NFT art has recently gained rapid attention as a new form of digital art. Unlike traditional digital art, using NFTs (Non-Fungible Tokens) allows ownership rights and authenticity to be proven through blockchain, creating unique value. This mechanism is forming a new art market and providing new possibilities for artists and investors.
This article will thoroughly explain the basic knowledge of NFT art, its differences from traditional digital art, and how NFT art is traded. Please read until the end, as the content is easy to understand for those interested in the changes in digital art or those new to the world of NFT art.
What is NFT Art? Explaining Basic Concepts and Characteristics
NFT (Non-Fungible Token) is a type of digital certificate that provides unique “ownership rights” to digital art and other digital assets using blockchain technology. NFTs are typically created on blockchains like Ethereum, with each token linked to a specific digital asset. This makes copying or tampering difficult and enables proof of ownership.
A characteristic of NFTs is their transparency, as they are recorded on the blockchain, allowing anyone to verify ownership and transaction history. Particularly in the digital art field, when Beeple’s work “Everydays: The First 5000 Days” sold for about $69 million in 2021, it drew attention, widely recognizing the potential of NFTs as a means to assign uniqueness and value to digital art.
NFTs have new appeal specific to digital content, different from traditional art markets. Artists can tokenize their works through NFTs and directly access global markets. Additionally, they can implement a royalty system that automatically generates revenue each time works are bought and sold, which is expected to be a technology supporting a new form of “creator economy.”
Definition of NFTs and Application to Art
NFTs are digital assets recorded on the blockchain that, due to their “non-fungible” nature, cannot be exchanged one-to-one with other tokens or assets. This enables assigning unique ownership rights to various digital content such as digital art, music, videos, and game items.
Each NFT has a unique digital signature, and since ownership and transaction history can be publicly verified, forgery is extremely difficult. This characteristic is particularly notable in the art market, realizing clear ownership rights for digital art that was previously easily copyable.
Furthermore, NFTs use technology called smart contracts for creation (“minting”), allowing artists to register their works on the blockchain and set royalties to receive a portion of profits when resold. This enables artists to gain new revenue sources that were difficult in traditional art markets, playing a role in the creator economy.
Background and Mechanism of NFT Art’s Attention
The growing attention to NFT art is largely related to the growth of the digital art market and the spread of blockchain technology. The NFT market reached a major peak in 2021, with total NFT art transactions reaching approximately $41 billion. This growth gained further attention when Beeple’s work sold for a high price, establishing digital art as an “asset” and leading many investors to view NFT art as a new investment target.
NFTs are primarily issued on blockchain platforms like Ethereum, and each NFT has a digital signature, making owner verification easy and transaction history public, ensuring transparency and reliability. This characteristic has solved the issues of ownership and authenticity verification that were challenges in traditional digital art, allowing artists to guarantee the uniqueness of their works through NFTs. Additionally, NFTs have tamper-proof features, making forgery difficult and helping maintain work value.
Furthermore, NFT technology has expanded beyond fine arts into music, game items, and even virtual space asset trading. This broad usage is promoting further growth in the digital asset market, with continued sustainable development expected.
NFTs continue to evolve as a new form of digital ownership based on blockchain, leading transformation in the digital art market.
Differences from Traditional Digital Art
One reason for the growing attention to NFT art is its solution to the ambiguous ownership issues of traditional digital art. NFTs can prove ownership using blockchain technology, allowing buyers to prove they are the “legitimate owners” of digital art.
Additionally, NFTs provide a mechanism for continuous revenue to artists through smart contracts. A major feature is that artists can receive profits from resales, unlike traditional art markets, as set royalties are automatically paid to artists each time NFTs are resold in the secondary market.
This royalty mechanism is embedded in smart contracts to return rewards each time art works are resold between owners, enhancing transparency and reliability. Furthermore, with the emergence of NFTs, the digital art market has grown rapidly, advancing the digitalization of art and the formation of new economic zones.
Current State and Growth Factors of the NFT Art Market
The NFT art market is experiencing rapid growth based on blockchain technology and is attracting attention as a new investment target. One factor supporting market growth is the spread of NFT platforms like OpenSea and Rarible.
These platforms allow artists to sell works directly without galleries and connect with collectors worldwide. Here, we’ll introduce everything from the NFT art market scale to major platforms.
NFT Art Trading Market Scale and Major Platforms
The NFT art market continues to grow in 2024, with market size expected to reach approximately $43.22 billion. The main platforms used are OpenSea, Magic Eden, and Rarible, with OpenSea being the largest NFT marketplace occupying about 60% of market share. Meanwhile, Magic Eden and Blur are also growing rapidly, intensifying competition.
Additionally, the spread of new blockchain technologies like Solana and Tezos has greatly contributed to the development of the NFT art market. These blockchains enable lower-cost transactions compared to Ethereum and are more energy-efficient, gaining support particularly from artists and collectors who prioritize environmental considerations.
Technology and Ecosystem Supporting NFT Art’s Spread
The NFT art market is rapidly expanding through blockchain technology and diversification of its ecosystem. New notable blockchains adopt Proof of Stake (PoS) mechanisms to reduce environmental impact, gaining support especially from environmentally conscious users and artists due to their lower costs and higher energy efficiency compared to others.
