Collecting 101

NFTs: the acronym on everyone’s lips (particularly in the art world). But are you, truly, au fait with all the ins and outs of this revolutionary new technology which is transforming the way we collect art? If the honest answer is no, you are in luck: we have put together a guide on everything you always wanted to know about NFTs but were too afraid to ask.

This month, Bonhams will be offering NFTs across two sales. In partnership with Async, Coldie X John Van Hamersveld: The Unfolding Dream features a unique 7-layer dynamic NFT. Meanwhile, as part of the online auction, Encore! Modern Art on Stage, three of the first-ever video ballet NFTs are going under the hammer, starring world-famous ballerina Natalia Osipova. Both auctions are now open for bids until they close on 10 December; Encore at 12:00 GMT and The Unfolding Dream at 17:00 GMT.

Still of Matt Kane, M87 Black Hole Deconstruction, sold for US$62,812.50 inc. premium

1.

What is an NFT?

NFT stands for “non-fungible token” and it is a type of blockchain technology. A non-fungible token is a unique digital serial number that certifies the authenticity and ownership history of a digital asset that can represent either physical or digital objects. NFTs have been around since 2014, but they have become an extremely popular way of buying and selling art during the last year.

Let’s put it another way: an NFT is a non-fungible token on the Ethereum blockchain containing specific data such historical info on any transactions, a uniquely identifiable number and an image of the artwork it represents. Its key characteristics are uniqueness, scarcity and indivisibility. Remember: an NFT is a representation of an asset that can be tangible or intangible.

CryptoKitties collectibles, a blockchain game on Ethereum based around collecting and breeding digital cats, were some of the first NFTs to make the rounds online back in 2017.

2.

What is a dynamic NFT?

A dynamic NFT exists much like a typical NFT, but consists of multiple individual layers. Collectors can own single layers and, with this ownership, are able to choose which layer option is displayed on the live artwork. All the layers come together to make up the “master artwork” which is also owned, but this owner is not able to make changes to the individual layers. A great example is The Unfolding Dream, a dynamic NFT with 7 individual layers that can be varied by selecting from a range of available designs. This allows each winner visual control and a multitude of different total combinations for the work.

Dynamic NFTs are essentially living artworks – they are constantly in flux - which will never be the same once the layers are owned and changes are made. This technology is revolutionary to the art-making process, prompting us to consider many different options instead of a single static image.

3. Does an NFT differ to cryptocurrency?

In one word: Yes.

A currency, like the pound sterling, is fungible and interchangeable. Buyers can purchase items or services using any of the pounds in their bank accounts, as are all the same and therefore interchangeable.

Cryptocurrencies, or fungible tokens, differ from normal currencies in that they are decentralised: they exist on a blockchain (which is a digital ledger of transactions) and don’t require a centralised source to verify who owns them (like normal currencies need banks). Bitcoin is a type of cryptocurrency.

NFTs, meanwhile, are non-fungible. This means they are not interchangeable: each token is one of a kind. They are also decentralised: they exist in a blockchain that traces ownership to you. NFTs are bought and sold online, often with cryptocurrency. Non-fungible tokens don’t have inherent value like cryptocurrencies do, they derive value from the assets represented by them.

4. How does it work?

NFTs exist on a blockchain, a network of independent computers, usually Ethereum. An NFT is “minted” by its creator and then listed in relation to its scarcity (for example 1x10, which means buyers are purchasing one NFT out of 10 minted, much like when buying art editions). If the creator then makes more of the same creation, this will be listed as separate from the original set.

Once minted, NFTs can be exchanged endlessly. But each NFT can only have one owner at a time. They can’t be divided or split. If the owner chooses to transfer ownership, they transfer the entire token to another address.

5. What can be made into an NFT?

The focus of NFTs is very much on ownership. They are digital collectors’ items that certify authenticity and ownership through blockchain technology. Because they are digital assets that represent both physical or digital objects, pretty much anything can be turned into an NFT. The most relevant examples are:

• Artworks
• Music
• Articles or Photos
• Even tweets! (In March 2021, Jack Dorsey, CEO of Twitter, sold his first ever tweet for $2.9 million)
• A major emerging market trend is the creation of digital collectibles similar to physical trading cards, deriving value from their scarcity. Numerous brands have started licensing their content for use in digital collectibles.

