The art world is adopting non-fungible tokens beyond the sale of digital artworks.
Traditional art sellers are now looking at the possibility of artists and owners retaining part of a piece they sell, and benefiting from future transactions too. We look at exactly what NFTs are, as well as Lobus, the platform behind this shift, and how technology provider Alchemy powers it.
Never heard of a NFT? Don’t worry, you’re not alone.
To explain non-fungible tokens, let’s first look at a fungible token. One bitcoin can be traded for another bitcoin, in the same way that a penny in the real world can be replaced with another penny, making both of these fungible tokens. By contrast, if something’s non-fungible, it’s unique and can’t be easily replaced, a one-off, like an original piece of art.
At a high level, NFTs are part of the ethereum blockchain but, unlike an ETH coin, extra information is stored that makes the token unique. There’s also a feature that allows artists to be paid a percentage every time the work is sold, which Lobus is taking advantage of. Buyers get some basic usage rights, along with bragging rights, while artists and owners get a cut as the work, hopefully, accrues value over time.
The advantage of using ethereum is that it allows for computer programs known as smart contracts to be available on a distributed network. On a platform like Opensea, these smart contracts are used to directly connect an artist and buyer.
NFTs and a $1bn market
Lobus is a platform looking to give digital artists more control over their work. In the traditional art world, an artist sells their work for a single, upfront price — whether that’s through an auction house or to a private buyer. Lobus changes this by offering fractional ownership, allowing the original owner or artist to receive a percentage of sale prices down the line through NFTs.
Run by ex-Christie’s and Sotheby’s staff, Lobus recently raised $6m in a funding round, with investors including Upside Capital, 8VC and Franklin Templeton.
Lobus combines tools to manage collections, pricing history and analytics to help artists better manage their digital art. According to TechCrunch, Lobus has 45,000 art objects in its database, with physical and digital assets valued at $5.4bn.
“We’re really on a mission of making artists into owners. We are really leveraging the best of what NFTs are putting out there about ownership and asking the questions of how to help create different ownership structures and interrupt this asset class,” Lobus co-CEO Sarah Wendell Sherrill told TechCrunch.
“We are … asking the questions of how to help create different ownership structures and interrupt this asset class” – Sarah Wendell Sherril, Lobus co-CEO
Powering all this behind the scenes is tech company Alchemy, whose technology enables all NFT platforms to connect to cryptocurrency ethereum. Alchemy has seen transactions grow 54-fold to $25bn worth of ethereum projects, according to Bloomberg. According to Alchemy co-founder Nikil Viswanathan, the NFT market could be worth as much as $1bn.
Alchemy’s first customer was Matt Hall who, along with John Watkinson, created CryptoPunks — pixelated 8-bit characters that have traded hands on NFT platforms. The most expensive of these was CryptoPunk 3100, a bluish alien creature, which sold for $7.6m in March — it had initially sold for $2,139.76 in 2017, so you can see how Lobus’s fractional ownership model could appeal to artists looking to benefit from future transactions.
Why investors should care about NFTs
NFTs can be anything unique and digital, but it’s their use in the art world that has caught investor attention. A 50-second video by Grimes sold for $390,000, while Christie’s sold digital artist Beeple’s Everyday: The First 5000 Days at auction for an eye-watering $69.3m.
Investors might be interested for a couple of reasons. Perhaps they want to buy an NFT in the same way they might want to purchase a piece of art, although at some of the prices discussed, this could turn into the playground of the mega-rich — much like the physical art world. The other is that platforms like Lobus and technology like Alchemy are starting to attract funding. Should they become the de facto auction houses of the future, investors would be wise to keep tabs on them.
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