An introduction to NFTs

If you’re curious about NFT technology but you’re unsure of what it is or how it may be relevant to arts and cultural organisations, then you’re in the right place.

This article is intended as a general, impartial introduction to the topic. We explore these digital assets, explain how they work and outline some examples. We recognise that it’s a new and constantly evolving area with complex rights and wider implications.

What are NFTs?

NFT stands for Non-Fungible Tokens. To explain what this means in simple terms, non-fungible items are unique and one of a kind, like an original artwork, or sculpture. Fungible items are not unique and can be plentiful, like prints or replicas.

They also allow creators to control ownership of their work without limiting who has access to it. With these qualities, NFTs are unique digital assets that can be used in a variety of ways. NFTs can be anything, such as drawings, music, memes, or photos. The sky’s the limit.

Due to the nature of the way they are designed, they provide something that can’t be edited or copied, whilst simultaneously allowing the artist to retain copyright to their work. Think of them like actual paintings that hang on your wall, but stored digitally.

The power of NFTs gives artists an innovative way to sell their work. One of the most exciting things about this technology is that it allows artists to collect a percentage of the sale of the NFT each time it changes hands.

The NFT space is springing into life. Interest in these Non-Fungible Tokens (NFTs) is rising rapidly. Sales were up over 55% to £285 million in 2021 alone.

What is blockchain?

NFTs are files that live on the blockchain. Because of this they can’t be edited, duplicated, deleted, or manipulated. They can however, be sold, traded, and bought with their ownership always being tracked by the blockchain.

The blockchain is a shared database that records information chronologically. Once data is written to the blockchain it cannot be tampered with or changed.

It’s a ledger or logbook of information. When information is saved to the chain, it cannot be changed, only added to.

Blockchain is different to a regular database because the data is recorded in cryptographically linked blocks, rather than storing information in a table.

As new data comes in it is entered into a fresh block. Once this block is full it is chained together with the previous block in chronological order.

Different types of information can be stored on a blockchain, but the most common use so far has been as a ledger for transactions.

Before a fresh block gets added to the chain, it is transmitted to a decentralised network of computers scattered across the world. This network then checks if the fresh information is trustworthy. If the network collectively agrees the transaction is legitimate, the block is approved and added to the chain.

Blockchains are also known as Distributed Ledger Technology (DLT). The decentralised nature of blockchain technology makes it brilliant for preventing fraud and providing authenticity that is traceable.

This Ted Talk is an excellent and simple explanation of what blockchain is:

How NFTs may be relevant to arts and cultural organisations

Digital art:

• NFTs allow artists to sell directly to their customers: this can be more profitable than selling thorough galleries, auctions, or exhibitions.
• Artists can code in royalties: the original artist can collect a percentage of the sale every time their work is sold to a new owner.
• Increased value: like physical art, the value is largely set by the market which means some NFTs can be sold at a competitive price.
• NFTs prove authenticity and are secure: it’s the non-fungible information on the blockchain that makes the NFT uniquely valuable.
• They give artists control: using NFTs artists can control where they sell their work, how they charge for their work, and protect their work against duplication. In 2021, selling art is currently the most popular use for NFTs.

Improving on existing infrastructure:

• Ticketing: smart NFT ticketing allows organisations to sell event tickets as unique digital assets that can be easily and securely transferred or resold on the blockchain. This technology can prevent against scams and fake tickets, and assure event organisers are paid when tickets are resold. It also allows tickets to be produced more quickly.
• Memberships: NFTs can be used to represent lifetime memberships. Recording membership holders’ names in NFTs can prevent them from transferring or sharing their lifetime membership. This is due to the owner of an NFT being baked into its code.
• Tokenising real world assets: NFTs can be used to back real-world assets, such as the shares in a company and the ownership of a property. By tokenising everything from the sales to contracts, to payments, organisations could save a considerable amount of paperwork and make it easier to trade and manage any important agreements.
• Collectibles: as every NFT is unique and tradable, they allow organisations to turn memorable moments and digital assets into collectibles. Collectibles are items that can be purchased or sold for much more than their original value. If they’re scarce, they can be worth even more, and with NFTs being one of a kind, they can make especially valuable collectibles. As a caveat to this, remember that collectibles are only worth what people are willing to pay for them.

As more and more arts and culture organisations have started to experiment and innovate with NFTs, some of the complexities and possible pitfalls associated with the technology have become apparent. Some of these are highlighted in this article which takes a look at the adoption of NFTs in the museums sector.

Damien Hirst: “The Currency”

An interesting example of an artist using NFTs in their work is Damien Hirst and his artwork “The Currency”.

It consists of 10,000 sheets of A4 paper covered in painted coloured dots. Each one is unique, and the paper has been specially watermarked to emulate currency.

Each work originally sold for £2,000, and gave the purchaser the NFT version of the work they bought. The purchasers were given a deadline and the option to swap their NFT for the real-life version. After the deadline, either the NFT or the original artwork was destroyed, depending on which version the purchaser decided to keep.

The video below explains the project.

https://www.youtube.com/watch?v=vEsVJJy1od4

Further reading

Articles and examples of usage from the cultural sector and beyond:

‘The Climate Controversy Swirling around NFTs’ by The Verge

What next?

We hope you’ve found this introductory guide to NFTs useful.

The Digital Culture Network is here to support you and your organisation. Our Tech Champions can provide free 1-2-1 support to all arts and cultural organisations who are in receipt of, or eligible for, Arts Council England funding. If you need help or would like to chat with us about any of the advice we’ve covered above, please get in touch. Sign up to our newsletter below and follow us on Twitter @ace_dcn for the latest updates.