What is an NFT & why should I care? A resource for artists and collectors
*This document is an ongoing work in progress, and I will update regularly. If I have missed anything important, or you believe I have misrepresented something, please let me know, and if I change it I will add you to the Friends and Collaborators section! I am offering this info for free, for anyone who might find it helpful. please do not feel obligated, but If you are so inspired, my venmo (@terranaomi), cashapp ($terranaomi), and Paypal.me/terranaomi are always accepting donations! Or better yet, buy some of my art!*
If you’re into art and/or music, and you haven’t been living under a rock, you probably have some questions about NFTs.
- What is an NFT?
- Why are all my favorite artists suddenly tweeting about it nonstop?!
- Will NFTs replace streaming?
- Will NFTs replace record deals?
- Do NFTs mean everything is art and we can all quit our day jobs and just create art now?
- Are NFTs the answer to all the world’s problems? (Spoiler: No.)
- How do I get one?
Maybe you’re reading this because artists you respect are “minting NFTs,” and you have no idea what that means. Maybe you have read some articles released in the last couple of weeks, and you don’t understand why some dude you’ve never heard of just made $69,000,000 in a single sale of what looks to you like a giant JPEG.
The energy is frenetic, the FOMO is HUGE, and you don’t even know where to start.
Chances are your fans also have similar questions and if you want them to support your art career through this exciting new tool, you’ll need to be able to answer those questions. This article is designed to help with that!
I’ve been supporting myself as an artist for the last fifteen years, as a singer, songwriter, and composer. In 2006, I was the first musician to build a global following on YouTube, won the first YouTube Award, and went on to release my first album with Island Records and Universal Music Publishing Group. In 2010, I was one of the first musicians to use crowdfunding to release an album, and created my own fan-funding model before Patreon existed, and I’ve introduced my audience to all kinds of new, music-related technology over the years. I’ve also spent years exploring the cryptocurrency and blockchain space and months immersed day and night in NFT discussions with artists, collectors, founders, investors, and folks with no idea what any of this means (like my parents). This puts me in a unique position to explain what NFTs mean for artists and fans.
So first off: what is an NFT?
A great deal of compelling, groundbreaking, world-class art and music has been minted as NFTs, as well as many highly sought after pieces that are best described as “digital collectibles”—culturally relevant moments that can now be immortalized and collected. Should Jack Dorsey’s first tweet be considered art? Probably not, but we can sidestep that question entirely if we are able to look at this category of NFTs as digital collectibles.
But before we go further on that, you first need to understand cryptocurrency since the two subjects are totally entwined. NFTs use blockchain technology, just like cryptocurrency (if that sentence didn’t make sense, don’t worry… I’ll explain).
What is cryptocurrency?
We won’t go too deep into cryptocurrency, but essentially, cryptocurrency is digital currency that uses cryptography to keep transactions secure. It’s a long chain of code broken up over multiple computers in the network and each computer must approve each piece of the code in order for a transaction to be valid. So unlike writing a bad check, where all you need is a stolen checkbook, imagine if tiny shredded pieces of the check were scattered over 10,000 remote locations all across the world and, in order to write that check, you first needed to find all the pieces and restore the check to its original state. It would be impossible. And this is the same theory behind cryptocurrency and why it is called “decentralized.” No one person holds the power or the authority. No one person can go in and secretly change the terms of a contract, or fraudulently change the date of a transaction, because the information does not exist in one place. Each transaction exists as a series of code that must be verified over more than 10,000 nodes across the world. We call this code blockchain.
TL;DR: it’s a digital currency that’s really secure.
What is an NFT?
NFT stands for Non-Fungible Token. Say what?
Fungible is defined as “able to replace or be replaced by another identical item; mutually interchangeable.” So non-fungible means it’s unique and irreplaceable.
Many existing resources explain this concept really well. Very simply, Non-Fungible Token is a fancy way of saying “this is a unique thing to which we have assigned value.”
