The art NFT space: should VCs ride this new wave?
In recent months there has been more and more talk about NFTs but what are they really and how are they affecting the world of art?
What are NFTs?
Non-fungible tokens (NFTs), are blockchain-based tokens that each represent a unique asset, digital content, or media. A NFT can be thought of as an irrevocable digital certificate of ownership and authenticity for a given asset, whether digital or physical (e.g; piece of art). Thus, the NTF represents the ownership deed and the certificate of authenticity of a unique asset. The key characteristics of a NFT are to be cryptographically verifiable, unique or scarce and easily transferable. The ability to prove ownership of the asset is guaranteed by a contract, known as a smart contract.
NFTs are not interchangeable with each other and therefore differ from cryptocurrencies, such as bitcoins for example, which are fungible assets. The world of art is one of the first fields of use of NFTs, due to its ability to provide proof of authenticity and ownership of digital art that would otherwise have to deal with the potential of mass reproduction and unauthorised distribution on the web.
The asset is identified by a sequence called hash which is stored on the blockchain. Therefore, the hash is the way in which the asset is recognized within the blockchain. The NFT keeps track of the hash’s sales internally so that it can be traced back to its author and thus proven its possession. As a result, this process serves as confirmation of both authenticity and ownership of the asset, as it is important to keep in mind that only the owner of the digital document can compute its hash.
The NFT’s holds very little information, in fact its real content is stored on the web rather than on the blockchain due to space constraints as big files would slow down the entire chain and require a huge energy consumption.
VC investment growth in NFTs
Venture capitalists are writing big cheques for start-ups in the flourished NFT’s space, but it has taken VC dealmakers years to come to this conclusion since the first non-fungible token was minted in 2014.
NFTs have risen in popularity this year, along with the growth in the value of cryptocurrencies such as Bitcoin and Ether (which are used to trade NFTs), and indeed the trend has not gone unnoticed by investors. From a few million dollars invested in recent years, investments in NFT firms soared to $4.6 billion last year, with about $900 million more invested in NFT-related companies in January. It is easy to see why the NFT industry has enticed some early-stage investors: the digital collectibles industry is quickly expanding, with some digital artifacts fetching millions of dollars.
The world of art is one of the industries most affected by the rise of NFT: the number of NFT art sales exceeded 1.5 million in a single month in 2021. The NFT art space has seen outstanding growth in recent months — NFT sales volume reached $24.9 billion in 2021 (up from just $94.9 million the year before) and just hit $15 billion for the month of January according to DappRadar.
LaCollection: the new way of buying art
LaCollection is a French startup launched in September of 2021 by Jean-Sébastien Beaucamps and Fabian Langlet which is making big waves in the art NFT space.
The topic of NFT is currently trending. While some of the trends in this field may appear unusual, LaCollection is bringing a sense of culture and elegance to the industry.
Furthermore, LaCollection is dedicated to a bold social and climate-positive plan roadmap, with sustainability at the forefront of its operations.
LaCollection stands out for offering a unique and highly personalized model, creating a new way of owning digital versions of physical works of art by collaborating with cultural institutions. As a limited edition ‘digital lithograph’, collectors are now able to own certified digital twins of masterpieces from the world’s greatest museums, galleries and artists.
LaCollection has just closed a $10m seed round led by Alven. Since its founding, LaCollection has raised a $400,000 pre-seed funding round from the founders of prominent blockchain unicorns Sorare and Ledger, among others, and last fall sealed an exclusive long-term partnership with The British Museum, reaching a 7-digit NFT sales performance in less than four months with an NFT sale dedicated to the work of Japanese painter Katsushika Hokusai.
Conclusions:
In such a context the expansion of this phenomenon is inevitable at the moment, but there has already been a reaction against the increase of NFTs. A lot of works of questionable artistic value are being sold at auctions driven by hype. Works by artists have allegedly been stolen and sold as authentic and many artists are concerned about the climate impact of art sales that rely on blockchain technology, which is known to be inefficient by design. VCs have to take into account when investing in NFTs that it may contradict with their ESG principles, commonly generated using fossil fuels.
Will this be sustainable in the long run?
This newsletter is fully independently produced by the members of the Nova Venture Capital and Private Equity Club. This club is run by students of the Nova School of Business and Economics.
You can directly access the sources we used:
AWS: Non-Fungible Tokens (NFTs) Explained. Retrieved from: https://aws.amazon.com/blockchain/nfts-explained/
Emilia Dabid (2022): VCs stake their claims as the NFT gold rush heats up. Retrieved from: https://www.venturecapitaljournal.com/as-the-nft-gold-rush-heats-up-vcs-stake-their-claims/
Pitchbook (2022): Meet 5 NFT investors expanding the horizons of digital art and gaming. Retrieved from: https://pitchbook.com/blog/nft-investors-in-digital-art-and-gaming
Joshua Rodriguez (2021): Non-Fungible Tokens (NFTs) Definition — Should You Invest in Digital Art? Retrieved from: https://www.moneycrashers.com/non-fungible-tokens-nfts/
Mitic I. (2022): 30 Fascinating NFT Statistics for 2022. Retrieved from: https://fortunly.com/statistics/nft-statistics/#gref
Pedro Herrera: Dapp Industry Report — February 2022. Retrieved from: https://dappradar.com/blog/dapp-industry-report-february-2022
