NFTs are the new conceptual art. Collectible value resides in the certificate of authenticity, not the art object to which it points.

NFTs are irrefutable digital certificates of authenticity, for digital art objects and other digital collectibles. That these non-fungible crypto tokens are digital, recorded in the blockchain and hence uniquely identifiable and non-counterfeitable, is generally understood. Not so obvious, however, is whether and to what extent this guarantees the originality, authorship, or even the very existence of the digital art object to which the token points. The NFT as token is distinct from the digital art object. The digital art object is not stored inside the NFT itself nor otherwise on the blockchain, but rather linked externally and incorporated by reference. The digital art object can be easily copied, is often widely available, and yet is potentially ephemeral (for example, if the server it’s stored on were to disappear). There is no objective guarantee of originality or authorship with respect to the digital art object, but rather market consensus attributes value to a token than points to it. Yet that’s nothing quite so novel — for decades the contemporary art market has relied on certificates of authenticity as the collectible asset, especially within movements such as conceptual art where the art object is often manufactured, intangible, or ephemeral.

NFTs are irrefutable digital certificates of authenticity for digital art objects

The tokenized certificate resides on the blockchain of a distributed crypto platform, and from this derives its properties of irrefutable and verifiable digital authenticity: unique, and identifiable. Like the crypto-currency token, the NFT is immune to counterfeit by another token purporting to duplicate, forge, or impersonate it. NFTs are certificates of authenticity that can be traded automatically and securely through smart contracts. This represents significant innovation.

NFTs and crypto-currencies differ from each other in regards to their fungibility. Crypto-currency tokens are fungible — one of the essential properties of any currency: by design, currency tokens are all equivalent to each other, and interchangeable (within a constrained supply dictated by the platform). The opposite is true of NFTs: an unlimited supply of non-fungible (unique, hence inequivalent) tokens.

Despite that important difference, crypto-currencies and NFTs also share in common another essential and defining characteristic — also shared in common with fiat currency, and collectibles: with no intrinsic value, all of the aforementioned derive their value entirely from consensus of the market, ie they have value because and only because everyone agrees they have value. If everyone were to wake up one morning and decide that the USD was worthless, it would cease to have value. Same with Bitcoin, Dogecoin, as well as the Mona Lisa and Beeple’s $69M NFT EVERYDAYS: THE FIRST 5000 DAYS.

The NFT as token is distinct from the digital art object to which it points

The crypto token is distinct from the digital art object to which it points (a set of data, a digital media file). They remain two separate entities: 1/ a tokenized certificate of authenticity, and 2/ an art object. The distinction is not new, but rather has been fundamental to the contemporary art market for decades. The art object can be digital or otherwise — a repurposed urinal, a painting, a physical print — or a combination of both digital and physical objects.

The digital art object is not itself stored on the blockchain, but rather linked externally

The identity of an NFT token represents a digitally verifiable, objective truth, residing on the blockchain. However, the same cannot be said of the digital art object to which it points. When wrapping our heads around NFTs, people (including myself) may at first assume that the digital art object is also embedded in the crypto token and the immutable digital record of the blockchain. However, this is not the case. It would be prohibitively costly and inefficient to inscribe the object data itself within the blockchain.

Instead, the NFT references a digital art object externally to where it is stored in a cloud server, via Uniform Resource Locator (URL) or InterPlanetary File System (IPFS). In the case of NFTs minted on popular platforms such as MakersPlace, Nifty Gateway, OpenSea, and Rarible, the digital art object is most often stored on the platform’s own servers. The owner possesses in their crypto wallet merely the tokenized certificate. The digital art object remains in custody of the platform, and hence is dependent on the latter for its very existence — as well as, crucially, for its display and enjoyment. Unlike the owner of a painting on the wall, the owner of an NFT is dependent on a custodial platform for enjoying display of the token-backed art object. That being said, we must not forget that the owner of an expensive painting is not free and clear of custodial and conservation needs, so the problem is certainly not unique to digital objects.

As such, the NFT framework apparently is not free and independent of agency, as the crypto ethos would suggest. Apparently, one hasn’t eliminated counter-party risk, nor the role of the banker/custodian. What happens if MakersPlace disappears overnight? The token might be safe in the NFT owner’s wallet, but what would be the fate of the associated digital art object? These are excellent questions, as have been addressed in a recently popular Twitter thread. Turns out it doesn’t really matter much, as we will address below.

There is no objective guarantee of originality or authorship regarding the digital art object to which the the NFT points

Thanks to the blockchain, the NFT token itself cannot be forged/counterfeited — the authenticity of the NFT token is objectively verifiable and indisputable. This is not the case for the digital art object to which it points, however. The originality, authorship, and hence authenticity of the digital art object are not guaranteed objectively, but rather are subjective and dependent on the credibility of the certificate/token and its issuer.

There is nothing in the NFT architecture to stop the same digital art object data file from being tokenized multiple times by the same or by different issuers. Some of the platforms, including Nifty Gateway and MakersPlace, have a vetting process before creators are able to issue NFT-backed artworks into their marketplace. Possibly, these platforms might intervene if a creator were to issue artworks in unauthorized multiples or with disputed authorship, or otherwise intervene to address issues of apparent duplicates. So that might add additional agency/platform credibility, on top of the credibility of the issuer, which is all you have for OpenSea and Rarible, where anyone can create a profile and mint NFTs. Whether or not you factor in agency/platform credibility or not, when it comes down to the bottom line, market consensus determines value subjectively, based on the credibility and desirability of the token and its issuer.

Value resides in the certificate, not the associated art object. Market consensus determines value.

Scarcity and collectible value reside in the certificate, not the associated art object embodied in medium (digital or otherwise). This is nothing new to the contemporary art market where, for decades already, offline certificates of authenticity have underpinned the market’s collectible asset value, particularly in movements where the art objects are expressed in intangible or ephemeral media (conceptual art, performance art, and to some extent video art), or where the art object is manufactured and there is no “original” object per se but rather authorized and numbered duplicates/editions are the norm (pop art, conceptual art, minimalism, video art, photography, generative art). In the case of NFTs, the medium is digital, which means ubiquitous, inherently reproducible, intangible, and potentially ephemeral. The store of collectible value is the certificate, not the art object — and the market subjectively decides (consensus driven by the intersection of supply and demand) which issuers/artists and which certificates have collectible value. It doesn’t matter if hundreds of duplicate tokens are issued by anonymous wallets pointing to the same Everydays digital art object data, the market decides which NFT is the real one linked to the real Beeple — it’s the token that was auctioned at Christie’s and the market can be objectively sure of the unique identity of that token, alongside all the others. The valuable token’s identity is indisputable, and it can be traded instantly and automatically via smart contracts. Certainly, that represents significant innovation.

With all of that said, an important aside regarding collectible value. The total value to a collector is understood to exist outside the value of collectible assets. The centuries-old patronage model still exists in today’s art market, whereby big-ticket collectors paying millions for collectibles in the primary market are not only paying for the collectible, but also subsidizing large-scale, ephemeral, non-collectible installations at Gagosian in West Chelsea. It’s a privilege and an expensive association. Not to mention, of course, the privilege of donating high value artworks to MoMA. Or, not only donating millions in artwork, but also bailing out the museums, as Eli Broad does in Los Angeles. These are expensive privileges and being a high-end collector of contemporary art is an expensive passtime. Long-term preservation of economic value is not the primary motive for the biggest collectors, but rather social value, and recognition from the market. Sound familiar? Not much different from some of the high profile NFT collectors, paying remarkable sums for questionable digital art. Yes, most of these NFTs will disappear into worthless cyber dust, and it doesn’t really matter. At the very least, it’s nothing new to the art market.

NFTs can be understood as a novel category of conceptual art. Since the big bang of Marcel Duchamp’s urinal, the collectible value of contemporary art has resided in the certificate of authenticity, not the art object.