Furthermore, NFT applications are expanding, covering not just digital art but also virtual real estate and game items. This NFT spread has activated trading within metaverses and online games, forming new digital asset markets.
For example, services where users can purchase and trade land and items in virtual spaces as NFTs, connecting them as digital assets with real-world investment targets. This new ecosystem of digital assets is making the NFT market more dynamic and comprehensive.
Benefits and Risks of NFT Art Investment
The NFT art market is attracting significant attention as a new field of digital art investment. However, like other investments, NFT art has its unique benefits and risks.
Here, we’ll explain in detail the revenue opportunities, liquidity and price fluctuation risks, and legal aspects regarding copyright and ownership of NFT art.
What’s the Appeal of NFT Art Investment?
The appeal of NFT art investment lies in ownership proof through blockchain technology and the possibility of sustainable revenue. NFTs provide art buyers with an easy means to verify authenticity and ownership of works, enhancing transparency and reliability.
Another major feature of NFTs is the royalty mechanism allowing artists to earn revenue from secondary market transactions. NFTs are managed by smart contracts, automatically paying a set percentage of revenue to artists each time works are resold.
This enables artists to secure long-term revenue even after initial sales, which was difficult in traditional art markets. This mechanism brings economic stability to creators and supports sustainable growth in the digital art market.
Price Fluctuation Risks in the NFT Art Market
While the NFT art market has benefits like ownership proof and royalty returns to artists, it also involves risks of low liquidity and price fluctuation. When demand for specific NFTs is low, quick conversion to cash can be difficult, and significant price fluctuations often occur as the NFT market itself is still developing.
Therefore, while investors have the potential for large profits in short periods, they must also be prepared for losses from sudden price drops. Additionally, NFT transactions incur gas fees.
These are fees per transaction that vary based on network congestion and can become expensive. Therefore, care is needed as fees may squeeze profits in small-scale transactions.
Legal Aspects of Copyright and Ownership
Legal uncertainties in NFT art particularly include copyright and ownership issues. While purchasing an NFT records ownership on the blockchain, this doesn’t necessarily mean copyright transfer.
In many cases, NFT buyers are granted rights to view and display works, but copyright and reproduction rights are not transferred, requiring caution when using works commercially. When copyright transfer is not explicitly stated in NFT sales contracts or smart contracts, copyright typically remains with the artist.
NFT Art Purchase Methods and How to Choose Major Platforms
NFT art purchasing and selling is interesting for collectors and creators interested in digital art investment. However, the process has its unique steps and precautions, and choosing appropriate platforms is also important.
Here, we’ll explain in detail the methods for buying and selling NFT art and the characteristics of major platforms.
NFT Art Purchase Process and Important Points
There are several important steps and points to note when purchasing NFT art. Below are the main steps to purchase NFTs:
- First, create a wallet that supports cryptocurrencies like Ethereum
- Connect the created wallet to NFT marketplaces (like OpenSea, Rarible)
However, you need to deposit currencies like ETH in your wallet. This currency is necessary not only for purchasing NFTs but also for paying gas fees (transaction fees on the Ethereum network) during trades.
Gas fees vary depending on network congestion, so be aware that transaction costs may be higher than expected. Additionally, NFT art trading has two methods: fixed price purchases and auction format.
Fixed price format allows immediate purchase, while auction format involves competing with other potential buyers through bidding. Both methods require checking transaction fees before purchase and approving payment from your wallet.
Comparison of Major Marketplaces like OpenSea and Rarible
NFT art trading marketplaces like OpenSea, Rarible, and Magic Eden each have different features. It’s important to choose the optimal platform according to your purpose and needs.
OpenSea
The world’s largest NFT marketplace, supporting multiple blockchains including Ethereum, Polygon, and Solana. It handles NFTs across wide categories including art, music, and game items, providing a user-friendly interface used by everyone from beginners to professional traders. It also offers versatile trading options including direct user-to-user trading and auction formats.
Rarible
As a decentralized marketplace, it has the “RARI” governance token allowing users to participate in platform operation, operated as a DAO (Decentralized Autonomous Organization). Supporting multiple blockchains including Ethereum, Flow, and Tezos, it provides an environment where artists can easily NFT and sell their works. Therefore, it’s suitable for individual artists and small-scale creators.
Magic Eden
A marketplace specializing in the Solana blockchain, focusing particularly on game and art NFTs. Leveraging Solana’s fast and low-cost transactions, it’s attractive for its low fees and fast transaction speed, popular among gamers who frequently trade game items and digital artists. Furthermore, users can use community features to communicate with creators and other users.
When choosing an NFT marketplace, it’s good to consider factors such as supported blockchain types, transaction fees, and user interface usability.
Summary
The future of NFT art holds great potential, supported by many technological innovations and market growth. Going forward, it’s expected to expand into emerging fields like games and virtual real estate, functioning as a bridge between physical and digital assets.
Additionally, as interoperability progresses, transactions between different blockchains will become smoother, increasing market liquidity.
Furthermore, as NFT art continues to evolve with digital society innovation, it will be important to invest while monitoring technological and market trends.