To help you understand that, let’s look at what NFTs are NOT: Take a fungible token, like Bitcoin. Bitcoin’s value goes up and down, but the value of one Bitcoin will always be equal to the value of another Bitcoin at any given time. And you can divide a Bitcoin into different parts, and those parts will always be equal, and can be traded as such. You can break a dollar into four quarters and exchange one dollar for another, but you can’t do that with an original painting.
The reality is that most things in the physical world are non-fungible. It just sounds confusing because it’s a term most of us haven’t heard until now. Look around the space you’re sitting in right now. Everything in it is probably non-fungible. What’s the first thing you see? Your iPhone? It’s non-fungible. All kinds of factors determine its value at any given period of time. Even if you purchase two identical models, their value changes depending on who is buying them, even if they’re both in mint condition, unopened, in the box. You could sell it to me for $700 and I could turn around and sell it to someone else for $800. Unlike the dollar, which can be traded for any other dollar, and broken up into quarters, dimes, nickels, pennies…that’s the basic idea.
How does this relate to art and music?
Good question — the word “fungible” is often used in legal contexts, or conversations around currency. And that’s the interesting thing — NFTs are at the intersection of art and finance, assigning value to a piece of digital art, and linking that art to a token that can be traded on the blockchain, like a currency. But unlike currency, these particular tokens cannot be broken up and traded in equal pieces, which makes them Non-Fungible.
The NFT is just a bunch of code that represents the actual art, and traces the origin and sales events of that art. The actual art is often kept in an on-chain storage space, called the InterPlanetary File System (IPFS). IPFS stores information in a decentralized manner, like cryptocurrencies, using blockchain so different user-operators host different pieces of the long chain of data that makes up the image we see. This makes the storage process really safe.
Secondary Market Sales
This is a key piece of the NFT conversation and is why this is such a big deal for artists.
Traditionally, an art sale looks like this: artist creates art, gallery sells it to a collector, artist gets their percentage at time of sale, and the artist’s participation in the value of their art ends there. Collectors often purchase an emerging artist’s work, hoping the artist will go on and do great things and thus increasing the value of their investment. But when the collector sells that piece of art, the artist never sees any royalties from that sale. If the collector buys the art for $300 and sells it for $300,000, the artist sees none of that. With NFTs, the artist is entitled to a percentage of the secondary sales in perpetuity. Think about the age-old tale of the starving artist whose work was only valuable after their death. Think about those works of art, now worth millions of dollars. Imagine what that would mean for the long-term financial security of artists and their families.
As an additional benefit, the artist’s percentage is written into the NFT as a smart contract that automatically pays the artist their agreed percentage at the time of sale in the secondary market. No gatekeepers like record labels or streaming services who notoriously withhold payments from artists who often have to audit them to even see what they’re actually owed. Everything is encoded into the NFT in this secure smart contract and artists get paid directly and securely.
With NFTs and smart contracts, the artist’s resale percentage is set prior to the sale, and every transfer of the art is traceable, because it’s on the blockchain. This traceability also prevents forgery, which is common in the physical art world. (Check out “Made You Look: A True Story of Fake Art” on Netflix, for a fascinating look into the world of art forgery, and a truly entertaining film!) The artist participates in secondary market sales of their work, and everyone benefits when a sale is made, as it should be.
One very important side note: At this time, the various NFT marketplaces do not have a way to honor the smart contracts of another marketplace, i.e. if you purchase an NFT on Nifty Gateway and then move it to your OpenSea account and sell it, the royalty percentage agreed to in your smart contract will not be automatically sent to the artist, because the platforms do not communicate with each other. It’s important to have this information, in case you do plan to move your NFT off of the platform. This is an unresolved problem, and a fact very few artists are even aware of, and hopefully this issue will be resolved soon, as the secondary market sales are one of the most revolutionary, important aspects of the NFT market.