6. Where can I buy NFTs?

NFTs can be bought on a variety of specialised platforms, including SuperRare: an online marketplace for rare and valuable pieces of digital art. One of the leading players in the NFT art market, SuperRare offer artworks authenticated on the Ethereum blockchain from artists and creators around the world. Launched in April 2018, the platform has recently announced a financing round of $9 million with top-tier investors, further bolstered by monthly sales of $25million.

Clip from Natalia Osipova, Giselle, Solo of Act II NFT. Estimate: £8,000 - 12,000

Coldie X John Van Hamersveld in partnership with Async, possible combinations of The Unfolding Dream. Estimates for each layer vary from US$ 8,000 - 15,000, the master layer is estimated at US$ 100,000 - 150,000.

Cristiano Ronaldo. Sold for US$400,312.50 inc. premium.

Still of Coldie, Proof of Work, Sold for US$ 100,312.50 inc. premium.

Clip from Natalia Osipova & Jason Kittelberger, Left behind NFT. Estimate: £30,000 - £50,000

7. Why have NFTs become so popular?

This is an important question. NFTs are endowed with an extremely effective technology able to trace and verify the ownership of assets in fields where this was previously a complex task, for example the provenance of artworks. They are also rare and specific, generally made in limited series and carrying unique identifying codes, which distinguishes them from the infinite supply of digital content easily found and shared online. NFTs entail limited supply, which in turns creates demand for ownership of the “original” file.

During the 2020-2021 COVID pandemic, when many bricks and mortar galleries and art fairs were closed, the market for art-related NFTs has experienced a monumental boom. This has led many artists working in traditional media to dabble in this emerging digital medium (for example, Damien Hirst’s recent The Currency Project, or the NFT minting of some works by Andy Warhol). But we have also witnessed the rise of a new generation of NFT art stars, most notably the American digital artist Beeple who sold his NFT collage Everydays: The First 5000 Days at auction in March 2021 for a whopping $69 million.

NFTs have also been popular in the music industry because they allow musicians to circumvent issues related to purchasing, ownership and lack of revenue generated by streaming platforms. Grimes, Kings of Leon and Deadmau5 have all released music in this way.

8. How is an NFT valued?

Valuation here works in a relatively similar fashion to a traditional, physical work of art. Generally, NFTs are valued by looking into the background of the artists that made them and assessing their sales records. But also, much like in the case of physical artworks, there’s always room for surprises, like an artwork exploding onto the NFT market without an established record of sales at a similar level to back it up, such as the aforementioned case of Beeple.

NFTs can have added built-in rights and royalties, which is beneficial for artists. Instead of contracts where artists end up with a 10 percent royalty, they can now earn 90 percent revenue for use and licensing of their works of art.

9. How does one buy and sell an NFT?

To take part in this market buyers need to buy cryptocurrency and set up a digital wallet specific to the platform they will be buying from. The wallet should support ERC-72, the NFT token standard.

Due to high demand, some NFTs are released in “drops” (similar to when tickets for concerts or festivals are released at precise and staggered times). This can generate a frenzied rush of buyers at the ready to purchase when the NFTs drop, so prospective buyers should prepare, registering for the sale and having their digital wallet topped up ahead of time.

Something worth keeping in mind is that there are several fees associated to buying and selling NFTs. There is a fee for minting a newly created NFT, which generates the piece’s certificate of authenticity. There is also a fee for listing it on trading platforms. Then there’s is a commission fee from the platform itself for facilitating the sale, and then there’s another fee for the cryptocurrency transaction on Ethereum, which is also known as a “gas fee”.

For more updates from our team, follow @bonhams1793 on Instagram.

Clip of Natalia Osipova, Giselle, The entrance of Act II NFT. Estimate: £8,000 - £12,000

Clip from Natalia Osipova, Giselle, The entrance of Act II NFT. Estimate: £8,000 - £12,000

Still of Alotta Money, Pauline at the Mall. Sold for US$ 37,812.50 inc. premium.

Still of Sarah Zucker, Space Loaf. Sold for US$ 44,062.50 inc. premium.