“Can You Please Help Me, Make a NFT?”
The NFT market has a supply issue. Why? Because making NFTs isn’t as easy as it should be.
By now you know that the NFT or “Non-Fungible Token” market is booming (but if you’re still unfamiliar with NFTs, check out my beginner’s guide here). An artist with barely a Twitter following to their name, puts together a digital work and with a few magical waves of the mysterious blockchain wand, shazam! It sells for the going rate of a Banksy. The market has become so lucrative, SNL even did a skit on it.
You likely know someone that talks about NFTs like they’re the birth of a new digital age in art, music, authentication or commerce as whole. You may even have a friend that actively buys them and if they’re lucky, has made a pretty penny on the secondary market.
But do you actually know someone that has made, or in blockchain lingo ‘minted’, a NFT? Unless you are a developer or serious crypto-enthusiast, the answer is probably no. That’s because for all the talk of NFTs and the democratization of digital art, they’re actually not as easy to develop as you think.
Looking at the numbers drives this home. According to the NFT Report 2020 from L’Atelier BNP Paribas, the NFT market tripled last year to over $250 million (and as of this writing is at nearly $500 million). As exciting as those numbers are, what’s arguably more interesting is that while the number of NFT buyers rose by 66%, the number of sellers only rose by 24%. For every new NFT seller that joined the market in 2020, there were five new active buyers! In fact, just over six thousand new digital creators began selling NFTs last year. With the amount of money exchanging hands, seemingly up for grabs to the entrepreneurial artist, why aren’t more creators jumping onto the NFT bandwagon?
Perhaps artists are wary of the environmental impact of blockchain technology or of the scammers trying to take advantage of them. But I think the answer is simpler — making a NFT still requires using cryptocurrency and that’s not within reach for many of the artists who would otherwise be making them.
Let’s take a look at the NFT creation process and it’s obstacles before looking at why making NFTs easier to create is so important.
So how do you make a NFT?
Well, it’s really a three step process. First you need to create a crypto wallet. Then you need to buy one of the cryptocurrencies that is used to mint NFTs, most frequently Ethereum. From there, you can go to one of the many exchanges such as OpenSea or Rarible, that have NFT creation tools. The creator uploads the file they want to have associated with the NFT and after adding in a few details and paying a fee, the NFT is created. After creation, the newly minted NFT can be listed on exchanges and sold. (If you’re looking for a detailed guide on the creation process, Coinbase has instructions that are pretty easy to follow.)
As for the cost of creating a NFT, that also comes in threes. First, a cryptocurrency needs to actually be bought and used to make the NFT- for Ethereum that tends to be around $50-$100. In addition, you’ll likely need to pay what’s known as a Gas fee for using the blockchain infrastructure. This price fluctuates based on “network congestion” or how many users are interacting with the blockchain network at a given time, but is generally a bit under the $100 mark. Finally, most exchanges charge a few percentage points of any future sale price in the form of a service fee.
Hold on. Creating a NFT doesn’t sound all that complicated after all- what’s wrong with this process?
There are a few things that make the current NFT creation process prohibitive for creators.
First, as mentioned, you currently need cryptocurrency to make NFTs and let’s face it, despite the increasing popularity of cryptocurrency, most people still don’t hold it. Creating a crypto wallet and buying cryptocurrency might be easy for some, but for most it’s still daunting and unchartered territory.
Expecting a traditional artist to have the technical ability to buy and hold cryptocurrency, at least in it’s current form, is just not realistic. If NFTs are really here to democratize art and make it‘s creation within everyone’s reach, then having it rely on technology that is currently only accessible by a few defeats the purpose. Moreover, if we want the supply of NFTs to continue to grow at a rate that keeps up with demand, then their creation will have to expand beyond the realm of the tech-savvy crypto enthusiasts taking a stab at digital art to the traditional artists attempting to utilize this new medium.
The next issue is cost. All in, creating one NFT will probably run you at least $150 before the service fees charged by exchanges. That might not seem like a lot, but it’s certainly enough to scare off first time creators who have no idea if their NFT art will actually sell. It certainly would prevent an established artist with hundreds of works for creating more than a couple of NFTs at a time. And keep in mind, in a world where you can build your own website for less than $20, throwing down a few hundred for a NFT surely feels significant to many.
Finally, the exact nature of what a NFT is and their dependence on the exchanges that their listed on is an impediment for creators. As Anil Dash, one of the original developers of NFTs, recently noted in The Atlantic, “when someone buys an NFT, they’re not buying the actual digital artwork; they’re buying a link to it.” This is because the actual artwork is not stored on the blockchain when a NFT is created, it’s just a web link to where the artwork lives. This means that the “life” of a NFT is reliant on the continued existence of exchanges, which are almost all new startups that could easily fail, bringing thousands of NFTs to the digital underworld with them.
But don’t we want NFT demand to outpace supply? Who cares if not everyone can create a NFT.
There are a few reasons why making NFT creation more accessible is so important, but I’ll focus on two here.
First, even if you’re goal is the longevity of the current NFT price surge, I don’t believe the mismatch of demand and supply is in your interest in the long run. To a certain extent, the dramatic pricing and growth of the NFT market has to do with the amount of buyers far outpacing the number of sellers. But one way or another, tools that make NFT creation easier will begin to reach the market. If these tools become available now, when the NFT market is still in it’s infancy, then the increase in supply will increase, but incrementally and likely not in a way that will cause serious damage to the market.
However, what happens if the disparity between demand and supply remains unchecked and the NFT market continues to go into overdrive? Well, regardless of how you feel about NFT prices now, you can bet your token that a pricing bubble will form. When creator focused tools finally do emerge, the resulting dramatic increase in NFTs will drag prices down sharply, causing a pricing implosion and “crash” that will scar the reputation of NFT technology for a long time. Thus, if you actually want the NFT market to establish itself in the long term, increasing supply now makes sense.
The other reason democratizing NFT creation is important has to do with the application of this technology beyond it’s current usages. NFT authentication opens the door for use cases way beyond that of collectibles. What could it mean for the music industry and copyright ownership? Could it allow us to authenticate documentation, making trips to the DMV obsolete? How can we use it to turn real world items, like proof of home ownership, into digital assets? These possibilities are the real worth of NFT technology, but until NFT creation is simplified, their development will be slowed.
Which is all to say simply, that the NFT market needs better creator tools to reach the heights that it’s most ardent enthusiasts imagine. Artists need to be able to create a NFT instantly and at low cost without holding cryptocurrency. Until then, to quote Pete Davidson in SNL’s NFT parody, “Can you please help me make a NFT?”
