A Brief Analysis of NFT Value and Storage Methods: Is It a Money Game for Artists?

This article was published in the IPFS Original Force Zone, author: Tony.

"When bankers get together for dinner, they discuss art; when artists get together for dinner, they discuss money."

------Oscar Wilde (1854-1900)

Last week, Filecoin/IPFS founder Juan tweeted: "NFTs that are not stored on IPFS do not truly belong to you." He also retweeted a post discussing the true ownership of artworks, describing an artist creating their own artwork on the Ethereum-based NFT trading platform OpenSea, questioning the ownership storage certificates of artworks rather than signature confirmations.

This exchange brings some thoughts to IPFS: What is the current state of the market? How does IPFS ensure NFT ownership? How is the value of NFTs defined? The following will elaborate on these points.

There is a saying in the market that describes NFTs: Everything can be an NFT except for currency.

NFT Standard Definitions and Market Directions

Currently, the mainstream NFTs in the market are developed and applied based on Ethereum, with the main standard definitions being: ERC-721 and ERC-1155. Among them, ERC-721 is a completely non-fungible token, while ERC-1155 is a semi-fungible token. The difference is: ERC-721 describes a single asset, while ERC-1155 describes a single class of assets. For example, the recently hot-selling socks Unisocks, which once sold for over 30 million dollars, have a total circulation of 500 pairs in the market. If defined by ERC-721, only one pair of socks can be transferred at a time; if defined by ERC-1155, multiple quantities of the same category of socks can be transferred at once.

Briefly introducing two products to illustrate the market direction of NFTs: Flow and OpenSea, representing IP and modularized art creation.

Modular Simplification Framework. OpenSea is the largest NFT trading platform based on Ethereum, with a total trading volume exceeding 90 million dollars in February. OpenSea initially focused on developing modular tools for NFTs, and as the market grew, it became a wave-driven NFT trading platform. Its advantage is that artists can quickly create art based on OpenSea without paying gas fees, not just for ownership confirmation. In contrast, the market for modular tools is larger, but the high gas fees on Ethereum hinder the rapid development of NFTs.

OpenSea Official Website

IP Breakthrough Business Model. It is precisely because of the high gas fees on Ethereum that Flow has emerged. Flow is a public chain focused on NFTs, distinguishing itself from Ethereum by improving scalability and throughput performance. Flow primarily breaks through by launching products through IP, a model somewhat similar to mobile games. Currently, it has launched NBA TOP SHOT and will collaborate with the world's top and largest professional mixed martial arts event, UFC, to launch NFTs in the future.

Flow represents a business model and is a relatively mature business model in the market; while OpenSea represents a foundational protocol/application protocol, solving technical issues may be more beneficial for the real advancement of the NFT market before it is fully commercialized.

After understanding the NFT market, let’s explore why IPFS is more suitable for NFTs.

Filecoin and NFT Natural Fit

So how are NFTs stored on Ethereum? Because fully on-chain storage is difficult to achieve on the current Ethereum network, mainly due to high costs and implementation difficulties, the general approach is to use offline storage with hash value documents (centralized servers or IPFS) to mint NFT tokens. However, if stored on centralized servers, there is still the possibility of being tampered with or deleted.

IPFS/Filecoin itself is a decentralized storage protocol that can store large volumes of various forms of data content, ensuring data immutability. In this regard, Juan suggested that only NFTs stored on IPFS can truly ensure ownership.

pinata.cloud

Pinata: The Off-Chain Transporter of IPFS/Filecoin. Pinata serves as a bridge for NFT platforms to transport NFTs from Web 2.0 to Web 3.0. For example, Rarible, known as the NFT music Taobao, and OpenSea, the world's largest NFT trading platform, use Pinata's Pin Manager service to provide a permanent storage method, truly recording the ownership of NFTs.

Currently, Filecoin technology can only support off-chain storage for the NFT market. In the future, with the realization of Filecoin smart contracts, NFTs can exchange data and value based on Filecoin itself.

After discussing NFT storage methods, what value do NFTs actually have? And how is it determined?

NFT Value = Practical Value + Cultural Value + Artistic Value + Economic Value

The recent NFT craze has repeatedly pushed the prices of NFT artworks to new highs. Recent examples include: On March 11, digital artist Beeple's artwork sold for 69 million dollars at Christie's; an animated clip of Donald Trump sold for 6.6 million dollars; and "highlight moments" from LeBron James and other NBA players on NBA Top Shot have generated over 230 million dollars in sales.

Beeple's NFT collage "Everydays: The First 5000 Days" sold at Christie's auction house

So, what specific values do NFTs have? The author believes they may consist of practical value, cultural value, artistic value, and economic value.

Practical value refers to the intrinsic value of NFTs, such as tickets, real estate, equity, and insurance, all of which have actual scenario value. Even artworks have their research value in academic achievements, such as the aesthetic principles behind "Mona Lisa's Smile" or the reflection of urban culture in "Along the River During the Qingming Festival."

"Mona Lisa" exhibited at the Louvre Museum

Cultural value is relatively subjective, somewhat similar to the reputation valuation of listed companies, leaning towards value recognition. Cultural value pertains to objects with historical and cultural significance, where scarcity may endow them with higher value. For example, the bronze heads of the twelve zodiac animals from the Old Summer Palace are historical artifacts witnessing the burning of the Old Summer Palace during the Qing Dynasty, thus possessing collectible value, even though later imitations also hold certain historical and cultural value.

Artistic value is highly volatile and varies with individual aesthetics. Generally, a work's image is original and not plagiarized, with colors naturally coordinated and pleasing to the eye, thus the work possesses high visual value. If it is created by a renowned artist, is scarce, and has some cultural significance (like Picasso's "Two Women Running on the Beach" which created a new artistic form of Cubism).

Picasso's Cubist work: "Two Women Running on the Beach"

Economic value refers to some market speculation behaviors. For instance, street artist Banksy destroyed his own work and then turned it into an NFT encrypted artwork sold for 95,000 dollars, using certain means to make the market less rational.

Currently, the recent NFT artworks have not undergone a long period of sedimentation, possibly leaning towards cultural and economic values, and the cultural value is not very apparent, leading to certain instability in their value, indicating the presence of a bubble.

It is precisely because of this bubble that blockchain can break out of its niche, attracting more artists to participate in creation.

Final Note: Voices on NFT from Clubhouse

I found that the topic of NFTs has been very popular on Clubhouse, mainly divided into two groups: insiders and outsiders. Here are some viewpoints.

Outsider Viewpoints:

The wealth effect of NFT artworks has attracted a large number of people seeking business opportunities, including both artists and other creators. During discussions, I found that there is a deep gap in every field (artworks, equity, etc.)—each field has its own existing problems, and how can NFTs truly penetrate these fields? It may need to start from the practical situation of that track.

Insider Viewpoints:

Infrastructure Investors: The beginning of an industry certainly relies on the establishment of its infrastructure, as the rapid development of vertical tracks is more conducive to the growth of NFTs.

Art Enthusiasts: Those who love art creation and possess a certain level of artistic appreciation will invest based on their interests, and will not pay much attention to the investment value of NFTs in the short term.

Of course, the economic value of artworks will also bring many people hoping to find profit opportunities, but in this NFT auction, who will be the ultimate winner? It may be the blockchain and the art industry.