This all started because I bought some awesome artwork from Mike Gabriel (https://mike-gabriel.com/) and I had been curious about this NFT fad that seemed to be getting so much press in the crypto community. After writing an email saying he should check it out, I realized I wasn’t really sure how the heck it really worked!
So, here’s how far I got trying to explain it. I think it may be useful to a lot of people, so I’m posting it here instead of in just an email.
I’m not going to get into all the nerdy details about how it all works. Let’s just start out with a simple Analogy:
Let’s say you have $500k in your Bank account (pretty nice). You’re house hunting and this guy Frank gives you a tour of his house. You love it and tell him you want to buy it. Frank says, “The Deed to my house is listed with a new ‘PayPal Deed List’. So, PayPal me the money and the deed will get transferred to your name.” You say, “Sure” and transfer the money from your bank to your PayPal account, select his Deed, and choose “Buy”. The deed is now registered in your name and you legally own the house. Frank hands you the keys, shakes your hand, and walks out the door. On his way out, he opens his PayPal app and transfers the money from his PayPal account to his bank.
That seems pretty straightforward, right?
Getting Started
- You get a “Wallet”. Think of it as a free Gmail account. You can get one anywhere. I have one at https://coinbase.com. Millions of people have them for trading bitcoin.
- You upload a piece of digital artwork to any NFT site and “Mint” it. Doing this encrypts the image and creates a big long string of numbers and letters called a “Token”. If you ever were to “Mint” that image again, you’d get that exact same string of numbers and letters. No matter where you upload it to “Mint” it. You’ll get the exact same string of letters and numbers.
- Then, there’s a big public list where your Token (that big list of numbers and letters) is listed as “Created” and Then Transferred to your “Wallet”, Like a public list that says, “This is Mike’s painting’s numbers. I’m emailing them to Mike’s artwork’s Gmail account.”.
Ok. So, at this point, if anyone ever copied your artwork and tried to sell it as their own, you would have proof that you own the artwork. Like getting a copyright for digital art.
How is this useful to you, beyond just having a string of letters and numbers? Think about how paintings often come with some kind of certificate to prove it’s an original; that it isn’t some fake or even a scanned copy of someone else’s work. That validation is worth something to people. To say, “Hey, this is an original work and I have an NFT for it. You could even put a little QR code on a tag that names the artwork so people could look it up and see that it’s something you did and not something you copied from someone and stuck in a frame.
How would this work?
Imagine this: Joe sees your work at a show and says, “This looks great, I’ll take it.”. You say, “Great, it’s $1500, I’ll take cash or credit. Do you want to buy the NFT as well? It’s an additional $500”. Joe’s like, “WTF is that?” You say, “It’s the digital ownership license”. “It registers it publicly as a digital artwork sale. That proves you own this print and how much it’s worth, so if you want to resell it in the future or insure it, the value is provable”. Joe says, “How do I do that?”, You say, “Well, the $1500 plus the $500 is $2k. Go to CoinBase, make an account in like 10 minutes. Deposit $2k into it using your credit card. Then click the link on my website (or a QR code you print out and stick somewhere on your painting) and choose to buy it. Then the sale is publically registered and the “token” of the print will be publicly listed as being owned by your account”
You hand him the artwork and he goes home. Then, you open your wallet on your phone transfer it to your bank account, exactly like a PayPal transaction.
Joe has evidence he paid a bunch of money for that print, and you’ve made a couple hundred bucks that you wouldn’t have had before.
There’s even more
Now let’s take a look at home sales. Maybe Joe bought a house in your neighborhood and intends to live in it until he’s dead. He has no intention of selling it, but when he bought it the value of that sale was registered with the state and listed publicly. When people buy or sell homes, they always look at homes in the neighborhood to compare values, to see if the home they’re looking at is over or under market price, compared to other homes in the area. Imagine if you owned ALL the homes in your neighborhood, and they’re ALL for sale. If Joe gets one for 100k, when someone else looks at a similar house, they see that Joe’s sold for $100k, they’ll feel comfortable that the house next door, which is selling for $100k is well priced.
