Less than two weeks before the digital artist Beeple made headlines for selling a $69.3 million JPG, the young 3D art collective RTFKT teamed up with 18-year-old artist Fewocious to design a collection of digital sneakers and charms.
In just seven minutes, they generated $3.1 million, according to RTFKT’s Instagram.
NFTs, or nonfungible tokens—unique digital files residing on a blockchain—have exploded into the mainstream in the past month. Pop artist Grimes earned a cool $6 million at a digital auction in late February. Twitter CEO Jack Dorsey garnered a $2.5 million bid for an NFT of his first tweet. Tampa Bay Buccaneers tight end Rob Gronkowski’s first NFT card collection brought in more than $1.2 million over the weekend.
Where NFTs go from here is hard to say. Two months from now, will Grimes’ artwork be worth one-tenth or ten times what it sold for? GameStop’s stock price started January below $20, skyrocketed to $483, sunk back to around $40 in February and now is cresting $270. Though GME and NFTs are two entirely different beasts, it seems just as foolhardy to predict where exactly the NFT art world will go as it was to try and anticipate GameStop’s quixotic stock-market romp.
However, there is much more to NFTs than the booming digital art market.
What exactly are NFTs?
Christopher Wilmer, associate professor of chemical and petroleum engineering at the University of Pittsburgh Swanson School of Engineering, is the co-managing editor for Ledger, the first peer-reviewed journal for research on cryptocurrency and blockchain tech and the co-author of “Bitcoin for the Befuddled.” A few years after Bitcoin was invented, Wilmer explained, there was a realization that the Bitcoin blockchain could keep track of not just who had how many bitcoins, but also arbitrary other data.
“It’s just a database, after all,” Wilmer told Sourcing Journal. “You could upload your grocery list to the Bitcoin blockchain if you wanted to. Leveraging this insight, various people have used the Bitcoin blockchain (and other blockchains, famously Ethereum) to keep track of other made-up ‘tokens’ besides bitcoins themselves (or ethers, in the case of Ethereum).”
And thus, NFTs were born. Now anyone can create a new token and then declare it represents “ownership” over something else, Wilmer said.
“Of course, you could upload a MonaLisaToken today and declare that it represents ownership over da Vinci’s famous Mona Lisa painting, and no one could stop you, but also no one would believe it,” Wilmer continued. “Nevertheless, if you trust the source, then an NFT is a way for an artist to sell you digital art in a way that you can later prove that you are true and only owner of that artwork.”
NFTs as a business tool
Given the high-end sneaker marketplace’s robust collector community, custom modifications and speculation, “the NFT can be an interesting certificate of authenticity,” Michael Hamilton, assistant professor of business analytics and operations at the University of Pittsburgh Joseph M. Katz Graduate School of Business, said. Though he doesn’t see NFTs being more useful than a physical certificate today, Hamilton conceded there may come a point where they become the preferable alternative as they are easier to keep track of.
Hamilton also brought up the profit-sharing potential of NFTs. In the context of philanthropic auctions, he said, “an NFT might be a very nice way to continue generating revenue for the cause after [the] first purchase.”
But for the sneaker world, where shoes regularly resell for hundreds of dollars more than their original price, this might have substantial consequences. Beeple, for example, will earn a 10 percent royalty every time his art is resold, according to Vox. Given the large number of resales in the sneaker market—Adidas’ Yeezy 450 Cloud White sold out earlier this month in one minute and has since been resold on StockX 652 times—tying NFTs to high-profile releases could become a potential new source of revenue.
Nike has been making moves in NFT technology in recent years. Since filing its patent “System and method for providing cryptographically secured digital assets” in May 2019—it was published less than seven months later in December—the footwear titan has filed several additional patents, including ones related to the event-based distribution and video game integration of “cryptographically secured digital assets.”
Just last week, video game company Atari announced a limited NFT fashion series with RTFKT. The first item in the series, a limited 1 or 1 “OG Edition” Atari Sneaker was auctioned off Friday for 10 ether, the equivalent of more than $17,000. The collaboration also saw RTFKT and Atari collaborate with six artists to develop additional versions of the sneaker, all inspired by iconic Atari games. Only 50 of each design were available in the limited release.
Environmental cost of crypto
The hype over NFTs has led many to voice concern over the environmental impact of the expanding market. Aurora Sharrard, director of sustainability at the University of Pittsburgh, likened the development to the rise of fast fashion and pointed to a 2019 study in the journal Energy Research & Social Science, which estimated that every one dollar of Bitcoin value created in 2018 was responsible for 49 cents in health and climate damages in the United States.
“If someone’s an art or music collector generally or in the NFT or sneaker space, they should really consider the full impact of their purchases,” Sharrard said. “Related to NFTs specifically, I like to believe we’re at a point in society where we’re continuing to question individual entertainment value or economic benefit over human wellbeing, community improvement, or planetary health. Crypto transactions have huge negative environmental and social impacts, period.”
Concerns over environmental cost have already led some artists, such as Joanie Lemercier, to pull their NFT drops.
“It turns out my release of 6 CryptoArt works consumed in 10 seconds more electricity than the entire studio over the past 2 years,” Lemercier wrote in a February blog post.
The environmental cost of NFTs, however, could come down if it transitions to a proof-of-stake consensus. Although Ethereum’s developers have planned this shift for years, there is no clear deadline for when it would occur, according to Wired.