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Digital Art, NFTs, & the Metaverse
Foreshadowing the Future of Virtual Worlds & Virtual Economies
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I’m excited about this week’s topic: in many ways, what’s happening with digital art is foreshadowing the future of the internet.
This week is also special because it’s the one-year anniversary of Digital Native 🥳
I’ve now sent out a piece on 52 consecutive Wednesdays. I’ve enjoyed writing long-form posts here, and I’ve also started tweeting more. If you’ve liked reading Digital Native, follow me on Twitter here for more frequent, short-form thoughts.
With that, let’s talk about digital art and the metaverse!
Digital Art, Crypto, & the Metaverse
Yesterday, Christie’s announced that it will be the first major art auction house to sell a digital work of art. Christie’s will sell Everydays: The First 5000 Days, a piece by Beeple. Beeple, whose real name is Mike Winkelmann, is the world’s most famous and highest-earning digital artist: his works routinely sell for six figures, and in December he made $3.5 million in a single weekend.
I first started paying attention to digital art last fall, when my friend Zack encouraged me to check out SuperRare, a digital art marketplace. SuperRare quickly became one of my most-visited websites.
Fast forward a few months and digital art is surging. In December, digital art sales hit $8.2 million, up from $2.6 million in November—215% month-over-month growth.
With Beeple leading the way, five artists have made over $2.5 million selling digital art:
Clearly, this movement is picking up steam. Anthony Pompliano recently argued that digital art will be bigger than physical art, commissioning a piece from top digital artist FEWOCIOUS (image below). One of my favorite writers, Packy at Not Boring, went down the rabbit hole of Web3 and decentralized finance. And Chamath Palihapitiya himself called digital art “the next frontier.”
Even Lindsay Lohan is getting in on the action: last week, Lohan sold her first digital portrait for $50,000, tweeting “Bitcoin to the moon!” (The only problem: digital art is built on Ethereum, not Bitcoin—but more on that later.)
Digital art is becoming hard to ignore on its own, but it’s most interesting because it embodies the future of the internet.
Today, I want to explore two key, interrelated concepts through the lens of digital art:
Non-Fungible Tokens (NFTs)
Non-Fungible Tokens (NFTs)
Any conversation about non-fungible tokens needs to start with a conversation about CryptoKitties.
What are CryptoKitties, you might ask? CryptoKitties are these cute guys:
In 2017, CryptoKitties launched as a game built on the Ethereum blockchain that lets you buy, sell, and breed digital cats. These cats aren’t cheap: the cat in the top left of the image above goes for 0.2285 ETH, or $398 (Ethereum is worth about $1,800 right now).
People were willing to pay big bucks for CryptoKitties because the game used non-fungible tokens (NFTs). Each token represented a unique cat and contained identifying information embedded in a smart contract. In other words, once you bought a cat, that cat was yours and you could prove your ownership.
Early iterations of blockchain had been fungible. Bitcoin, for instance, is a fungible token because each Bitcoin is interchangeable with another Bitcoin. In the real-world, money is a fungible good because any dollar bill can be exchanged for any other dollar bill.
CryptoKitties and NFTs were a big deal because for the first time, certifiable and authenticated digital ownership was possible.
This meant that NFTs solved a unique problem for digital artists. Before NFTs, artists couldn’t protect their copyright online—digital art could be easily replicated. But with NFTs, a customer could buy a piece of digital art and know that she owned the real work; on the other side of the transaction, the artist could sell and trace her piece using blockchain technology.
Marketplaces like SuperRare, Foundation, and Nifty Gateway (now owned by the Winklevoss twins) emerged to connect digital artists with buyers. These sites both run live auctions and list featured artworks:
In some ways, digital art is superior to physical art. Anthony Pompliano writes:
Digital art is the next evolution of art. Each piece can incorporate complex movement and motion into the art. A single screen on a wall can periodically cycle through different pieces of art at the predetermined direction of the homeowner or art collector. The digital art can be sent to anyone in the world with a few clicks of a button, it is immune from damage, and authenticity and provenance is transparently available for anyone to verify.
A key feature of digital art is that—because it can be tracked via the blockchain—digital art allows artists to capture value as works appreciate. Let me give an example.
Blake Kathryn is one of my favorite digital artists; here’s one of her pieces:
(Side note: how cool would it be to have a piece with motion like this on a screen on your wall?)
Say that I buy Blake’s piece for $10,000 on SuperRare. SuperRare takes a 15% cut, so the platform earns $1,500; Blake gets to keep $8,500.
Say that Blake then becomes a world-renowned artist. The piece is now worth $1,000,000. If I resell the piece, SuperRare gives Blake 10% of that secondary transaction; she makes another $100,000 off of her piece. Unlike physical art, the work is tokenized and secondary transactions can be easily tracked.
Secondary transactions are a growing share of digital art volume:
(Another concept in digital art that helps artists earn more is layering. Artists can add digital layers to their work or “tweak” existing pieces—rotating the image, changing colors, and so on. They can sell these layers in addition to the underlying artwork.)