If you sell your art this way, then you can show your catalog and have verifiable proof that your art has sold for thousands of dollars. People take that into account when they buy stuff. Even if it is just something they never plan to sell. They see it as an investment rather than just a luxury. They see that an artist has a proven track record, that others value their work. Whatever pushes people to make a decision, as an artist, you’ve got to make a living, so every little bit helps.
Just a bit more…
Suppose, Mary comes along and buys a couple of prints a few years later. She’s super happy, but she sees one of your other works in your catalog that would match perfectly with the two she just bought. You tell her that Joe has that one and you can either print one out and put it together for her, or maybe she would like you to ask Joe if he wants to sell his to Mary. Maybe Joe is ready for a change and wants to buy another print? That may seem crazy, but the fact that someone would want to buy a print off my wall is a pretty solid validation of my decision to buy your artwork. AND if I sell, I can justify getting another!
So, check this out: When you mint it, getting that very first token, you can literally write “On each sale of this artwork, Wallet 123456789, will get 3% of the sale price.” into the electronic contract and tell people that, if they want to sell the print, they can feel free to do so as many times as they’d like, but you will get a tiny commission on the resale. So, in the case of Joe and Mary, let’s say Mary and Joe did a little skype, checked out the print and she said she’d like it. She sees that he bought it for $2k, so so she offers $2,500 for it. They do the exact same kind of sale, but this time you actually get 3% of the $2500 ($75). When you upload it, I believe you can determine which side of the deal covers that cost.
Now there are 2 things here that are important.
1. Joe actually came out $500 ahead.
2. The money is still in crypto-currency (Etherium).
He can just cash it out. But, he wants a new painting/print/artwork to replace the one he just sold. So he’s not going to cash it out, he’s going to give you a call or check out your website of work or whatever, because he made a profit. BECAUSE of TAXES! With cryptocurrency, you’re taxed like Capital Gains. He bought $2000 of Etherium and withdrew $2500, therefore $500 is capital gains. BUT, if it stays in CryptoCurrency land, then it’s like trading stocks within your IRA fund. It doesn’t exist as real money until it is withdrawn. So, if he wants a new piece of art, he’ll look for one he can buy with that cryptocurrency.
Risks
None. Honestly, there are no additional risks here. Think about this: If someone pays with a credit card, they can complain and reverse the charge. They can do the same with PayPal. They can stop payment on a check. This is more like Venmo with a deed and a public record. The money is transferred from one wallet to the next and it’s done.
Conclusion
I’d say that the process is going to become extremely common for a lot of art. Even sculpture. You’d take a photo of it and upload it. Then it would be recognized as your artwork and could be bought and sold. Just like a deed to a house is passed from owner to owner with the registration into the property records of how much it was sold for.
Unrelated Concerns
A big problem that exists in the art world is “fake art”. With Art, you can create false value. Let’s say Mary is a big coke dealer. She could easily make 100 NFTs of a smiley face and post them for $100. When someone came to get some coke, they’d just show her one of her $100 NFTs on their phone. Then, all her income money would be legally from “Art”. She could even hire staff! Moreover, she could literally write in her dealer’s take in the contract, so the dealer would automatically get a cut every single time she made a sale!
This can be expanded internationally as well. Look at some of the Trump property sales, where the original property was $1M and he sold it to some Russian corporation for 10M and nobody ever moved in. That’s not a property sale, that’s laundering 9M dollars. Doing it with NFT would be even more efficient and impossible to control. Trump could draw a smiley face on a napkin, take a pic of it, upload it as an NFT and some anonymous account could buy it for 10M. No fake corporations or property or hidden Deuchebank accounts necessary. Just a flat out transfer of millions with absolutely no way to prove why some rando decided to give him $10M and no way to prove he knew anything about it.
Anyway, that’s just thinkin’ about how this is going to go in the future, both the good and the bad.
