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Why NFTs are a game-changer for Aussie artists

·Crypto expert and Managing Director of Kraken Australia
·9-min read
A sign saying 'NFTs For Sale Here'.
NFTS are more than a passing fad. (Source: Reuters)

Despite the hype fading somewhat with the market downturn, non-fungible tokens (NFTs) still remain a compelling solution for Australian artists and creators looking for a better way to monetise their artwork in the digital world.

For those unfamiliar with the term, NFTs are blockchain-based digital records of ownership and authenticity associated with a piece of media.

While often used to tokenise things such as art and collectibles, an NFT is more than a multimedia file; it is a public record of historic information associated with that media.

For artists, NFTs offer a verifiable way to assert rights of ownership over their digital artwork and a means of automatically earning a percentage from every future sale.

This is all done without having to rely on traditional go-betweens, such as lawyers, agents or galleries.

To understand why NFTs are such a game-changer for artists, let’s start at the beginning.

Where did NFTs come from?

NFTs exploded into the mainstream in 2021, but the concept of them dates further back, with some very early projects in 2012.

It was only in 2017 - when the crypto industry rose to prominence and the Ethereum network gained adoption - that we saw the launch of memorable collections such as CryptoKitties and CryptoPunks.

Since then, NFTs steadily gained traction before finally drawing the attention of global brands and household names last year, when we saw the likes of NBA Top Shot and the Australian Open launch collections.

Around this time, we also saw collections like Bored Ape Yacht Club attract celebrity members and rise to fame.

A representation of cryptocurrency Ethereum is seen next to non-fungible tokens (NFTs) of Yuga Labs
Yuga Labs "Bored Ape Yacht Club" NFT collection rose to prominence in 2021. (Source: Reuters)

What is NFT art?

As mentioned above, NFTs are digital assets that contain metadata - similar to a certificate or signature - that exist on a blockchain.

NFTs are a type of digital asset like a cryptocurrency, whereby the blockchain allows for the creation of unique tokens that have a verifiable proof of ownership without the need for any third party.

You can store these tokens in your digital wallet and send or sell them to anyone.

Fungible assets - such as Bitcoin - are indistinguishable from and interchangeable with any other Bitcoin and can be used in place of one another.

NFTs, however, are unique tokens that are inherently distinguishable from other assets and cannot be replaced.

An example would be a one-of-a-kind original oil painting by an artist, like the Mona Lisa hanging in the Louvre. Multiple replicas can be made but nothing can replace the original.

As such, NFTs are able to be purchased, stored, exchanged and sold, but each NFT accrues value independently.

NFT art can exist in many forms, from simple jpegs, to audio and video clips, to interactive artifacts and virtual reality installations.

The one thing that ties all of these together is that they have been digitally registered on a blockchain and come embedded with/linked to a piece of media.

A tablet displays an animated NFT artwork of the Mona Lisa with a replica of the original in the background.
Although they can be copied, NFTs are unique, just like classic artworks. (Source: Reuters)

What is the value of this technology for artists?

Critically, NFTs bring scarcity to the digital realm.

Digital artists can monetise creativity by selling directly to interested buyers, rather than being forced through an intermediary gallery or broker.

The artist, the original buyer and any secondary buyers, can share in the success of the NFT collection by contributing to the surrounding community, including sharing artists’ creations on social media and participating in their online communities, thereby increasing the value of the original work.

These actions create a virtuous cycle that incentivises further positive actions and allows original creators to earn a steady income by adding a royalty fee to any subsequent sales of their work.

That’s an entirely new level of flexibility and customisability for artists.

How big is the NFT art market?

NFT art is an emergent and innovative space.

For the first time, a digital artwork’s origination can be programmatically proven to be verifiably scarce, and they can be exchanged, almost instantly, on global digital platforms.

To give some perspective on the space, NFTs made up 16 per cent of the Global Art Market by value in 2021, according to a report published by Nonfungible.com with support from research firm L'Atelier.

All told, $2.8 billion was spent on crypto art in 2021, compared to $14.6 billion on traditional art.

Investment in the space is also growing, with Christie’s announcing the launch of its Web 3 investment fund.

Where is NFT art sold and how is it priced?

