Rarely a day goes by without the announcement of a new NFT [non-fungible token] project, artwork or even a culinary digital asset.
The creative sector worldwide has embraced these digital tokens, in the belief that they will follow a similar trajectory as Bitcoins in their valuations - a way for first-movers to make a lot of money. And so far, there are artists who have indeed made a lot of money. Take for example Beeple, whose NFT project of 5000 digital artworks sold for $69 million at a Christie’s auction, or the Bored Ape Yacht Club series, a limited edition of 10,000 digital avatars that provide membership to an online social club, selling for $300,000 each.
The momentum is just as ferocious in the Middle East, where artists like Kristel Bechara and Aya Tarek have launched their own NFT projects. Last year, three Middle East-based NFT marketplaces raised about $10 million. The Y Combinator graduate Odiggo, started out as a car parts marketplace in Egypt, only to pivot in the past couple of months to become an NFT marketplace and now, Art Dubai, the region’s largest art fair is dedicating an entire section to digital art and NFTs.
So what exactly is a non-fungible token? If Bitcoin and other cryptocurrencies are the digital equivalent of a currency, then NFTs are a digital version of artworks and collectibles. Take for example the most famous painting in the world, Leonardo da Vinci’s Mona Lisa, which hangs rather solitarily in the Louvre in Paris. There are plenty of replicas, prints and digital copies of the Mona Lisa, but there is only one, original version of it - the physical painting itself. NFTs are essentially a certificate that identifies the original digital asset, which can be sold and bought, with transfer of ownership recorded on the blockchain - the same digitally distributed ledger infrastructure used by cryptocurrencies. It can be applied to any form of digital assets - artworks, gifs, songs and even tweets and lines of code, although currently, it is the art world that has embraced it the most.
But one issue with NFTs is that digital products or assets by their very nature are replicable. The infamous “Charlie Bit My Finger” video was sold as an NFT for £500,000 with its new owner taking it off Youtube, but a quick search will bring up dozens of copies of the viral video, they may not be the original, but it is still the same content.
“The media hype snowballed adoption [of NFTs] into a broader audience of predominantly millennials, gen X and gen Z collectors, as well as a few historical new media collectors. I think this signals a shift in demographic spending power and habits,” says Chris Fussner, curator of Art Dubai Digital. “In some ways, it’s also shifted value perceptions and frameworks for digital art and digital objects. There is a value framework around these digital objects but it’s still in exploratory mode, the price fluctuations have been wild and will be subject to change.”
So, is this frenzy simply a bubble waiting to burst or will NFTs become the common way to buy and sell digital assets, especially once we all end up in the metaverse?
For Dima Abdulkader, co-founder of Emergeast, an online art gallery and marketplace showcasing artists from the Middle East and North Africa (Mena), NFTs give recognition to digital artists and their work and help to make it “official”.
Founded back in 2014, Emergeast was the first marketplace of its kind to launch in the region and in November 2021, became the Middle East’s first online art gallery to host an NFT exhibition, “Meta Mena” curating digital artwork from Mena-based artists on NFT marketplace OpenSea, the largest NFT marketplace in the world. The platform is also taking part in Art Dubai Digital this year, showcasing NFT art from six artists.
Emergeast launched at a time when people “were not confident with buying art online”, according to co-founder Nikki Meftah, but as consumers became more comfortable with online shopping, the company noticed an uptick in purchases, particularly during the pandemic. With each new technological wave, Emergeast has adopted new features into its platform, most recently accepting payment in Bitcoin and Ethereum. Collating NFTs are a “natural extension” of its digital first approach according to Meftah.
Technological advancements have a way of directly impacting the art world. From advancements in devices and tools to social media and online auctions.
“There is an element of technology that opens up new possibilities and new ways of collaboration,” says Dawn Ross, head of collections at Jameel Arts Centre in Dubai. “We see artists working with tech engineers, which we didn’t really have 20 years ago.”
While some artists incorporate and work with technology to create artwork, others have stuck to their traditional tools, but have embraced the internet and social media platforms to create their own virtual galleries.
“It’s provided artists with a lot more visibility, they’ve been able to grow their own reach via Instagram, it’s given them a lot of power,” says Meftah.
