NFTs on the art market – mirage or masterpiece?

8 June 2021. Mike Winkelmann, a computer scientist by trade, has published a picture in the internet every day for more than fourteen years: all in all, 5,000 works, of which the 38-year-old has hardly sold any. A certain Vincent van Gogh had the same problem as a young artist and spent his days in a poorhouse. Winkelmann’s story, however, took an unexpected turn last March. The auction house Christie’s auctioned a collage of his pictures for USD 69m. “Everydays: The First 5000 Days” makes Winkelmann, a.k.a. Beeple, one of the world’s richest living artists. The special feature of his work: it does not hang in the Louvre or any other museum since it only exists digitally. It is a so-called non-fungible token, or NFT for short.

Everyone can print out Beeple’s collage or forward it by e-mail; nonetheless, there is only one digital original. The purchaser of an NFT pays for it with a cryptocurrency and receives a code with which he can check the genuineness of the one-off within seconds. The NFT application is not limited to images. Video clips, music, computer games and even websites can be sold as NFTs. Interest in NFTs is not only growing in America, but also in Switzerland. I met two Appenzellers, Silyas Bieri and Ilio Richter, who are active on the NFT market.

How do you create an NFT, and who buys something like that?

Silyas, a computer scientist, and Ilio, a student and hobby artist, constitute the duo called Rainbois. They have been producing NFTs for a few weeks. The motto was: “If Beeple can sell a digital image, then so can we.” And indeed, you only need a user account to sell your NFTs. Market access to the digital art platform Opensea cost Rainbois CHF 80; added to this, there is a fee of 2.5% per transaction. Like Beeple, Rainbois create their images on the computer. “We complement each other pretty well; one creates the designs and the other does the programming work.”

Why do people buy a copyable work which only exists digitally? The Rainbois draw parallels with the traditional art market. “The digital signature makes it easier to tie down the emotional value of a work of art.” In classic art, pictures can be imitated or forged. NFTs, however, do not need art experts to verify their genuineness. The blockchain technology provides the buyer with a high degree of certainty that he really owns the original. In this transaction, no copyrights or marketing rights are passed on since the artists only sell the ownership of their work.

In the first quarter of 2021 alone, NFTs worth USD 2bn were traded. Some experts regard this development as a combination of hype and speculation. The Rainbois agree with this assessment: “Our pictures primarily sell because other users assume that they will be able to sell them on at a multiple of the price later on.” However, the duo is clearly of the opinion that NFTs will establish themselves in the future. One indication of their acceptance on the art market is the interest shown in them by traditional auctioneers such as Christie’s and Sotheby’s.

Where is the money? – We don’t know!

Silyas and Ilio are satisfied with their sales so far. The two do not want to disclose precise figures: “Anyway, our investments are covered.” The NFT hype results in a situation whereby supply by far exceeds demand. Artists like van Gogh developed their style without any ulterior economic motives. This is where the Rainbois can see a great difference with regard to NFTs: “The digital art market is fiercely contested. It’s important for us to recognise trends early on, to adapt to them flexibly and to be interlinked on social media.” The Rainbois’ most successful collection is a series of images of multicoloured skulls, which are usually on offer for 0.06 Ether. Ether is a cryptocurrency and is traded at more than CHF 2,000 per unit. The Rainbois are not afraid that Ether will implode. “Classic currencies will become less important in the near future and cryptocurrencies will turn out to be the new standard.” The Rainbois explain people’s scepticism towards NFTs and cryptocurrencies by their high degree of abstraction. “We can see in our account how many Ether we own, but we don’t know where this money actually is.”

Not everything that glitters is gold

The Rainbois hardly have any reservations concerning the security of NFTs. “Power cuts and hacker attacks can be reduced to a minimum by blockchain technology and decentralised server plants.” The two only see problems with the theft of intellectual property since platforms such as Opensea are hardly curated and regulated. “Such processes still have to evolve in this young market for the population’s trust to increase.” The examples of Beeple and the NFT hype present a deceptive picture. From the outside, it looks as if every smiley will earn a massive profit on the digital art market. Silyas and Ilio put this into perspective: “There is much more work behind the success of NFT artists than most people think. We’re pleased with every picture we sell because competition increases exponentially every day.” In addition, social media project a one-sided conception of NFTs since usually only successes and positive experiences are shared.” Reality looks different; the overwhelming majority of NFT artists have not sold one single image even after months.

Bright spots in times of corona

Nonetheless, NFTs can make an important contribution towards breathing new life into the art and culture scene, which has been battered by the pandemic. One great advantage is the share of ten per cent which the creator of the work receives when it is sold on. Van Gogh did not earn one penny from his “Portrait of Dr Gachet”; a hundred years later, it was sold at auction by Christie’s for USD 82m. If van Gogh had lived to see the auctions of his paintings, he would probably have been a proponent of NFTs.

In times of corona, digital platforms provide aspiring artists with an opportunity to appeal to a wide range of people without having to be recommended by art dealers or connoisseurs. Musicians, who generate a great deal less revenue without CD sales, concerts and festivals, can sell songs and albums as NFTs and thus counter the crisis. Video game producers already sell virtual parcels of land as NFTs. Possible applications are varied and will become even more creative in the future. NFTs are at once mirages and masterpieces. Silyas and Ilio sum up: “At the moment, NFTs are too volatile and speculative, but in the near future, we won’t be able to imagine life without them.” The two Appenzellers encourage new as well as established artists to take a chance with NFTs, for those who work industriously and virtuously will also be successful in the digital world.

Leandro (23) is a student in the Master’s programme in International Affairs and Governance at the University of St.Gallen. In the summer, he will continue his studies at Universidad de los Andes in Bogotá, Colombia. This article was produced in connection with a workshop of the supplementary programme in Business Journalism headed by Stefanie Knoll, SRF, and is part of the series on “Money or Happiness”.

Bild: Rainbois