Are Non Fungible Tokens aka NFTs the future of the arts sector? Or are we sitting on a hype that has already passed its peak? Julia Ries, art insurance expert and head of ERGO Art & Values, has considered the significance of the new genre for art insurance for German Cash Magazine.
Non Fungible Tokens are like digital property registers in which is recorded who bought when and at what price, what does the art work show and who is the creator. In this way, a file that can be reproduced in any way becomes a unique product and thus a potentially valuable collector's item. Anything that can be digitised can become an NFT: a PDF, photos, art prints, even videos and music.
The artist Beeple kicked off the NFT hype at the beginning of 2021 – he achieved 69 million US dollars with his work at Christies.
The artist Alicia Kwade had her genome printed out on A4 pages, portioned the printout into a good 10,000 parts of 25 pages each, made each one an NFT and sold it for about 300 euros a piece.
An anonymous artist divided his work called “Merge” into even more NFT parts – namely 312,686. Like shares, collectors were able to buy shares in the work. The action is said to have brought in 91.8 million US dollars.
Non Fungible Tokens have absolutely nothing to do with the classic portfolio of art insurance - covering possible damage during storage, transport, restoration and theft. NFTs cannot fall off the wall or be thrown at with tarts.
At present, NFTs can probably best be classified as cyber insurance. But cyber protection does not explicitly refer to artworks, but to data loss. The exciting question is: how can one insure data that is also of art value?
Solutions do not currently exist, but the industry is working on them. Munich Re as a reinsurer and ERGO as a primary insurer are cooperating, among others, with the start-up 4ART Technologies AG, which specialises in blockchain certification of art objects.
The question is whether NFTs will continue to catch on or is it just hype? Coupled with the current crash of cryptocurrencies, the market for NFT art is also stagnating. Some resales now do not even reach the initial value.
In addition, NFTs also have a sustainability issue; large amounts of electricity are consumed by the many decentralised computers in the blockchain. In times of climate change, these are aspects that should be viewed critically.
The unique character of NFTs is also debated. Only from the fact that I can unquestionably prove in some computer that a digital autograph card belongs to me and only me is a (infinitely high) value to be derived? These are pseudo-certificates, many say.
What speaks in favour of NFTs, on the other hand, is their openness. Anyone can be an artist with NFTs. You don't need gallery owners or other connections to be discovered on crypto trading portals. And anyone can become a collector because it is easy to order online. In this way, the art market could become much bigger.
The annual Tech Trend Radar by Munich Re and ERGO has included "smart contracts" as a megatrend in 2022. These are contracts that are stored and operated on blockchains and thus also form the basis for NFTs.
In addition, the metaverse is boosting imagination. In preliminary stages, virtual objects such as properties can already be bought today via NFTs. At ERGO, we see all this as additional proof that NFTs – despite all their volatility – could have a future, also as an art form. Art insurers would therefore do well to explore solutions.
Click here for the entire article by Julia Ries in Cash Magazine (in German):