Why is my favorite artist talking about NFTs nonstop?
It’s kind of obvious, no? For the first time in history, artists have real control over their own sales, careers, and futures. As a musician, I thought this was happening back in 2006 when I posted my first videos on YouTube. It seemed like the beginning of a whole new world of creator-controlled art. But we were still just feeding our art into centralized platforms, like YouTube, Spotify, Instagram, etc., designed to enrich the wallets of founders and investors. The streaming revolution may have been great for listeners, but we actually took a major step back in the perceived value of art and artists and we have yet to recover. These platforms trained us to feel entitled to consume as much art and music as we wanted for free in exchange for ad sales that benefited the platforms and did nothing for the artists.
That’s another conversation (and I have another essay about that, which I will share soon), but to answer the initial question, THIS is why we’re all talking about NFTs. Because for the first time in history, the conversation is shifting around the value of art and artists. People are spending all kinds of money to own art and support artists. As an artist who has grown accustomed to receiving less than $0.004 every time someone streams my songs on Spotify, the idea that someone might actually want to support me by purchasing a digital asset connected to my music is revolutionary. I’ve waited a very long and challenging 15 years to get to this point. Am I excited about it? HELL YES!
Will NFTs replace streaming?
No, I don’t believe they will. But they fill an important niche that I think is empty in the current landscape. What’s great about them is how they fit into the current ecosystem and create a symbiotic relationship with existing infrastructure like streaming services. For artists it’s not a disruptive technology, but an additive one. You don’t need to convince your fans to abandon streaming. You’re just adding another way to support you that has all these great benefits and works with how they’re already supporting you. NFTs are not the be all and end all, magic pill for creators. They are just another piece of an artist’s career — another tool, another outlet for creativity.
I’m personally working on a way to share the rights to my songs with the collectors of my song NFTs. Meaning I would still distribute most of my music across all the streaming platforms, but certain collectors could become my partners and participate in future revenue from my music. This is complicated and can very easily cross over into securities regulations, so I’m exploring how to make this happen in a legal way. I’m just sharing the idea to help you understand some of the potential applications of NFTs and music.
Artists are putting together experience-based packages tied to NFTs as well. Think a piece of digital art that unlocks premium experiences, like concert tickets, private shows, or a song written just for the collector. In many ways it’s similar to the crowdfunding campaigns we’ve been doing for years. Anyone can listen to an artist’s music when they release it on Spotify, but you want to support them in a bigger way, so you pay $5 or $50 or $5,000 to help them make their album. The major difference with an NFT is that you, as the collector, are rewarded when that artist’s work goes up in value. Instead of artists just asking for donations to support the arts, we can now share our art in a way that can appreciate in exchange for support. You hold the digital asset and at some point you could sell it on the secondary market for a lot more than the original sale price if the artist has done well. You get to form a symbiotic financial relationship that can help all parties instead of the one-sided model (collector sells higher later and artist gets nothing) or the donation model. You grow and succeed together and whenever you promote your favorite artist as a fan, you’re also possibly increasing the value of this digital asset. It's a win-win for artists and collectors.
Will NFTs replace record deals?
Again, NFTs are just another tool in the artist’s tool kit. Record labels are already hip to this, releasing music NFTs with some of their artists, like RCA and Kings of Leon. It’s not an either/or situation. Independent artists have always existed alongside major label artists, and will continue to do so. NFTs can be used by all kinds of artists, at every stage of their careers, but will hopefully enable more artists to retain control over their art, by providing an independent funding model that actually works.
Which brings us to the next question:
Do NFTs mean everything is art and we can all quit our day jobs and just create art now?
It seems like everyone and their mothers are making NFTs. We are seeing artists and celebrities with big followings jump in with obvious cash grabs, just because people will buy whatever they put up for sale, but there are other artists truly looking to pioneer and forge a new path in this space, and being rewarded for their innovative efforts and the value they bring to the community. A lot of people are selling a lot of things. It’s basically the wild west right now, and no one really knows where it’s all headed. Anyone who claims to know is probably fooling themselves. I believe blockchain is here to stay, as are NFTs for art, but the way things will evolve in the coming years remains to be seen.
