The Real Impact of Beeple and NFT Mania

The high-end art world has officially taken notice of Beeple. With the sale this week of one of his works at Christie’s for $69 million, the digital artist, whose real name is Mike Winkelmann of my home state of Wisconsin, earned the third-highest auction price ever paid for a living artist’s work. Furthermore, it was accomplished using a relatively new technology called “non-fungible tokens,” or NFTs.

Of course, that notoriety and the rare intersection of art and technology circles, has generated enormous hype. Some see this as the downfall of respectable art, while others see it as a speculative opportunity to make a fortune. Both perspectives may have elements of truth but they miss the point of what we, in both the art world and technology world, should actually be taking away from this milestone event.

First, can we all just, once and for all, stop with the whole “digital vs real world” debate? So much of the breathless coverage of this and other sales of digital artwork dismiss it as “just a JPG” — as if the medium of digital somehow makes the art less worthy, less “real.” This viewpoint is absurd, outdated and out of sync with everything else in our lives — almost all of which only exists “digitally.” Is the song you listened to not “real” because you played it on Spotify rather than a CD player, or a cassette player, or a record player before that? Is the book you read on your iPad not “real” because you only consumed it via pixels, not physical pages? Is the conversation you had with your friend not “real” because it happened over Zoom rather than in-person? All these methods of digital rather than analog media are certainly different, but that doesn’t nullify their value in communication, information and entertainment. So just stop dismissing art simply because its medium is digital. Think of it as any other media — paper, canvas, photographic print, etc. — that the artist could have alternatively chosen. You may prefer one media over another, just as I personally prefer oil paintings over water colors, but that’s just a personal preference. Obviously, some artists and art buyers prefer and appreciate the medium of digital. What’s so powerful about NFTs is that it replicates the scarcity of physical objects that was previously a deterrent to acquiring digital artwork (more on that in point 3).

Second, can we also stop pretending that the collection and resale of art isn’t core to the art world? Every price paid for any work of art, from visual to music to literature, can be subdivided into three value drivers: utility value, sentimental value (in which I include collectible value, prestige value, esteem value, etc.) and investment value. For music, you might buy an album to listen to (utility value), because you love the artist (sentimental value), and, if it’s a rare vintage Beetles album, for example, the chance for your purchase to appreciate in value (investment value). Similarly, you might buy a first-edition signed copy of For Whom the Bell Tolls because you love reading the story (utility value), you are a huge Hemingway fan and have a collection of his books in your library (sentimental value), and you intend to put it up for auction in ten years to double your money (investment value). For many buyers of art, the decision of what price to pay likely merges all three value drivers, but it need not. I could buy a Frida Kahlo, never hang it on my wall (no utility value), know nothing about her as an artist (no sentimental value), and only intend to sell the art later at a higher price. It could be purely an asset, like Gamestop stock or pork belly futures — an investment only. People in the art world tend to look down on purchases driven more for investment value, but this ignores that most art investors also have a strong sentimental affinity to the art and artist. More importantly, sentimental and investment value are what really drives art markets and art prices up. If any piece of art is valued based only on its utility value, its price will be de minimis. Any artist can tell you that it is art collectors who drive up demand and, therefore, prices.

Third, this story should be less about this particular artist, and more about the implications of NFTs for all artists. Though wonkily-named, non-fungible tokens are the technical underpinning of Beeple’s digital art empire and almost every other high-priced sale of digital art. NFTs have the potential to be transformative to the entire art world. It would be a mistake to dismiss NFTs as geeky tech or overly commercial. In fact, NFTs solve both a substantial deterrent to digital art ownership and a critical aspect in art appreciation — namely, establishing authenticity and uniqueness. Prior to NFTs, any digital work could be easily copied. Talk to anyone in the music, photography or film industries and you’ll get an earful about digital piracy. Not only did the ease of digital duplication siphon profits for scalable art forms (songs, games, movies, etc.) but also for one-of-a-kind digital art. Why pay to “own” a digital file when it can be so easily copied? NFTs change that. I have neither the time nor expertise to explain here how tokens, blockchains and cryptocurrencies facilitate this, but the important bit to know is that an NFT confirms a work’s authenticity and uniqueness, even if it’s “only” a digital file. As a result, it creates scarcity, and scarcity (i.e. low supply) is what drives prices up when there is high demand. This is a technological breakthrough that artists have longed for since the dawn of computing. While there may still be knock-offs and piracy, NFTs cannot be duplicated — and, therefore, they restore creative and financial control to the creator. If you are an artist of any kind, you owe it to yourself to understand and utilize NFTs for your work.

Finally, and most crucially, NFTs enable artists to get more properly paid for their work. Arguably, most art markets are constructed to exploit artists. Bands get signed to record labels, authors get advances from publishers, visual artists get studio shows, but often, if the artist becomes successful, the intermediary reaps the bulk of the profits. That is less true of scalable markets, like literature, music and movies, where the artist usually receives royalties of some sort. In scarcity-based art markets, particularly most visual art, there is only one “object” to sell. Once the artist sells it, that’s it. They no longer “own” that object. The gallery, collector, distributor or museum who bought it from the artist now owns it and is largely free to resell it, without the artist participating in any appreciation for their work. NFTs change that. Few articles have mentioned the built in royalties of NFTs, typically 10–30%, that are paid to the original creator every time the NFT is sold. This mechanic creates the potential for a perpetual, passive income stream for creators. The artist can now participate in the downstream appreciation in price as their work becomes more popular. Imagine what this opens up! Not only is it more financially equitable to the artist, but it creates new avenues for financing artistic endeavors.

In my aspirational artistic field of writing, I see enormous potential for NFTs to change how novels are published and make the economics more favorable to authors. Making a living from writing today is almost impossible. If a first-time author is lucky enough to get published, they typically might earn a $10,000 advance from the publisher. They need more luck to earn that out in royalties. So the entire industry has become even more hits-driven. But with NFTs, rather than an industry that is biased towards blockbuster best sellers with movie rights potential, authors could focus on “ a thousand true fans” — generating sufficient revenue from their book, even if it doesn’t sell millions of copies. Such an approach could unlock more niche content and under-represented perspectives that may be overlooked with today’s publishing incentives.

There is still a lot of hype, misunderstanding and bubble-style speculation to work through as NFTs become more mainstream. But the success of Beeple should make any artist excited by the potential.

Originally published at https://www.miketrigg.com on March 13, 2021.