Can an NFT be as good as a physical painting?
NFTs represent a unique asset, and as such, they may have value. The value of an asset such as art is sometimes abstract, but the value usually corresponds to whatever people believe it’s worth and what people are willing to pay for it…
…And it seems that people really believe that NFTs can be worth quite a lot of money and through the recent NFT history we can see multi-million dollar deals like Beeple’s $69 Million sale!
Digital art was until now, hard to track and hard to prove which of the copies was the original. Digital art is very easy to copy when compared to a physical painting, for example. But NFTs allow now artists to tokenize a file and say, “this one is the original”. Digital art can, for the first time, be considered unique, ownable and tradeable. This is possible thanks to the ERC-721 magic (check here for more geek info)!
In 2016, the Number 17A by Jackson Pollock was sold for $200 Million. Why? Well, the answer is simple: because the purchaser believes it’s worth $200 Million.
Like in any other original paintings, only one person, Kenneth Griffin, owns this painting. However, I am allowed to copy paste a picture of the painting to this medium post, and there are thousands of worthless pictures across the internet of this same painting. These copies are all worthless. Only the physical artwork, the original, is worth $200 million.
Art NFTs work basically the same way. They represent artwork and the ownership of that artwork. NFTs can both represent digital artwork or physical art. Digital art seems more straightforward in the world of NFTs. But yes, physical art can also be represented.
When talking about physical art represented by an NFT, the collector needs to understand what are his rights when purchasing the NFT. Although the market is very new, there are usually a few options to digitize physical work and represent it on an NFT:
Option one: the artists create a physical artwork and digitize it to create the NFT (through photography or other techniques) and keep both the physical art and the NFT. Both the physical item and the NFT are considered unique and ownable. The physical art can either be sold separately or be sold together with the NFT.
Option two: digitize the artwork and destroy the physical artwork. It may make sense to destroy the physical artwork in order to make the NFT totally unique. The destruction of the physical artwork can be recorded and shared with the owner of the NFT. A Banksy was bought for $95,000 by Injective Protocol, a blockchain company, and it was burned after being digitized into an NFT.
A physical artwork can eventually be seen only as a means or a tool to create a digital NFT, and thus, it may make sense to destroy it or consider it only a study or mold for the final NFT, which leads us to option three.
Option three: treat the physical artwork as just a tool for the tokenization process. Don’t sell the physical artwork but only the NFT, which is considered the final version of the artwork.
In some cases, when an NFT is created from a physical artwork, the NFT ends up being worth even more than the physical version, which is an interesting phenomenon.
Regarding the value of an NFT, it is all related to the perceived value of the artist, the artwork and the supply and demand. Before buying an NFT, make sure you understand if that NFT is a unique NSF or if it is part of a limited edition of x number of NFTs.
To understand market trends and the value of a certain NFT, there are different marketplaces like OpenSea where it is possible to check price trends and a lot of useful information. Other platforms like Nonfungible and Dappradar also offer some analytics on NFTs.
NFT for real-world assets
As we can see, NFTs can represent both digital and real-world assets. NFTs can represent assets such as physical artwork, real estate, bottles of wine, a car, loans, stocks of a company and much more. Well, an ERC-721 can really represent any real-world asset.
There are already POCs that are exploring the possibility of tokenizing property and other real-world assets. There’s still some debate if security tokens (tokens that represent securities such as stocks of a company), should use ERC-721 or ERC-1400/ERC-1404 (the latter allowing to fulfil compliance requirements related to securities such as KYC and AML checks).
While the Cryptokitties use case may sound unimportant, there are many other serious business implications for NFTs. For example, NFTs have been used in private equity transactions as well as property deals. Another great use for NFTs is to allow to embed the terms of a real estate or art purchase contract with escrow into the smart contract, allowing a seamless financial transaction.
🚀 Follow me and please also check my 🧱 NFT blockchain book and course:
📖 The Non-Fungible Booklet: The History and Technologies Behind NFT and how they are changing the art world
👨🎓 The Complete NFT Course — Learn Everything About NFTs
Disclosure: views expressed are purely personal and do not reflect any organisation’s views or thoughts the writer of this article may be affiliated or associated with. This is NOT financial advice and I’m not recommending anything. This article is only for educational purposes.
Can/should NFTs be seen as an investment? was originally published in DataDrivenInvestor on Medium, where people are continuing the conversation by highlighting and responding to this story.