You know that NFTs have hit the mainstream when there's an article focused on their impact on the art world in a weekend supplement. Reading the Guardian over my shoulder at the weekend, my 10 year old asked, what's an NFT?
Over the years, I have explained blockchain and crypto to my kids. So I now explained NFTs as unique digital collectibles, using my son's love of rare and exclusive Pokemon cards as a useful analogy.
It's puzzling to some why this form of digital assets have become quite so popular and valuable. After all, the NFT issuer may grant the purchaser very limited rights in respect of the particular digital art work - you may not be able to prevent copies being made of the image, you just own that particular file. (It's clear from exchanges I have seen on Twitter from some disgruntled NFT purchasers that owners don't always appreciate exactly what they have bought (or not bought..) until later.)
But if we are headed for a metaverse future, could it be that physical artworks will increasingly be replaced by their digital counterparts? And what is "art" anyway and who decides whether it's valuable? Paris Hilton is not wrong when she tells the Guardian in the article: “There are paintings out there that are $100m or more, but if you think about it, it’s really just canvas with paint.”
Last week my colleague told me that there were a lot of GCs at the event he was attending saying that the real world application of crypto and NFTs is here now and predicting that this will be an area of increased legal demand in the next 12-18 months. This certainly chimes with what we are seeing around the world, as a whole range of brands and corporates dip their toe into the NFT world.
As someone who has been following blockchain and crypto for a long time, it's fascinating to see crypto become mainstream in this way. Lawyers will need to continue to track potential regulatory developments affecting NFTs, given the potential risks that they may pose (including in terms of fraud, as highlighted in this previous post from my colleagues John Groom and Lauren Neal).
And with COP26 coming to an end this week, it will be interesting to see the impact of the continued debate around sustainability versus innovation when it comes to NFTs, with increasing levels of scrutiny on the energy consumption of these digital assets.
In essence, an NFT is a digital certificate of ownership, almost always bought and sold using cryptocurrency, to which any digital file – a jpeg image file, a video, a song – can be attached. That Hilton is able to display Iconic Crypto Queen in her home, despite having sold it, is part of the NFT’s appeal – and the challenge it poses to the established business model for trading and accessing art.