NFT 101: How NFTs Will Transform the Art Industry

2021/08/18 09:55:59

The NFT craze has started gaining momentum yet again, as the crypto community is investing heavily in NBA Top Shot and Crypto Punks, the NFT collectible pieces of crypto art. We saw a rise in the NFT transactions at the start of this year, but the craze faded rather quickly and most people started calling it a fad. However, during the last few weeks, the NFT transactions are on the rise.

Weekly transactions to NFT's smart contracts | Source: The Block

Most of this transaction volume came from the NBA Top Shot, Axie Infinity (AXS) and Crypto Punks. Notably, the Crypto Punks are going off the hook as the average price of a Crypto Punk went from ~$8K in January 2021 to $147.26K in August 2021, a straight 1,740% increase in value over just a couple of months.

The average price of an NFT sale by platform | Source: The Block

This NFT gold rush isn’t just limited to Crypto Punks. Beeple digital art was acquired for a massive $69 million and RTFKT designed digital jacket was sold for over $125,000 in an online auction. Due to a rising trend, digital artists, fashion designers, musicians, gaming platforms, and even football clubs are now getting into the NFT space. Famous YouTuber Logan Paul and a music star Grimes are planning to release a series of their NFTs to ride the wave.

The Future of Art?

Compared to other verticals, the NFT space is still in a nascent stage and needs to pass the test of time to go beyond a niche craze. NFT provides new business opportunities for artists and creators around the world to sell their creations without a middleman and get all the proceeds without any copyright infringement issues.

The rise in the number of NFT marketplaces is also a great sign, as it will increase awareness and bring liquidity to the NFT market. The NFT marketplaces are booming with exponential rise in transaction volumes. OpenSea is the largest NFT marketplace that went from $4.5 million volume in January 2021 to over $56 million in August 2021.

Daily volume on NFT marketplace OpenSea | Source: The Block

NFT provides a new form of ownership and prevents counterfeiting problems. According to an estimate, around 80% of the sports memorabilia items sold are fake. With NFT, the digitized form of art and collectables can be traced back to the creator, ensuring originality and authenticity of the art work.

The traceability properties of NFTs establish a new form of digital trust without the need of any middlemen and cumbersome contracts. The blockchain has all the records, even if the NFT changes hands from one address (person) to another.

Due to these properties, even the most reputed art auction houses are taking interest in the NFTs. Sotheby, one of the established and most trusted names in art, has joined the NFT wave in collaboration with an anonymous digital artist, and NFT marketplace Nifty Gateway. In an auction, they sold ‘novel collection of digital art redefining our understanding of value’ for $17 million. They also showcased other NFT based artworks and each of them received bids of upwards of $1 million which shows a great interest in NFTs from investors.

Abu Dhabi has recently released ‘Hart’, a new kind of art platform where artists and creators can sell the tokenized versions of their art work. Another development came in from Masterworks, an investment platform for iconic and historical artworks, creating a model for ‘fractionalized ownership’ where you can own a fraction of a piece of iconic art.

NFT doesn’t just protect the ownership, it also allows the original creator to receive royalties on every future sale. If an artwork sells at a higher price later, the original creator will get a portion of the proceeds. This is a gamechanger for artists and creators as they can get a fair share of their creations for the first time.

A lot of the new budding marketplaces like Niio Art are working on a ‘renting’ model where people can rent out or borrow a piece of art for a specific period of time instead of owning it. The NFT smart contract will manage the ownership of artwork and the entire history will be recorded on the blockchain.

Closing Thoughts

The NFT space is moving beyond just the craze as it has started getting attention from established art houses and institutions looking to join the wave. Artists and creators can greatly benefit from offering the tokenized versions of their art in the form of NFTs and receive full proceedings and a portion of the royalties from all the future sales.

Do you think NFT is going to be as big as DeFi?

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