Lessons from my failed attempt to buy the NFT rights to physical art

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Ethan Lou’s latest book is Once a Bitcoin Miner: Scandal and Turmoil in the Cryptocurrency Wild West

I recently offered to buy the NFT (non-fungible token) rights to an artwork I saw in a museum.

That means that I would make a blockchain-based digital picture of it, and the artist would acknowledge it as the official such picture. He would also agree to not make any such image himself or endorse any potential such efforts of others.

Think of it as buying the movie rights to a book, I told the artist.

I offered $100, which I thought was fair. The artist wasn’t a professional but a museum staffer – the artwork was in a little-visited section reserved for him and dilettante colleagues. The deal would also not affect the actual physical artwork. I thought it would be a simple deal.

The artist did not know much about NFTs, but when he heard my offer, he started talking about “the contract and the royalty fee.” It was evidently not simple to him. No deal was struck.

The artist had no doubt read the news when he looked up NFTs. In 2021, the auction houses Sotheby’s and Christie’s sold US$100-million and US$150-million worth of NFT images, respectively. In the wider marketplace, the total trade volume in 2021 was US$24.9-billion. NFTs must be big money, right?

The answer is complicated. Like most artists toiling in obscurity, most NFT artworks similarly do not command millions. Any investor considering the NFT field needs to keep in mind that, even if the technology is sound and perhaps revolutionary, the market can still be murky and mercurial.

To explain the value proposition of NFTs, I always default to this often-told tale of Toronto’s Vitalik Buterin, the main co-founder of the Ethereum blockchain network, on which most NFTs run.

A World of Warcraft player, Mr. Buterin had worked hard to gain new abilities for his character, but one day the company behind the game arbitrarily changed one of those abilities. “I cried myself to sleep,” he said.

The story was a joke, but it underscores a poignant message, that in our online worlds, we own digital objects only at the mercy of the tech companies.

The goal of Mr. Buterin’s Ethereum is to create an Internet in which users hold power, not Big Tech. An NFT on that network is essentially a digital object you own outright, which no company can arbitrarily take away.

There is, to be sure, the criticism that has become its own meme, “right-click-save,” referring to the ease with which digital pictures can be copied. But NFT artwork can be copied only in the sense that physical artwork can be forged. Because of NFTs’ blockchain properties, anyone can tell the original from the copy.

That’s why the rapper Eminem spent US$450,000 on a primate picture this year from the noted Bored Ape Yacht Club collection. Not even a year ago, that picture sold for US$1,500.

The problem, however, is that it’s hard to tell if Eminem overpaid or underpaid. NFT images are nominally valued by the “floor price,” the lowest for which an image from a particular collection has publicly sold, and that’s not reliable because they don’t change hands often.

As a way to help Ukraine financially in its war with Russia, someone donated to the Ukraine government an image from the CryptoPunks collection, with a floor price of US$243,000. But the government has little use for it, saying “it’s hard to sell.” A Sotheby’s auction this year for 104 images from that collection was cancelled at the last minute. Experts have speculated that the seller thought the CryptoPunks could not fetch a good price.

So, if you can’t readily sell something for its stated value, is it really worth that much?

That is, of course, a feature of the traditional art world, too. I once attended a debut for a collection of paintings, each priced in the mid-four-figures. The artist sold only one to someone who appears to be a friend.

Then there are NFTs’ technological issues. In February, the major marketplace OpenSea delisted a whole collection of NFT artwork, ostensibly over a copyright issue. Such a blacklisting has a big impact on the images’ value and contradicts the notion that NFTs are digital objects you own outright. The major platforms still hold a lot of power over users.

And don’t get me started on how the pseudonymous nature of the blockchain has sparked accusations of rampant insider trading by platform executives and project proponents.

I wouldn’t have tried, unsuccessfully, to buy an artist’s NFT rights if I thought there was no value in the field. It’s just that NFTs, by straddling boundaries, have taken on not just the worst characteristics of tech and finance but also the valuation quirks of art. The technology might be revolutionary and sometimes the specific art might look nice, but we are not yet properly quantifying that in dollar terms – exactly how revolutionary, and how nice?

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