The NFT Art Market Explained — and How We See Its Future

We may soon find that everything in the real and digital world is registered with NFT.

I’m Keisuke Ota, the executive officer and head of business development at Startbahn, Inc. It is the unprecedented boom in NFTs; we hear about NFTs every day, and Beeple’s work sold at Christie’s auction for $69M is fresh in the minds of many. Startbahn has also been receiving many inquiries as a result of this.

Although it is great that the NFT market is recognized by a wider audience, only a few people understand the essence of NFT. Startrail, an infrastructure for art distribution and evaluation developed by Startbahn, also utilizes NFT technology.

Here is an overview of the NFT market, along with what we, Startbahn, do.

What is NFT?

What is a non-fungible token (NFT)? The word itself means non-exchangeable goods.

Its counterpart is FT, fungible tokens (exchangeable goods). For example, paper money and stock certificates in the financial market are examples of FT. Digital currencies and cryptocurrencies such as Bitcoin are also FTs. FTs have value as long as there is something that guarantees its value and reliability — a company in the case of stock certificates and a central bank for paper money — and the quantity of the good itself is limited and controlled.

NFTs are goods where each good has its unique character and cannot be substituted for other goods, such as real estate such as houses or characters in games. And, of course, art is also an NFT. Usually, each work of art is one of a kind — made of different materials with a unique concept and message. Its value is measured by its uniqueness, rarity, and novelty.

As you can see, the concept of NFT is not anything new. But it is now exciting because blockchain can express the idea of NFTs. With the rise of Ethereum and the creation of the ERC721 standard — which specifies what commands can be given to Ethereum and what will be returned — it has become possible to embody unique goods as tokens on the blockchain. Until then, only FTs, such as cryptocurrencies, could be traded on the blockchain.

So what will NFT on the blockchain bring to us?

The most notable thing is that it can give uniqueness to digital data. It is easy to make identical copies of digital data. Therefore, it has been costly to distribute digital content while protecting its rights: preventing unauthorized use and copying. It is also virtually impossible for something that can be so easily copied to have value, which is why digital content has been traded at a relatively low price compared to real content.

However, by combining NFT with digital content, you can give uniqueness and uniqueness to digital content and easily prove that you are indeed the owner of this content. Blockchain can digitally secure the context and brand of the content. NFT technology allows you to combine the convenience of digital content with the scarcity of physical content.

To use NFTs, you can either earn it from applications (games, marketplaces, etc.) running on Ethereum called Dapps or by trading on NFT exchanges (OpenSea is a famous example). It is also possible to manage NFTs through the UI of each application or a dedicated wallet.

(*) Non-fungibility is sometimes pointed out as a problem with cryptocurrencies. For example, if the wallet address of an anti-corporate or terrorist organization is known, the value of 1BTC that went through that address may change from 1BTC that did not go through that address.

The Unprecedented NFT Boom

With the launch of NBA Top Shot and the trading of Jack Dorsey’s first Tweet as an NFT, the recent NFT boom has led to converting various contents into NFTs and an explosion in the number amount of transactions. The boom can be attributed to a number of factors — Ether and other cryptocurrencies’ value soaring, the development of Dapps and exchanges (in terms of both number and technology), the growing interest in digital contents due to COVID-19, and the entry of big players into the NFT market.

NFT art — art content tied to NFT — is also gaining popularity. As previously mentioned, the winning bid for Beeple’s work at Christie’s is a good example. Since it started as a Day Sale with a starting price of $100 (Estimation price unknown), it seems that Christie’s did not have high expectations at the beginning (in general, high-priced works are often sold at Evening Sales instead of Day Sales). Christie’s had a sale of Robert Alice’s NFT art in 2020, but it didn’t get the same response as this time.

Beeple’s work sold for as much as $69M (the third-highest price sold for an artwork by a living artist). The winning bidder is said to be the founder of the NFT Fund, and although the transaction took place in the blockchain community, it also had a significant impact on the art market and general users.

As a result of this NFT art boom, many NFT art marketplaces (sales and exchanges) have sprung up. I’ve listed some of them in the table below. As for the NFTs for purchase, some are open to anyone to post, while others require a screening process. Some have a secondary sales revenue system, some issue original tokens to form a community, some allow payment in legal tender, some allow sign-up with an email address and many more. However, the data schema (what kind of information is written) and the actual meaning of the tokens (what rights the tokens embody, what kind of content is written in the terms) are different for each service. (OpenSea supports NFT formats from various marketplaces so that any NFT can be traded).

