What reason could there be for a digital work of art to sell for $60 million and make its creator the third best known living artist in the world? To find the answer we need to look at the rise of NFTs – certificates of ownership represented by pieces of text (so-called tokens) whose traceability is based on blockchain technology to ensure that a work is unique, immutable and original.
NFT, to simplify, represent the digitalisation of the certification of a right acquired over a property that can prove the authenticity of works in the digital world, a sort of autograph or certificate of intellectual property that cannot be manipulated and can be freely verified on the network, where the rapid and massive dissemination of content usually causes the loss of authorship or its value. The acronym refers to Non Fungible Tokens, which could be translated as assets that do not exhaust in a single use, and can be used for art as well as music, photos, GIFs, tweets or even newspaper columns.
It was on 11 March when NFTs went from being a niche among cryptocurrency enthusiasts like Bitcoin to becoming known to everyone. Digital artist Mike Winkelmann, known as Beeple, sold his work Everydays: The First 5000 Days at Christie’s for $70 million, a record-breaking event.
But why can a digital work of art, easily replicated on the Internet, be sold at this price? This is where the NFTs come in. They guarantee that this collage, the union of 5,000 works created in 5,000 days, is truly authentic, acknowledged by its creator and owned by the person who bought it. To do this, one can rely on blockchain technology.
Having said that, let us look at what kind of impact NFTs are having on art and in particular on music.
Thanks mainly to the success of Beeple, NFTs are in fact being used to acquire digital art. Many artists, accustomed to the global market and plagued by selling their work cheaply or for free, see this technology as a way to earn more money for their work.
However, it is not just artwork that is being sold.
Indie band Kings of Leon at the beginning of March became the first group to sell its new album in NFT form.
Kings of Leon offered their album package with a vinyl and digital download for a token price of $50.
The offer lasted only two weeks and will (according to the artists) not be repeated.
NTFs in music previously had a relatively niche following of DJs and producers. But these digital tokens have become mainstream in the last year, perhaps partly based on the fact that many musicians sought additional revenue streams during the pandemic that left them without gigs (and related revenue).
In the last 20 years, we have seen the devaluation of music. Music has become very good at selling everything but music in a race to the bottom where, for the lowest possible price, you can get access to the best music library in the world.
The pro rata model of streaming, based on subscription to digital portals, is very damaging to artists (although through legal portals they have been able to recoup some of the equity benefits that were completely lost at the start of music streaming and the challenge today is the value-gap, the difference between the economic value of each individual track and the revenue paid to producers).
Otherwise, NFT could have the opposite effect and make modern fans want to own music again.
Another aspect not to be underestimated in the possibility of using NFTs in the music business is that of tickets.
Kings of Leon has also released six ‘golden tickets’, or NFTs that allow fans to enjoy unique experiences: four lifetime front row tickets to a single concert on each tour, live meetings with the band, tour-related gadgets, transportation to shows, backstage tours and much more.
One of these golden tickets was sold for 89 Ether, or about $160,000. The NFT also includes tokenised albums, animated GIFs and digital artwork.
This is an extreme example to prove a point: how much content can be put on the ticket via smart contracts. In the future, it is conceivable that this same technology could be used for all tickets, which could be a huge advancement in the secondary market. Every time an NFT is resold, a percentage of the money earned could go to the artist or whoever is included in the contract – a possible useful tool for sharing rights.
Ultimately, there are three aspects that are beneficial to artists in relation to the use of NFTs:
1. Authenticity Of The Artwork: The identity and other essential information of the artwork can be easily traced thanks to blockchain verification. Thus, whenever someone wants to resell a piece, it is easy for buyers to check if the piece is original. Moreover, thanks to the blockchain, one can always confirm who the current owner is.
2. Elimination of Intermediaries: NFTs offer the opportunity for digital artists to sell directly to the market.
3. Royalty: A royalty function can be programmed into the work so that, in case of resale, a certain percentage is received.
We would also like to follow up on a recent controversy that has arisen regarding the use of NFTs in the music industry.
To celebrate the 20th anniversary of the release of their first album, the well-known music group Gorillaz have announced that they will release music and merchandise in NFT.
This decision by Gorillaz, however, has been met with much criticism from the band’s fans, who denounce the environmental impact of this technology and the CO2 emissions involved in making transactions with it.
Just like Bitcoin and other blockchain currencies, NFT is in the spotlight because of the level of carbon emissions involved in each transaction. To verify items for sale, the main NFT trading platforms use mining, the same system used by cryptocurrencies to certify their authenticity.
Mining, in simple terms, consists of having a computing power that due to the complexity reached by the algorithm must necessarily be divided among many computers that solve complex mathematical operations to determine which transactions are valid. Bitcoin, precisely, has been harshly criticised for the emissions involved in this system: a Cambridge study found that it consumed 121 terawatts per hour, i.e. more emissions than Argentina in one year.
Although NFTs are not traded in Bitcoin, they are traded in Ethereum. This other currency takes 70% of its consumption from renewable energy sources, although this percentage fluctuates over time. Being such a recent phenomenon, concrete figures on emissions are not yet known, but research by a digital artist has found that an average NFT consumes the same electricity as a European citizen for a month.
But if it is true, as reported by the Open Sea platform, that Kings of Leon’s tokenised album and the sale of NFTs have generated sales of at least $1.45 million, or 820 Ether, in the first five days we believe that environmental concerns will take a back seat to the race to regulate the crypto-asset market with adequate investor protections.
Niccolò Lasorsa Borgomaneri