Creating art as a career has always been challenging and NFTs will not change that. As I mentioned earlier, NFTs are just another way for artists to share their work with the world. What NFTs will do is put more power and more money in the hands of artists by providing a direct way to interact with collectors. The art still has to be something people want to collect and spend their money on.
Are NFTs the answer to all the world’s problems?
Decidedly not. In fact, you will find many vocal critics of NFTs and cryptocurrencies in general, mostly having to do with energy use. This criticism is not unfounded. As someone who is passionate about the Earth and climate change, this is a troubling aspect of anything related to the blockchain. On the one hand, as a humanitarian, I firmly believe in the life-changing, world-altering potential of blockchain to bring resources to previously disempowered and disenfranchised communities. As an artist, I have fought hard for artists to be valued and rewarded for everything we bring to the world. But we need to ask ourselves just how bad are the environmental implications of NFTs?
I could throw all kinds of facts at you — like, for example, the beef and dairy industry do way more damage than blockchain — but deflecting is not the answer. Energy use is a real concern, and it’s an issue being addressed with new developments to the Ethereum blockchain, hopefully coming in early 2022.
From my perspective, blockchain is here and it will exist whether or not we use it to make art and change the lives of artists around the world. The amount of energy used in the creation and sale of NFTs on the Ethereum network is roughly 3% of the network’s overall energy use, which, btw is roughly 0.02% of the world’s total CO2 footprint. So NFTs = 3% of 0.02% of the overall damage done. This is not nothing, obviously every bit counts, but the entirety of all activity on the blockchain — of which NFTs are a *tiny* fraction — equal the same carbon footprint as YouTube alone. Why don’t the same folks who demonize NFTs and the artists creating them go after social media, or better yet, overall use of the internet, computers, and smartphones? Certain very vocal critics are going after cryptocurrency because it’s new and confusing and that makes it an easy target.
Please read this article by Sterling Crispin for a highly detailed account of this debate, loaded with actual facts and scientific data. It’s easy to jump on board with catastrophic accusations and fear-mongering without having all the facts. Make sure you know the science and data first. Energy use is a massive issue that needs to be dealt with, but as Crispin so perfectly puts it, singling out NFTs is like “complaining about an ant walking across your toe while the whole house is on fire.” We do need to address that our house is on fire, but I believe that’s through a holistic change in our energy policies at the international level. For individual artists, I believe the potential benefits of using this new tool outweigh the environmental concerns.
Need a TLDR summary? Here’s a graphic from Crispin’s essay:
Blockchain is not going away and, unlike many other industries, everyone in the space is talking about the environmental impacts. Blockchain technologists are actively working on real solutions to this problem, not just shifting the blame to other industries or the public.
Ok, I’m in — now how do I get one?
To purchase an NFT, you need a few things:
- Cryptocurrency wallet.
- Some ETH = Ether, the currency generated by the Ethereum network.
- Metamask wallet, to connect to the NFT marketplace.
What is a cryptocurrency wallet? It’s simply a place to store and keep track of your currency and blockchain transactions. “Hot wallets” live on your PC or mobile device, and are connected to the internet, and there are also “cold storage” wallets that look like mini hard drives, like Ledger. Cold storage wallets provide an extra layer of security, and are recommended as you dive deeper into this world. I personally have my cryptocurrency spread out across a Ledger wallet, a Metamask wallet, and I keep a little in Coinbase and Coinbase Pro, so I can trade quickly if I need to.
