Digital art – finding value in the intangible

Answer

Boosted by the closures of bricks and mortar art galleries and museums brought on by the pandemic, the craze surrounding digital art is far from dwindling.

The digital art boom

Digital art dominated the news headlines last month when a piece of art by artist Mike Winklemann who, operating under the pseudonym Beeple, sold a collage of 5,000 art pieces in JPG form for a staggering $69 million at Christie's auction. The artwork, titled 'Everydays: The First 5000 Days’, broke the world record for any digital work, making Beeple the third most valuable living artist in the world. However, Beeple isn’t the only one riding the wave of this new phenomenon. Fellow artists, such as Grimes, recently cashed in a sum of $6 million for her dystopic and fantasy themed visuals at auction.

This new phenomenon begs the question: how does one establish ownership in a piece of digital art? This has been made possible by new blockchain-based technology, known as non-fungible tokens or 'NFTs.'

What are NFTs and how does one certify ownership?

Unlike other digital assets, NFTs are not 'fungible' (ie, they are not interchangeable). Therefore, they solve issues with regards to replication as they act as a sort of 'digital certificate' providing a permanent record to prove ownership.

Artists will typically seek out online marketplaces to upload their work, such as the successful start-up Nifty Gateway, which buys and sells NFTs. Nifty Gateway was founded in March 2020 and has successfully diversified itself from other competitors, by offering customers an opportunity to purchase NFTs by credit card – when the wider market offered a means of purchase only by way of cryptocurrency. They have essentially sought to 'democratise' the market and have succeeded in making the world of NFTs much more accessible. Likewise, this has been mutually beneficial to artists who were struggling throughout the pandemic to make a living. This coincided with the closure of many physical art premises and provided a way for artists to continue receiving an income, earning a larger amount when their work is sold on online marketplaces; but also each time their art work changes hands. 

Beeple said: “Artists have been using hardware and software to create artwork and distribute it on the internet for the last 20+ years but there was never a real way to truly own and collect it. With NFT’s that has now changed. I believe we are witnessing the beginning of the next chapter in art history, digital art."

A limitless future

More broadly, NFTs can attach to anything digital. In the real-estate sphere, it is possible to purchase and access land which has no physical existence (ie, it exists in the 'metaverse'). Companies such as Decentraland have been pioneering this phenomenon with the development of virtual cities like Genesis, with plot of its land recently selling for $572,000. In this virtual world, people are envisaged to be able to explore their surroundings and attend virtual events.

A similar trend can be seen in the fashion industry, where a sale of digital sneakers recently raised $3.1 million at auction. The irresistible pull of digital fashion is derived from its inclusive nature; fashionable items can be worn by anyone. 

The end of the Gold Rush?

‘Minting’ an NFT is the act of registering someone as its creator and owner; one of NFT’s key value propositions. Contrastingly, the growing trend of ‘sleepminting’ allows people to mint NFTs into the crypto wallet of other artists, and to later transfer such ownership back to themselves without the artists’ consent or knowledge. Exposing the potential risks relating to NFTs, sleepminting originated from a smart contract application known as NFTheft. One particular and recent example was the supposed creation of a second edition of Beeple’s 'Everydays: The First 5000 Days' by an artist aptly named Monsieur Personne (‘Mr Nobody’). This high-profile scam highlights the potential vulnerabilities arising from the exponential growth in the market for NFTs in recent months.

With the average daily sales of NFTs falling around 70% in April this year, investors are left wondering whether the NFT market is going to continue expanding or whether the apparent bubble will eventually burst. The oversaturation of the market, particularly due to the extremely low barriers of issuance, was cited as a key reason for this. Caution is therefore advised, as experts warn that a 'crypto winter' is on the horizon – as the mania generated around the digital art market, and inflated valuations, may well subside.

Phoebe Sennett is a trainee solicitor at Taylor Wessing