NFTs mean that digital art has better economics for artists; in the long run, this could make digital art a bigger market than the $60 billion physical art market.
Crucially, NFTs are broader than digital art; digital art is simply an early manifestation of this phenomenon. NFTs can undergird the digital ownership of practically any asset: land, clothing, furniture.
Perhaps the most interesting example is NBA Topshot, a project from Dapper Labs that lets sports fans “own the best moments from NBA history.” One LeBron James dunk, for example, sold last month for $71,455:
Here are Genies avatars for Cardi B, Rihanna, and Justin Bieber:
The fact that NFTs are central to digital ownership—well beyond the art world—brings us to why NFTs are central to the metaverse.
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At its simplest, the metaverse is a shared digital space. The word “metaverse” first surfaced in Neal Stephenson’s 1992 sci-fi classic Snow Crash, used to describe a massive multiplayer virtual world. Authors like Ernest Cline built on the concept in books like Ready Player One, and today the metaverse is the ambition for major companies: Roblox’s S-1 filing mentions the word “metaverse” 16 times. (Fittingly, Ernest Cline recently held a virtual book tour in Roblox for Ready Player Two, his sequel.)
NFTs are critical to the metaverse because they enable digital ownership. Not only can you own digital art in the metaverse, but you can own a digital home to hang that art in. Because NFTs are linked on the Ethereum Blockchain, they are immutable and irreplaceable; no one can refute your ownership of that art or that home.
The metaverse will have a robust virtual economy, and NFTs are the foundation for this economy. Digital transactions are already mainstream: microtransactions have grown from 20% of gaming revenue in 2010 to 75% of gaming revenue in 2020. By 2025—in just four years—they’ll make up 95% of gaming revenue.
Apple’s App Store is another early iteration of a virtual economy. Just between Christmas and New Years this year, people spend $1.8 billion (!) in the App Store.
Today’s leading consumer companies are increasingly training us to participate in digital economies. We can see this in Duolingo with gems, in Candy Crush with hearts, or in Bumble with Bumble Coin—all forms of in-app digital currencies.
The metaverse is still in its early innings, but NFTs are a critical step toward realizing its potential. One key concept is decentralization.
This is a complicated topic, and I recommend reading Chris Dixon or Packy McCormick for a more in-depth analysis of decentralization. But the crux is this: NFTs make sure your digital ownership is transferable across any online space.
Before crypto, online worlds like Second Life and Roblox were the closest we got to the metaverse. But an item bought in Second Life or in Roblox isn’t transferable outside those realms. Fortnite has sold $1 billion of digital goods, but those goods are worth $0 outside of Fortnite.
Because the blockchain is a universal language, decentralization is possible. In fact, Ethereum—the cryptonetwork underlying the digital art and NFT worlds—was born from this fact. Ethereum’s founder, Vitalik Buterin, was an avid World of Warcraft player. Buterin remembers:
“[Activision] Blizzard removed the damage component from my beloved warlock’s Siphon Life spell. I cried myself to sleep, and on that day I realized what horrors centralized services can bring.”
Experiencing the unjust power of World of Warcraft’s maker—a centralized authority—led Buterin to propose the idea for Ethereum.
The metaverse is an open ecosystem not subject to the whims of any single company. NFTs make the metaverse possible in its truest form.
Digital art, NFTs, and the metaverse are a unique confluence of trends: the creator economy, cryptocurrencies, virtual worlds, business model innovation, online communities. The future of the internet is social, creative, and self-expressive, and these topics embody that future.
Digital artists personify a new career enabled by the internet—one that may be more lucrative than its physical counterpart. Digital spaces will transform how people socialize and work.
Today’s Roblox developers will grow up to populate the metaverse with digital clothing, digital furniture, digital parks, digital skyscrapers. Workers who build today’s Airtable apps will build tomorrow’s virtual offices. Merchants who open Shopify or Cashdrop stores today will design virtual, 3D stores tomorrow. And today’s TikTok stars will build entertainment experiences within virtual worlds.
The question that many people new to digital art ask is, “Why would I buy digital art when I can just download it for free?” But this misses the point: why does physical art have value? Because we assign it value. The same can be said for virtually anything.
Asked if it’s hard to sell her paintings, the 20th-century artist Marilyn Minter said, “I don’t care if anyone buys them—I just needed to make them.” Her words embody the metaverse and the people who will build it. There’s a new generation of creators, and their canvas is digital.
Sources & Additional Reading
Lots of sources this week and lots of pieces that I recommend reading if you want to go down the digital art, NFT, and metaverse rabbit holes:
Why Collect Digital Art | Foundation
NFTs Are Transforming the Digital Art World | Foundation
Enter the Metaverse | Foundation
State of the Metaverse: 2021 | Eric Elliott
Tokened Art, NFTs, & Blockchain’s Art Future | Coin Telegraph
Into the Metaverse | Nichanan Kesonpat
The Value Chain of the Open Metaverse | Packy McCormick
NFTs and the Digital Art Movement | Portion
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