After an NFT collection or piece of artwork is created, it is typically available for purchase directly from the creators, via bespoke websites or on secondary markets such as OpenSea or Rarible (and soon Kraken NFT).

As for price, NFTs can vary from being totally free, up to millions of dollars.

While big-money sales have dominated media headlines, such as digital artist Beeple’s US$69 million artwork, science journal Nature found the average NFT sold for less than $20 - as of late 2021.

A screen shot of artist Beeple's NFT artwork Everydays.
Beeple's NFT artwork Everydays sold for US$69 million. (Source: Beeple)

Most NFT art sales are processed with cryptocurrency, however some platforms allow you to trade with crypto versions of traditional currencies, and others allow the use of traditional payment rails to fund your account.

Most of the current NFT market runs on the Ethereum blockchain, with a growing share operating on alternative networks such as Solana and Tezos.

It’s for this reason that buyers should have a sound understanding of cryptocurrencies and personal wallet security before making any purchases.

Payment methods for NFT sales will continue to expand with market demand. Kraken NFT will allow Australian customers to purchase in AUD directly to help make it more accessible to everybody.

Who is buying NFT art?

NFTs are attracting attention from people of all backgrounds, but data shows that younger audiences are particularly interested.

According to a 2021 study by Morning Consult, Millennials are the largest collectors of NFTs (23 per cent), followed by Gen X (8 per cent) and Gen Z (4 per cent).

Australians are also ranked high on their interest in the NFT market. Google Search data analysed over the past 12 months revealed Australians ranked second-highest in the world, in terms of interest in NFTs per capita.

According to research from Finder, as of October 2021, 4.6 per cent of Australian internet users owned an NFT, while an additional 7.1 per cent said they planned to.

How is NFT art stored and kept secure?

Once an NFT is purchased, it is transferred to the digital wallet of the buyer. It is then up to the owner to keep their wallet secure.

It is important to understand that this is an emergent space and with it come great risks, including (but not limited to) technical and counterparty risks as well as pre-existing risks with transacting on the internet.

A visitor takes a photo in front of digital work 'Untitled (Self-Portrait)' by Andy Warhol and digital artist Mike Winkelmann, known as Beeple.
NFT artworks attract attention from people of all backgrounds, but data shows younger audiences are particularly interested. (Source: Reuters)

One important thing to understand is the data structure of an NFT.

Typically with NFTs, the token itself is stored on a blockchain - a type of distributed ledger - but the corresponding content or art is most often stored off-chain, due to the costs associated with storing large files on-chain.

The artist gets to decide where the media related to the NFT is stored so, if the artist chooses to store the media portion of the NFT on platforms or companies that maintain centralised servers, this could imply that buyers of an NFT run the risk of ‘losing’ their NFT if these centralised platforms cease to exist and the token points to an off-chain dead link.

To combat this risk, creators should all take an active role in protecting and hosting their NFT-related data using more resilient, decentralised services.

What's the NFT art market like in Australia?

The NFT art market enjoys a wide array of participants and the most interesting part of this explosively creative space has been the emergence of completely new, and sometimes totally anonymous, artists.

No research has been conducted on the scale of the market here, but we have some incredible talent coming out of Australia, including collections such as Deadfellaz and WOW Pixies, as well as digital artists such as Serwah Attafuah.

Outside of art, we are also seeing growing support for the NFT market as a whole from some of Australia’s biggest brands, such as the Australian Open and AFL, who have launched their own collections.

Australia is also home to some of the world’s biggest NFT projects and tech platforms, including Illuvium, Immutable X and Magic Eden.

Where is the NFT art market heading?

While we have recently seen a drop in the NFT market - along with the broader market downturn - the technology is still just as compelling as it has always been.

NFTs remain a radical solution and opportunity for artists to monetise their work and build their brands in the digital world.

Most importantly, we’re only at the very beginning of what is possible in regard to future use cases for NFTs. As the market matures, we will see exciting innovation happen and more and more ways to build, create and display digital art.

As always, it's important to caveat that no one can predict the future of a market but, at Kraken, we see the NFT space today as just as big an opportunity as cryptocurrency was a decade ago.

We’re excited to see how the space expands with new innovation as more and more people from different backgrounds get involved.

For anyone interested in the art market, it is a space to watch closely.

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