cover these costs. The platform OpenSea, for example, makes it possible to mint NFTs for free. And Mint Fund, a community initiative, helps BIPOC and LGBTQIA+ creators cover the gas fees to mint their first NFT.
Even if you are using a platform like OpenSea, an Ethereum wallet, as well as some ETH, is needed to create an account and mint an NFT. A wallet basically lets you manage your cryptocurrency, view your balance and send transactions. Wallets may take the form of mobile and desktop apps, or they may be browser-based or even physical hardware. Some common ones include Metamask or Exodus, which are easy to use for beginners.
Once a platform is chosen and an Ethereum wallet is connected, the process can be relatively straightforward: generally consisting of creating a profile, adding relevant info, etc. The artwork is uploaded and all of the important details about it are input — i.e., title and description, including background information, exhibition history, if any, etc. The NFT is signed using your wallet, and finally, gas fees are paid as required, and the NFT is minted. There is also the VerticalCrypto Art Virtual Residency, which provides artists with resources and a budget to produce and mint their own NFTs.
𝕾𝖊𝖈𝖔𝖓𝖉𝖆𝖗𝖞 𝕸𝖆𝖗𝖐𝖊𝖙𝖘 🌐⛓️
— Foundation 🌐 (@withFND) August 30, 2021
With NFTs, any artist—anywhere—can now earn royalties directly from secondary market sales.
We're at the beginning of a global reinvention of the creative economy.
The future is written in the code.
↳ https://t.co/pVJsF2FGPe pic.twitter.com/GeJViSCfP8
How they’re sold
Some may wonder, why would anyone pay for something that is already easily accessible and only exists digitally? According to an article in Time, “Some digital-art collectors say they’re paying not just for pixels but also for digital artists’ labor — in part, the movement is an effort to economically legitimize an emerging art form.” Additionally, NFTs are also a speculative asset, which buyers may invest in, in the hopes of its value increasing over time.
Practically speaking, after an NFT is minted, it can usually be listed for sale on the same platform. Here’s where gas fees come in again — gas fees are required to list an NFT and basically any other time there is a transaction on the blockchain.
NFTs can be put up for auction and sold to the highest bidder. But it may also be possible to set a reserve price (minimum sale amount), or even sell for a fixed price. Once a sale is made, the buyer receives a blockchain-based certificate of ownership. The copyright of the work, however, remains with the artist, and the right to reproduce the work is not transferred to the buyer.
As the NFT is sold and bought again on the secondary market, all previous owners are included on the certificate of ownership — the artwork’s provenance.
What artists should know
Selling art
In spite of all the headlines about record-shattering sales of cryptoart and NFTs bringing in millions, or at least hundreds of thousands of dollars, for their creators, there is no guarantee, or even a high probability, that an artist will make a large sale. They might not even make a sale at all. In short, it’s not necessarily a quick and easy way to sell your art and make an income. Moreover, gas fees could create barriers for some, potentially leaving out those artists who are already marginalized in the arts.
A possible upside, however, is that NFT marketplaces do make it possible for artists to sell their work without a gallery, which gives access to unrepresented artists. Though there may still be commissions taken on sales through an NFT marketplace, these will likely be less than when selling through a gallery or dealer. For example, MakersPlace takes 15% of the sale value, and NFT Showroom takes a 10% commission on first-time sales. Artists should also take these commission rates into account when setting their reserve prices on a particular marketplace.
Royalties
While artists don’t typically receive royalties on sales of their artwork in the “traditional” secondary art market, this feature can be built into NFTs — through smart contracts, specifically. A smart contract, which is stored on a blockchain, is computer code that automatically executes when certain terms of an agreement are fulfilled.
These automated resale royalties vary depending on the marketplace platform used, but the standard royalty is usually 5-10% of the sale price. Some platforms even let you choose the royalty percentage (e.g., Rarible).
This means that resale royalties can be paid automatically and immediately to artists every time their art is resold. However, it should also be noted that artists may only receive the automated resale royalties when the NFT is resold on the same platform that it was initially created and sold on.
Environmental impact
This is a big one. The carbon footprint of cryptocurrency mining is enormous, as the energy usage needed for computing power is high, and it is generated by fossil fuels. Cryptocurrency mining has been reported to consume nearly as much energy, or more, per year as countries like Ireland. In March this year, Ethereum mining was reported to consume nearly as much energy per year as the country of Ireland. And, as reported in Rolling Stone, the energy needed to mint just one NFT on Ethereum blockchain has been estimated to be the same amount that the average American household uses in more than three and half days.
For better energy efficiency, Ethereum has been planning to shift from PoW (proof-of-work) to PoS (proof-of-stake) — two types of consensus mechanisms, or algorithms, used by blockchain networks to keep them secure — possibly by the end of 2021. PoS doesn’t require as many computers and does not rely on high amounts of energy consumption like PoW, which requires many specialized, highly technical computers to calculate arbitrary mathematical problems. There are also already existing alternative blockchain platforms that use PoS. And there may be some ways to decrease the carbon footprint of NFTs even when using Ethereum — lazy minting, for example, which only creates an NFT once it is purchased.
For their part, some artists have also bought carbon offsets to lessen the impact of their NFTs, or even integrated offsets into the NFT itself. Artist and technologist Memo Akten has also been active in providing resources for eco-friendly cryptoart and raising awareness of its environmental impact.
Plagiarism
Unfortunately, this technology may also leave artists, as well as collectors, vulnerable to scams, fraud and plagiarism. Artists have had their work copied and posted as an NFT without their knowledge, for example. And recently, someone sold an NFT that was apparently linked to Banksy’s website, though the work wasn’t by the artist at all.
Because it’s digital and on the internet, it can be easy to simply copy someone’s work from somewhere and upload it as your own to mint an NFT. The lack of regulation for NFTs and moderation by marketplaces also means an artist might not even be notified if their work has been stolen and sold by someone else. On some platforms, the creator doesn’t have to be verified as the owner of the work, or the verification process may not be very secure.
Security
Earlier this year, Nifty Gateway marketplace was hacked and NFTs were stolen from the platform’s users. According to the platform, affected accounts were those without two-factor authentication enabled — a method for accessing accounts that requires two or more pieces of evidence for authentication.
It’s not just marketplace accounts, of course. Crypto wallets are also vulnerable to hacking. Using 2-factor authentication is one important way to keep your information safe. Further security measures include always creating strong passwords, and securely saving and storing your wallet address and seed phrase — a series of words generated by your wallet. Generally, the most secure way is to save this information offline, or to use a password manager.
As mentioned, digital currency is stored and linked via a wallet — which may take the form of a mobile or web application or an external hard drive (e.g., Trezor and Ledger). The latter option is considered to be more secure, since it is stored externally and not online.
A Community Built for the Arts
A global online community that celebrates and supports arts & culture
Other articles that you might enjoy