Surprisingly, as far as I know, some services make it easy for non-buyers to download data of digital content that is supposed to be for sale. NFT technology has made it possible to trade disembodied digital content and has updated the concept of ownership. Instead of selling the content itself, they may be selling the “ownership of the content” (Jack Dorsey’s tweet is a good example). I am very interested in how the notion of ‘owning an artwork’ and ‘determining the value of an artwork’ is redefined as a result of blockchain and NFT technologies advancement and their widespread use in the art world.

Startbahn and NFT

Startrail and Startbahn Cert., developed and run by Startbahn, utilize NFT technology.

Startrail is a blockchain infrastructure for art distribution and evaluation. It records information that affects the value of an artwork — such as basic information about the artwork and its historical provenance — securely on a blockchain so that it can be inherited and updated whenever the work passes into the hands of others. (The owner’s personal information and the sale price of the work are not recorded). Each piece is issued a Startrail Registry Record, which is an NFT compliant with Ethereum’s ERC-721. However, we do not expect the Startrail Registry Record itself to be traded for speculative purposes. We intend it to be inherited along with the artwork to guarantee its value.

Startbahn Cert. provides a web-based dashboard for issuing and managing Startrail Registry Records and a viewer for contents recorded in the blockchain, which can be accessed via smartphones. Since most of the artworks distributed in the art market are real and physical artworks, not digital data, we provide tags with built-in IC chips to link the real artworks to the data on the blockchain.

Many features on Startrail and Startbahn Cert. adhere to the conventions of the fine arts market. First, only businesses that have passed the screening process will issue Startrail Registry Records as licensed users since Startrail Registry Records include important information that affects the work’s authenticity.

Second, because it is often difficult for users to manage blockchain keys, we adopt technology from Torus based in Singapore. This technology allows users to easily log in to Startbahn Cert. with a Google account or an email address.

Other features include royalty-type revenues, copyright management, and more to be implemented in the future.

For more details on Startrail and Startbahn Cert., please refer to Startrail’s white paper or our CTO Tomo Nakamura’s article.

We are currently issuing Startrail Registry Records mainly for real artworks, but by issuing Startrail Registry Records for digital artworks, we will treat them in the same way as NFT art. We are planning to strengthen the registration of digital works in the future.

Future NFT Market Forecast

The NFT art market is in the midst of a boom. What kind of development awaits us in the future?

Currently, most NFT transactions are considered to be for speculative purposes. I have tried to buy and sell NFTs on several marketplaces, and to be honest, it is extremely unclear to general users what determines the price of each content. Since the sale of NFT art at Christie’s, many fine art players have announced introducing NFTs — Damien Hirst announced the sale of NFT art, Sotheby’s reportedly handles NFT art, etc. — and more exciting news is expected to continue.

I believe that the recent abnormal price hikes will come to an end, presumably in the next few months to a year. In fact, the trading price in the NFT gaming field has started to see a gradual decline after reaching its peak volume in February 2021. There are many reasons for this, such as copyright issues of digital contents, loss of private keys, and difficulty in identification.

At the same time, I believe that the NFT market will not disappear completely. As the measures to deal with the above problems will improve, the number of transactions will increase, and the price will stabilize. The market will be formed steadily. Startbahn is more than thrilled to participate in this movement.

Moreover, as VR and AR develop to create digital spaces that are too real to be fake, the scope of NFT applications will expand further. A utopian world where people can appreciate one-of-a-kind NFT art in the VR space, as well as one-of-a-kind art in the real world, will become our new reality. As our CEO, Taihei Shii, said in his speech last year, we may soon find ourselves in a world where everything in the real and digital world is registered with NFT, and users will feel awkward without it.

Keisuke Ota
Business Development Dept. Manager, Executive Officer

Born in 1989. Completed the Department of Architecture Graduate School of Engineering the University of Tokyo. Swiss architectural design after graduation
Established museums and brand shops as architects at Herzog & de Meuron
Engaged in counting. Later, He turned into a management strategy consultant, and Bain & Company Engaged in management support for major companies at Tokyo and Dubai branch offices. Participated in Startbahn in 2019, Mainly driving business related to digital technology.