In this article, we explore what NFTs are and why they are the driver of creativity and innovation in the burgeoning Web3 landscape.

The possibilities of non-fungible tokens (NFTs) are innumerable. They are the intersection of the digital and physical worlds and a fundamental building block of Web3.

What does this new technology have to offer? A financial journalist might see the potential to prevent a financial crisis. A marketer - the chance to turn an audience into a community. A human rights activist the opportunity to give marginalized communities a formal identity.

But we're getting ahead of ourselves. To understand the concept of NFTs, let's look at how this technology came to be and what it was trying to solve. The lack of scarcity in the digital age.

Scarcity and the Human Experience

The idea that scarcity creates value and meaning is a concept rooted in human history and culture. The need for scarce resources has driven progress, innovation, and creativity. It's a fundamental driver of human evolution.

A world without scarcity? That was the World Wide Web before blockchain. An infinite amount of bits and bytes shaping our music, art, and information. Copied and distributed in an instant.

As a result, digital artists struggled to monetize their work. But some would challenge the status quo.

This dilemma was the muse for Kevin McCoy, a digital artist and blockchain enthusiast. He was looking for new ways to generate revenue from digital art and to validate the authenticity of digital artwork.

His concept was a prototype of today's NFTs. He and his partner Anil Dash presented the “monetized graphic” at Seven on Seven, a conference hosted by the New Museum and Rhizome.

“That day in 2014 was the culmination of a year and a half of work where I was just thinking about how blockchains can affect and intersect with artwork.” says Kevin McCoy in an interview with ARTnews.

Kevin named the first monetized graphic Quantum. It represented a generative piece of art, created by Kevin and his wife Jennifer.

Quantum

Year: 2014 Artist: Kevin and Jennifer McCoy Asset: Video Creators: Kevin McCoy and Anil Dash

In the following years, Kevin would try to advocate for his invention without success. It should take other pioneers to popularize his invention.

How do you challenge the dynamics of scarcity and demand in the digital realm?

Matt Hall’s and John Watkinson’s idea? An NFT collection of 24×24 pixel art images of unique and unconventional characters. CryptoPunks.

The co-founders of New York-based software company Larva Labs have released a polar opposite of mainstream, centralized collectibles on the Ethereum blockchain.

At first, CryptoPunks were pretty “worthless”. You could claim them for free. The only thing you needed in 2017 was an Ethereum wallet. But four years later, they became one of the most prestigious projects of a $41 billion NFT market.

What happened? A group of punks took McCoy's vision a step further. They opened the gates to a decentralized digital art and collectibles market. And it got crowded.

CryptoPunks

Year: 2017 Artist and creator: Matt Hall and John Watkinson Asset: Generative Art

A brief definition of NFTs

At this point, let's clarify what an NFT really is. Despite what many people think, an NFT is not a digital image of a bored-looking ape or a pixelated face. Instead, an NFT can represent various digital and physical assets and their ownership. You can hold your NFTs in your Web3 wallet, send them to others, and sell them on marketplaces. All in a peer-to-peer manner, without the need for intermediaries.

Monetized art

Kevin McCoy’s vision came true.

As an artist, you can create an original or limited edition of your digital work. For the first time. And, you can sell your rare digital creations directly to your fans.

But the fun doesn't stop there. Because NFTs are programmable, you can set a royalty rate to continue earning revenue from your creation after the initial sale. This enables you to profit from the appreciation of your work over time and build a sustainable income stream.

Web3 communities

In addition to monetization, NFTs allow you to cultivate and unite your audience. You can use NFTs to give your fans access to token-gated Discord servers, exclusive shows, and even in-person meetups. In other words, NFTs empower you to engage with your community.

This combination of features has not only attracted digital artists. Visitors from the offline world came to the Web3 space to explore the merging boundaries between the physical and digital worlds.

Physical vs digital assets

As some projects' valuations soar (e.g., CryptoPunks selling for millions), skeptics claim it's all speculation. After all, one can easily duplicate the data file that an NFT represents, making the NFT itself worthless.

Damien Hirst is one of the most famous and expensive contemporary artists. He holds the record for a single artist auction. Beautiful Inside My Head Forever raised £111 million ($198 million). This is ten times the previous record set by Picasso's work in 1993. Damien knows value.

His project, The Currency, challenged the notion that digital art is worthless.

In July 2021, he created a series of 10,000 NFTs with images of his physical paintings.

Collectors then had the choice: Keep the NFT or exchange it for the physical artwork. Leaving either a physical or digital testament to his artistic creation. Those who chose to keep the NFT saw the corresponding physical artwork burned by Damien.

The result?

• 5,149 opted for physical painting
• 4,851 for the NFTs

“A lot of people think I’m burning millions of dollars of art but I’m not, I’m completing the transformation of these physical artworks into NFTs by burning the physical versions” – Damien Hirst

The Currency

Year: 2021 Artist: Damien Hirst Asset: Paintings

He was a notorious womanizer, he loved cats, and his quote “enough of censorship” could be a rallying cry for artists in the Web3 era. His NFTs sold for millions without him ever experiencing the freedom of Web3.

Gustav Klimt (1862-1918) was an Austrian painter who became famous during the Art Nouveau period.

In 1908, he sold his painting The Kiss for 25,000 crowns, the equivalent of about €185,000 today. The painting of a couple wrapped in golden garments became a symbol of love, intimacy and sexuality.

For more than a century, Klimt's oil-on-canvas painting remained on exhibit in the gallery of Schloss Belvedere.

In 2022, on Valentine's Day, Belvedere brought The Kiss to the blockchain.

This time, the transformation of wealth took place without burning the physical art. Instead, it was turned into bits and bytes, scattered into 10,000 pieces, attached to 10,000 NFTs.

The collection sold for $3.2 million.

The Kiss

Year: 1908 Artist: Gustav Klimt Asset: Fraction of an oil on canvas painting

But the story of NFTs is just beginning. What happens when we attach assets other than art to NFTs? Like mortgages, insurance, tickets, music, digital identities, degrees, memberships, or real estate?

What happens when brands use NFTs to build a direct relationship with their fans? When NGOs use them to engage people in their common mission?

Many questions and many reasons to explore the growing Web3 landscape.

Some have already tried to find answers. In “More Than a Meme - The Case for Web3” we explore how one legacy media company is turning its audience into a community with its Web3 strategy.

The McCoy's never stopped roaming the wide world of Web3. Their 2022 project, The Inside World, blends the worlds of gaming and art. With the help of NFTs, of course.