There is a learning curve in the buying, trading, and storage of cryptocurrencies. When I first got into this back in 2016, I was terrified of making mistakes, which was warranted because I did make some mistakes. Somewhere there is a Litecoin floating around, lost on the Bitcoin blockchain, because I didn’t understand what I was doing and accidentally sent my Litecoin to a Bitcoin wallet instead of a Litecoin wallet. It’s a different network. Sending Litecoin to a Bitcoin wallet is like sending your credit card payment to the wrong bank. Except in that case, you will likely be able to call the bank and have your payment returned. With blockchain, it’s not so easy. And fixing mistakes requires working with someone who probably knows a lot more about blockchain than you do and is probably a hacker. You would need to provide that person with transaction information and other things you would be advised not to share with someone you don’t actually know and trust. So it’s best not to make silly mistakes. But it happens. Please make sure you understand what you’re doing before transferring large amounts of currency between wallets or marketplaces. Let me have made that mistake for you!
Also, NEVER NEVER NEVER share your seed phrases or passwords with ANYONE. Folks fall victim to all kinds of phishing scams every day. Your wallet address is public information, but your passwords and recovery seed phrases should be stored, guarded carefully, and never ever shared.
Getting your ETH
Before you can transfer your ETH to your wallet, you need to purchase the ETH. I recommend Coinbase. It’s easy to set up with a bank account or credit card, and you’ll be able to buy and sell ETH (and other cryptocurrencies) as soon as your identity is verified.
Storing your ETH
Like I mentioned, I store my cryptocurrencies in several different places. My favorite online wallet is Metamask. I use it as a Chrome extension, and there is also an app for mobile devices.
So my workflow looks like this:
- Set up Coinbase account
- Purchase ETH
- Set up Metamask wallet
- Transfer some ETH to Metamask wallet
- Connect Metamask wallet to NFT marketplace
- Purchase your art
There are of course other ways to do this, and other wallets, and you are encouraged to do your own research. I have just provided one example.
I recommend practicing with a small transfer, to get comfortable with the process. Every transaction requires a gas fee, so you want to be careful about the transactions you initiate, but it’s worth practicing a couple of times to get comfortable before transferring large amounts of currency.
What is a gas fee?
The word “gas” is a little confusing, especially with all the focus on energy consumption. Essentially, “gas” is not actually gas, but a fee assigned to transactions on the blockchain, to pay for computing power needed to verify every transaction. It’s the cost of doing business on the blockchain. Gas fees fluctuate, so it’s good to pay attention and possibly hold off on your transaction if the gas fee is especially high. You can look at this fluctuation like Uber or Lyft surge pricing—when the demand is high, the gas fee goes up. You can monitor gas fees HERE.
The information I’ve shared on cryptocurrency is basic, and I encourage you to spend some time educating yourself. There are so many resources online and Google has been my greatest teacher over the years, connecting me with answers to every question I might have. This is by no means meant to be a definitive guide on the subject.
I hope this document has been helpful. As I wrote at the beginning, if you feel I’ve missed anything that might be helpful to artists looking to onboard their fans to the NFT space, please feel free to reach out, and I will consider adding it! My email and Twitter DMs are always open, and I would love to hear about your audience education experience.
One more thing I feel needs to be addressed: NFTs and cryptocurrency are not the most stable market, as you have probably noticed. When I set out to explore the crypto space in 2017, I told myself I would not spend any money I could not afford to lose. If you purchase art, I recommend going into that purchase with the attitude that you are buying art you love and you will be happy if the value never goes up, or even if it goes down. Who knows—the art you buy might someday be considered “important”—or you might just pick up something wonderful that brings you joy and nothing more. Don’t expect to make a profit from the art you purchase and you will hopefully be pleasantly surprised. And if you have extra resources and want to dive in, there are few things more exciting than jumping into an auction for a piece created by an established artist you already know and love or stumbling upon new work by an up and coming creator who might just be the next Basquiat. Happy hunting!
If I missed anything, please feel free to send me a message and, if I add your contribution, I will credit you in the “Friends and Collaborators” section!
The NFT Bible
Friends and Collaborators: