The effects of NFTs on the art market

Non-fungible tokens are based on blockchain technology known from cryptocurrencies. NFTs create a ‘proof of authenticity’ for digital works and confirm personal ownership of them, which is what makes it possible to trade virtual images. Twain Stolz, an art historian and economist, is researching the effects of NFTs on the art market.

The digital artwork ‘Everydays – The First 5000 Days’ sold for a record sum of almost $70 million at Christies auction house in London. Digital art has become tradable through digital authenticity certificates known as NFTs. / mundissima

Stolz had been watching the art market with interest for some time. NFTs, or digital certificates of authenticity, seemed to be playing an increasingly prominent role. Then came March 2021. At Christies auction house in London, the digital work ‘Everydays - The First 5000 Days’ by the US artist Beeple sold for almost $70 million. The work consisted of a digital collage of 5000 individual images that—and this is the remarkable thing—anyone could recreate at home. “But the work exists in digital assets that certify its originality and ownership,” says Stolz, emphasising that the technology holds enormous potential.

For a year now, Stolz has been researching the hype surrounding non-fungible tokens (NFTs) and their effects on the art market. His first finding is that the term is often misused in the art scene, which is shown by the initial results of an online survey conducted by the Association of German Artists. “It is often a matter of half-knowledge based on media echo.” As large sums of money flow from the NFT market, influencers advertise it on social media. Yet access to this area of the art market depends on knowledge of NFTs, which is what makes classification all the more important.

Technology not artwork

An NFT is not a digital work of art, but rather a technology based on blockchain. This is a public, decentralised database known from cryptocurrencies. The special thing about NFTs is that each individual token—the digital asset—is non-fungible, which means non-exchangeable. What sounds like a piece of programme code to some is a digital certificate of authenticity to others, which includes the hype. “NFTs create digital scarcity and so digital artworks have become tradable for the first time,” explains Stolz. The digital certificate and the digital file, he says, should be thought of as a pair of shoes: two individual parts sold as a package, in Beeple’s case worth almost $70 million. Damian Hirst is further evidence of the hype. He is actually an artist of the so-called ‘old’ art market. Up for sale was the NFT digital series ‘The Currency,’ based on older paper prints. Buyers had one year to decide whether to buy the digital artwork or exchange it for the physical prints in question. The result was that Hirst burned almost half of his prints.

What started off so promisingly, with price increases of up to 10,000 percent, took a radical turn in 2022 when the investment bubble burst. “Some people lost a lot of money, which is why many in the art scene became cautious,” says Stolz. But this is precisely what opens up new opportunities. In the meantime, he says, prices have settled down to a healthy level and anyone who observes the market sees that it is mainly young men from the tech scene who constitute new market participants. The growing audience for digital art and NFTs has long since been registered by the art trade.

Stolz is now researching whether young artists could also gain easier access to the market through technology. The so-called fractionalisation on the buyer’s side, which also allows small investors to acquire shares in an expensive digital or physical work, could also lead to new opportunities for participation. “With NFTs, people therefore often talk about the democratisation of the art market, and I would like to put that to the test,” says Stolz.