NFTs are intended to embody this sense of power, by enabling artists to profit from their work each time it is sold.
“One major advantage for NFTs is artists can register to get a royalty fee whenever it is sold on the blockchain,” says Meftah. “The artist enjoys the benefit of the resale and knows where it’s going. It also gives people the community around the art world.”
Some NFTs act like a key or invitation to groups and events, thus creating an online community like the Bored Ape Yacht Club. Regionally, NFT activity is strongest in Dubai with many creators and buyers based in the city - one reason why Art Dubai decided to introduce a digital art section this year.
“The digital art space - and the art / NFT space in particular - has seen huge growth over the last couple of years. We have always been a fair with innovation at our centre and we felt this would be the right moment to take a 360-degree look at the major global players in this space,” says Fussner. “The Dubai-specific context is also important - the city is rapidly becoming one of the world’s crypto-capitals and home to a whole new generation of entrepreneurs and collectors - we also saw a need to create a bridge between the global crypto sphere and the international art market.”
Yet despite the upsurge in activity and interest, it is “still early days for NFTs in the broader art landscape”, says Fussner. There are many grey areas, little regulation and almost no visibility on how successful they will be in the long term.
“Although we live in a digital era, geography is still immensely important because of regulatory frameworks,” says Fussner. “They almost create geo-fence markets, where certain digital assets will be able to thrive in some locations but might be slower in others. I think regulation will be welcome if it’s in the interest of spurring on innovation and protecting the end user in a responsible way. There’s a high chance we’ll see AML [anti-money laundering] laws and regulations like those in the UK and US adopted to NFT AML laws, which I think will create a shift in purchases.”
NFTs are bought using cryptocurrencies and most NFTs are sold on the Ethereum blockchain, using Ethers. Users end up having to pay “gas money”, an additional fee paid to the miners who maintain the Ethereum blockchain to ensure the purchase goes through and is recorded on the digital ledger. These fees can sometimes cost more than the NFT itself, moreover, during an NFT auction, if the losing bidder pays a higher gas fee to purchase a digital asset, their transaction can go through faster and the winning bidder will lose out on both the NFT and their money. Transacting on the blockchain is also an energy intensive activity and harmful to the environment. According to research from UK-based Money Supermarket, the average NFT transaction uses 340 kWh in energy each, more than a week’s worth of energy consumption for the average UAE citizen, and has a carbon footprint of 241 KgCO2, costing $50 in electricity costs.
A particularly grey area is that of intellectual property (IP) rights and protections. Artists can sell their work as NFTs, yet still maintain the copyright of their work. Anything that is recorded on the blockchain is by default a contract and recognition of ownership, but what happens when a digital asset is replicated or reshared by others on the internet or metaverse?
“There were these questions earlier with online art and posting images online and who owns the copyright” says Ross. “The culture of how digital images are used has changed and evolved with social media and how artists are using this tech. It’s a really interesting time with these sorts of changes, and it takes a while for these things to sort out. There are always grey areas.”
There are currently no regulations specific to NFTs and it is as yet still unclear whether current laws and regulations will suffice for issues like IP, financial regulations and the data security of transactions, although one benefit of blockchain is the greater transparency it can bring to the art world.
“Blockchain encrypts all this information [of transactions], there is no playing with this information. You know who the owner of the art piece is and who’s the collector. There’s a lot more transparency than what the traditional art world had. It has provenance, you can trace this art piece and see who the owners were,” says Alia Kawar, who is leading Emergeast’s NFT efforts. “In the long term it is a way to protect copyright and IP because everything is public and documented.”
After Facebook founder Mark Zuckerberg presented his vision for the future of his social network and the creation of his company’s metaverse, brands around the world responded by creating their own NFTs and meta presence. Fashion houses like Burberry, Prada and Louis Vuitton have embraced blockchain technology and are selling NFTs in their virtual fashion exhibitions. Once the metaverse is populated with avatars, users will be able to purchase digital items of clothing as NFTs that their avatars can wear. The opportunity for NFTs perhaps lies mostly in the metaverse, providing users with the ability to recreate their physical lives in the virtual space by purchasing NFTs for whatever their avatar desires.
“All of us will have an avatar and our NFTs will be connected to our avatar,” says Meftah. “Our NFT collection will define us as people.”