NFTs are the newest subset of Conceptual Art

NFTs constitute an effervescent new subset of the market for conceptual art, where A/ the certificate of authenticity that backs the art object is cryptographically identifiable in the decentralized digital universe of the blockchain, and B/ the art object is (usually) digital. As with all conceptual artwork, it’s the certificate that represents value. Some certificates are more elaborate and exhaustive than others. Dan Flavin’s configurations of fluorescent lights can be rebuilt using commercially available lightbulbs. Robert Irwin’s configurations of fluorescent lights, on the other hand, involve custom proprietary gels and have to go through the foundation. An NFT certificate could specify backup solutions in the event of possible decay of the principal object link. Theoretically, the market should attribute higher value to a certificate that more robustly references the exterior art object, but in practice this is just one factor among other more important drivers of collectible value. To the extent a certificate were insufficient in regard to art object succession provisions, a structural or technological solution could intervene externally — in short, re-tokenization of the broken NFT with a newly linked art object, with the market attributing value value to the new NFT container. Apparently the market isn’t too worried about the plumbing, nor should it be. At the end of the day, the certificate is the scarce collectible, not the art object.

After all, pixelated cat avatars are selling for five and six figure sums these days. Nobody’s too worried about where the original image has to come from or whether it can be copied. I think that’s the implied point of these intentionally low-fi, pixelated bitmaps being tokenized as collectible CryptoKitties and CryptoPunks.

In the case of Beeple’s Everydays, the high resolution, original-equivalent digital art object data file is openly available across the internet. That doesn’t diminish the value of the NFT, but rather enhances it — consistently with Metcalfe’s Law: the network derives increasing value from the more nodes it contains (used for valuation in the crypto space, in absence of intrinsic value based on cash flows).

On the subject of Beeple, one of his other NFTs is more interesting to me than the headline grabber. CROSSROAD takes things one step further in the realm of conceptual art, for being structured as a conditional artwork. At the time the NFT was marketed for sale, the digital art object to which it pointed was a conditional outcome of the US Presidential Election. The NFT was engineered so as to designate one of two different digital art objects, conditionally dependent on whether Trump or Biden won the election — “PLEASE FUCKING NOTE: If trump wins, this token will change to that video of sexy boi king trump stomping through hell FOREVER. I don’t want you coming back to me bitching that you spent $2M* on this and now it’s a video of orangeman going HAM and it’s keeping u up at night popping mad boners. should have voted bruh.”

Are NFTs reproducible? No, thanks to the blockchain, they are not. Do they link to digital art objects that are potentially copiable, replicable, infinitely? Yes, that is fundamental to the nature of digital objects. But it doesn’t matter, because the uniquely identifiable, non-fungible token serves as the store of value, not the infinitely reproducible digital art object data file to which it points. Everybody will be OK in the end — rest assured, the high echelons of the contemporary art market have several decades of experience with certificates of authenticity as the collectible store of value.

Is the new NFT market a bubble? Yes, most likely. Will most of the NFTs in today’s bubble end up worth nothing? Yes, most likely. But again, that’s nothing new. Most new art sold in the primary market ends up becoming worthless, with only a handful of artists retaining long term value in the secondary market. If you look back at the thousands of artists who exhibited in credible art galleries in New York and London in the 80’s or 90’s, but a handful have retained any value and continue to trade in secondary markets today (auction houses and gallery dealers, private sales). The rest have all been forgotten and are worthless. That is the nature of the art market, and not in any way novel to the new NFT segment.

What makes the NFT craze most revolutionary is the massive structural market shift. A broader range of collector has gotten inolved, including wealthy techno nerds and gaming fanatics, who might otherwise not have collected “contemporary art” as it was hitherto known. And that broader audience is also collecting a broader range of collectible objects — not only contemporary art but also collectible digital items from virtual worlds and gaming (new and huge and converging markets), as well as sports and entertainment (massive offline collectibles market ante crypto) — the lines are blurring and it’s all converging, since the tokens are the collectibles, not the objects per se.

The next step after this will be crossing the brain machine interface. That’s when it will all get really interesting.

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