While the topic of NFTs may be on the tip of everyone’s tongue these days, there is still little academic peer-reviewed literature on the subject. Recently, we came across a paper examining the opportunity for fundraising NFTs can provide for the cultural sector, specifically; galleries, libraries, archives and museums “GLAM”. Also explored are the challenges facing the institutional adoption of NFTs. We would like to share our main takeaways from the report:
Highlighting Opportunities; Identifying challenges
Beeple’s Everydays: The First 5000 Days NFT selling at a Christie’s auction for a record 69 million USD opened the eyes of institutions to the potential of NFTs to generate significant revenue streams for them. This comes after the financial wounds left on the cultural sector by the 2018 economic crisis, which have been sorely aggravated by the extended and repeated closures brought on by the COVID-19 pandemic.
Many institutions have had to turn to desperate measures, such as deaccession, to raise vital funds to remain afloat. The Royal Opera House, for example, resorted to selling a valued part of their collection, a portrait by David Hockney of Sir David Webster, the General Administrator of the Opera House for several decades.
According to the authors of the report, by introducing digital scarcity, NFTs present an increase in value for museum images and digitized collections of cultural heritage. This is being considered by some as a potential “lifeline” for institutions given the current climate.
With that being said these opportunities do not come without their own set of challenges. For the authors of this paper, the main concerns surrounding institutional adoption remain; security and storage risk, copyright issues (including the exploitation of previously digitized heritage content made available through openGLAM licensing), and the environmental impact of the blockchain.
Security issues arise regarding crypto wallets and keys. Like cryptocurrencies, NFTs require cryptographic keys and wallets to store and access them. For custodial wallets, in which the platform manages keys on behalf of the user, this means the user does not have ownership of said wallet. In a scenario whereby the marketplace crashes, becomes compromised or declares bankruptcy, solvency issues would arise. Alternatively, for self-managed crypto wallets, if a key or password is lost or compromised there is not yet a tested process for retrieval that would not compromise the integrity of the respective blockchain.
Then there are copyright issues to consider, including the rise of malicious projects. As the article states, “the ubiquity of anonymity on any blockchain, provides fertile ground for bad actors to sell unauthenticated NFTs to unsuspicious buyers." The absence of copyright policy governing NFT sales has proved especially problematic for institutions using OpenGLAM, the initiative that promotes free and open access to the digitised collections of galleries, libraries, archives and museums. Misleading projects have used works available on OpenGLAM, despite not being associated with the institution that owns the original work in any way. Such is the case of Global Art Museum (GAM). The project offered NFTs of works by Vermeer and Seurat claiming to share 10% of sales with the institutions owning the original physical works. The works GAM was using were openly available through OpemGLAM so technically GAM did not infringe any copyright laws however, they were misleading buyers by associating themselves with the respective institutions by name, implying a partnership and promising revenue shares. In this case, GAM minted under false pretences of association and they were required to take down all their NFTs. However, this came after extensive (and irreversible) sales had already been made.
Even with the uncertainty over copyrights, it is commonly accepted that copyright laws for digital tokens largely mirror the traditional art world in that, “the trade of NFTs does not impact, or involve in any way, the intellectual property rights of the work or its image, unless otherwise specified.”
Perhaps the biggest challenge in regard to NFT adoption is the detrimental environmental impact of blockchain mining. Currently, the majority of NFTs are still being traded on the Ethereum blockchain, whose energy consumption is substantial. As of May 2021, Ethereum’s energy consumption is estimated at 48.7 Tera-Watt Hours (TWh) per annum, which equals the annual energy consumption of the country Malta.A recent report published by Cointelegraph Research demonstrates in Figure 19 the top NFT marketplace volume and transaction count per month with Opensea and Rarible, both Ethereum based platforms, dominantly leading in sales. Moreover, Opensea more than doubles any of its competitors in transactions per month.
Ethereum, however, is completing a transition to a proof-of-stake model, which means validating its transactions with deposits rather than through computer mining. After this transition, it will no longer require copious amounts of electricity to validate transactions. It is estimated that Ethereum will use at least 99.95% less energy post-merge.
Another impact that cannot even be wholly comprehended yet is what institutions might be risking in the future with regard to newly developing technologies, for example loaning NFTs for exhibition in future metaverses.
Proceeding with Caution
Given the aforementioned challenges, organizations wishing to enter the NFT space will need to proceed with caution. This not only means becoming well educated in the quid pro quos of entering the NFT space but also carefully choosing a digital strategy and digital partners that align with the organization’s mandate and values.
When Particle chose to enter the space, key decisions were made to ensure the project would avoid most of the challenges set out by this paper; while also entering the NFT space in a way that was true to our values.
Rather than minting and selling an exact copy of Banksy’s iconic Love is in the Air (2005) Particle chose to divide the work and create 10,000 renditions or particles, in this way creating new works for each respective owner. By creating NFTs only inspired by (and not simply a replication of) the original, Particle avoided any form of digital deaccession, safeguarding the critical piece for the physical foundation.
The project also opted to mint on an eco-friendly blockchain, Avalanche, over the dominant Ethereum-based NFT blockchains. Compared to Ethereum’s annual 17,300,000,000 kWh, Avalanche’s annual energy consumption measures at only 94,120 kWh. Avax blockchain is currently noted as the most energy-efficient crypto network.
Finally, careful consideration was given to carrying the project out in a way that aligned with the mission of art for all. Fractional ownership creates the opportunity for people from all walks of life to own a portion of a masterpiece. Further, Particle Foundation will ultimately put the power and governance over a collection of physical masterpieces in the hands of a community of owners.
While the opera house had to sell a piece of their collection, NFTs may offer a way for pieces to stay in the hands of these stewards while at the same time enabling new methods of fundraising. Future partnerships with Particle can offer a new way for museums to stay afloat and raise funds while fulfilling their mission.
The world, and the cultural sector along with it, are quickly turning to digital. Failing to embrace this means failing to not only stay relevant but also attract new and future audiences. Given this, it should not be a question of if, but how, the cultural sector will incorporate NFTs into their scheduled programming.