At the beginning of December, the largest exhibition devoted to Art, Art Basel, was held in Miami. No connection with finance a priori, except that this year, the word on everyone’s lips was an acronym : “NFT”. To try to see more clearly on the relationship between this new technology, art and finance, we contacted the French NFT specialist, John Karp. Author of the first French book devoted to Crypto-Art , he hosts “NFT Morning” on a daily basis, a podcast dedicated to the democratization of NFTs. For Finance Mag, he reviews the fundamentals of this new technology, which fascinates as much as it intrigues, and outlines the future challenges.
The world of NFTs can seem a bit technical for those who are far from it. How would you explain what an NFT is to a neophyte?
To put it simply, the NFT or Non Fungible Token is a technology that allows you to have title to a digital object. Like any title, I will have attributes conferred on this object, and will be able to do with it what I wish: lend it, give it away, sell it, use it as a mortgage or as collateral in a loan. NFT makes it possible to create rarity and give value to an object that had none before – because there was no notion of ownership of digital objects. There were already purchases, in video games in particular, with the purchase of cosmetic elements in a game like Fortnite. You have to realize the size of the market: in Fortnite, 5 billion dollars have been spent this year to buy “wearables”. When I buy these virtual clothes, I can wear them in the game, but I don’t own it. I cannot resell them on Leboncoin. If I want to lend them or give them to someone, take them to another video game, I can’t do that. If Fortnite files for bankruptcy and disappears, I lose my property. Thus, NFTs are a game-changer in the vision that we can have of games or art.
It is sometimes difficult to grasp the interest of owning a digital object. In the end, it remains a simple file that can be copied identically. Why buy NFTs?
The question that must be asked to understand the usefulness of the NFT is what do we want to do with this digital object? If I just want to display it, print it, I don’t need to buy the NFT. But in the same way, I can enjoy artists’ photos or copies of paintings similar to the original without owning the latter. Take the Mona Lisa. There are now excellent painters or even computers that make identical replicas of them. Anyone can have a Mona Lisa on the wall in their home. But it is not the same as the original work. The NFT creates the notion of owning the original, the real. I know I own the real object thanks to the NFT. It is the pleasure of collecting, of possessing a certain value. For others, it is also an outward sign of wealth, but numerical.Hackatao : “Everybody can see it, only one owns it”.
It is also a change in the way of conceiving the world of art. Beautiful works of art no one enjoys. They are in a safe in Geneva, no one sees them. With NFTs, the owner owns the work but everyone can see it, everyone can discuss it. NFTs contribute to creating a virtuous model: virtuous for those who can own such objects, virtuous for the artist, virtuous for the spectators. It’s a new way of looking at art. And I repeat, but it’s a real revolution for artists who can now make a living from it. This also paves the way for the appearance of royalties for digital works.
We have seen the artist Beeple sell a work for nearly seventy million dollars… Don’t NFTs encourage speculative use?
Beeple, it’s been around for 20 years. He is very well known in the world of 3D. He worked on music videos. Besides that, he posts a new 3D sketch every day on social media. He has already published more than five thousand. Until now, he didn’t have the possibility to live from his art, to sell his native digital works. The arrival of NFTs is a fairly significant paradigm shift for an artist of Beeple’s caliber.
How do you get into NFT? Whether you are an artist ready to sell his pieces, or an investor who wishes to buy?
How to launch an NFT? It can be very simple. There are already platforms accessible to the general public, which allow you to create an NFT like you create a profile on a social network. The best known platform is called opensea.io. We upload the image, it is directly “minted” (registered in the blockchain), and can be immediately put up for sale on this same platform.
When it comes to investing, 99% of NFTs that launch today won’t be worth anything in 10 years. How to estimate that a work will be a major work in 30 years? It’s a logic quite similar to “traditional” art in reality. Everything also depends on whether one has the logic of a collector or a speculator. I am more of a collector, and it is through this filter that I choose the pieces that I acquire. For investment, the easy answer is to invest in “ blue chip NFTs ”.“, that is to say those artists who are already known, who are sustainable, who have a committed community. The notoriety of an artist, and therefore of his works, automatically affects the value of his NFTs. In fact, I would advise investing in artists who were there before the NFTs, and who will survive them.
What do you think will be the impact of this new technology in finance? Are there any applications outside of art or video games?
We are beginning to arrive at a financialization of digital objects, in the same way as there was a financialization of real estate. It’s a new market. From the moment there is value, there is financial activity. We have collectors, investors, speculators. The major experiments around financialization and the creation of liquidity in art are already taking place in the NFT. For example, today we have experiments that are taking place and which make it possible to obtain instant credits by putting your NFT as collateral in a transaction. Everything is done via the blockchain. Verification of the ownership and value of the NFT is instantaneous, as is obtaining credit with an automatic repayment condition of its value, and taking this NFT in the event of non-repayment. Everything is done via NFT technology, without a trusted third party. We are also witnessing a fractionalization of art. Large rooms will be able to be divided to have several owners. Finally, notions of utility are developing around the NFT. If you have some NFTs from Binance, which work like loyalty cards, the return on your investments may be greater. It is a loyalty card which can be exchanged, but which can also give rights or access. For the company that uses it, it’s a new way of managing its customers which has the advantage of not consuming a single ounce of private data. It is an identification pass without personal data. It is possible to work on this basis to create a whole set of services that ultimately make finance more tangible.
Do you think that the explosion of the NFT sector is partly due to the pandemic? It has had the effect of pushing people towards digital solutions in many areas…
Certainly, the covid is an accelerator of practices that have existed for a long time. Everything that was supposed to happen in the more or less long term has happened. Telecommuting, the appearance of other ways of life, and above all the fact of realizing that we have become digital beings – which is not something negative in itself. I think we have to stop imagining this “digital life” in a dystopian way like in Spielberg’s film Ready Player One . Digital creates social ties. We have more interactions, we meet more people via social networks. However, when I spend most of my time on the great metaverse of the Internet, I will naturally look for outward signs of wealth. NFTs give substance to this new use.
The ecological impact of the blockchain is frequently pointed out by its detractors, and NFTs are no exception. Is it possible to imagine green NFTs?
There are already NFTs today that have a neutral carbon footprint. They are not based on Ethereum but on newer blockchains which consume less energy and which greatly reduce the consumption of an NFT. The Ethereum blockchain is also moving forward with a new protocol that will be carbon neutral, and which should arrive within a year. But it must be said that the question of the ecological impact of the blockchain was first raised by NFT aficionados. It is first and foremost an internal debate, which was subsequently taken over by people from the outside. You have to realize that the ecological impact of NFTs is extremely low compared to a Netflix, an Amazon or a Volkswagen. It is a debate that is legitimate, as for any activity; I simply regret that the only sector which is asking this question and which is incriminated is that of NFTs… Then, we must also take an interest in the production of electricity which is behind the blockchain: very few fossils, many of renewable energies. The people who are advancing NFTs today are obviously asking themselves the question of ecology and are trying by all means to reduce the carbon footprint due to their activities. In reality, it is often those who criticize who have the heaviest carbon footprint. The people who are advancing NFTs today are obviously asking themselves the question of ecology and are trying by all means to reduce the carbon footprint due to their activities. In reality, it is often those who criticize who have the heaviest carbon footprint. The people who are advancing NFTs today are obviously asking themselves the question of ecology and are trying by all means to reduce the carbon footprint due to their activities. In reality, it is often those who criticize who have the heaviest carbon footprint.