2022 April-May Analysis

NFTs – what are they and what can they do for Georgia?

The world of bitcoin, cryptocurrencies, and consequently blockchain technology has bred controversy since its emergence just over a decade ago. Both banks and politicians have alternately decried it a Ponzi scheme or proclaimed it the Future. Stories of crypto investors making it big or losing it all continue to abound. But the latest blockchain innovation to hit the mainstream consciousness is possibly the most contentious to date.

Everydays: the First 5000 Days is a digital work of art created by Mike Winkelmann, known professionally as Beeple

NFTs (non-fungible tokens) have enraged, enriched, but most of all baffled those who encounter them. With a growing NFT scene in Georgia, Investor.ge decided to take a look at how they’re being used, how Georgia is uniquely positioned to benefit from the technology, and what the future of NFTs could look like here.

Georgia’s crypto lure

The absence of a tax on crypto gains has long made Georgia home to a thriving international crypto community, which has been quick to embrace NFTs. Tbilisi’s Art Up Street Gallery, for instance, has several NFT artists on the books and recently launched an NFT fundraiser for Ukraine. WiV Technology are using NFTs to bring additional authenticity to Georgian wines. The NFTbilisi hackathon slated for July 12 will bring together NFT enthusiasts in an innovation competition to create new use cases for NFTs.

But what are NFTs?

An NFT is a unit of data stored on a blockchain ledger where it cannot be altered or tampered with. Most commonly, NFTs are used as digital certificates of ownership. In such instances, the data would typically include a link to the asset it represents, current and past ownership, how much it has sold for in the past and terms and conditions of sale.

NFTs are non-fungible, or non-interchangeable, and this is what distinguishes them from other tradable assets like bitcoin or fiat currency, the use of which depends on their interchangeability. One dollar has an identical value to any other dollar, but every NFT is entirely unique. This is what makes them indisputable certificates of ownership; there can be no duplicates.

Though NFTs can, and increasingly are, being used to confer ownership over physical assets such as real estate, wine, and designer clothing, they are most often used to sell digital artworks, and frequently at astronomical prices which have engendered widespread skepticism and distrust.

The Nyan Cat meme was originally a YouTube video uploaded in 2011

In March 2021, Christie’s auctioned Everydays: the First 5000 Days, an NFT for a piece by digital artist Beeple, for $69 million. Many NFT newcomers were left scratching their heads. Why would somebody hand over millions for an image that can be replicated simply through a right click of the mouse?

The answer, as NFTs indicate, is that art-world valuations have always rested not on inimitability but on authenticity. The Mona Lisa has not been devalued by the thousands of Mona Lisa postcards, knockoffs and parodies that have been produced over the years; the original always retains its worth.

Prior to NFTs, digital art could be replicated but not authenticated. Now, no matter how many copies of Everydays: the First 5000 Days abound, the original can be identified and digital art can retain its value. With just under $41 billion spent on NFTs in 2021, the market has become almost as valuable as the entirety of the global art market.

Nonetheless, art world spectators still often remain bewildered by the internal market logic. Take the instance of the Nyan Cat. Part-cat, part pop-tart with rainbow flatulence in tow, a jpeg of this improbable creature sold for a value of $600,000 in 2021.

In the NFT world where humor, irreverence, and most importantly community reign supreme, such a valuation made sense. The Nyan Cat was one of the first memes to go viral in 2011. Owning the NFT references participation in a very specific internet subculture and becomes a means of expressing identity online. No one in the digital realm can see the political pin on your lapel or the Supreme trainers on your feet, but they can all see the NFT in your Twitter profile picture.

Bored Ape Yacht Club, or colloquially called Bored Ape, is a NFT collection built on the Ethereum blockchain.

Many NFT brands have made community membership an explicit part of their offering. Take Bored Apes, a collection of 10,000 NFTs depicting apathetic apes in streetwear that has become the most iconic NFT brand on the market. Owners include Paris Hilton, Jimmy Fallon, and Eminem. Bored Ape NFTs double as Bored Ape Yacht Club memberships card and guarantee access to benefits including an exclusive Discord server (a chat app with community groups) where other owners – celebrities included – hang out and chat.

Though NFTs can offer ‘real-world’ membership perks such as access to VIP sections in nightclubs, the communities they kindle are inherently digital and, therefore, international. Unrestrained by the confines of the physical world – covid restrictions, visas, and the burden of travel – members from across the globe form relationships, trade market insights, and birth new subcultures.

Similarly, the intangibility of NFTs has facilitated the rapid, cross-border and high-volume nature of the NFT market. NFTs themselves are liberated from many of the limitations, such as supply chain complications or wait times for shipping, that plague physical goods.

This access to international markets has been especially appealing to Georgian artists and entrepreneurs. Born and bred Tbilisi artist Jacob Shedevrs (age 23) makes tongue-in-cheek NFTs illustrations identifiable by the cynical, witty text that accompanies them. One piece ‘YOU ARE DOING A SUPER GOOD JOB YOU MORON’ is scrawled alongside a drawing of a manicured hand doing a thumbs up. Then, there is his ‘Heads’ series: a collection of 100 poorly drawn silhouettes combined with regular daily thoughts including “I NEED MORE MONEY” and “WHERE IS MY PHONE”. This is quintessential NFT humor.

Jacob sold his first NFT in March 2021. In June, a prolific collector based in China discovered his work while browsing through NFT marketplace OpenSea and began to stockpile it. By September, Jacob’s income from NFTs had surpassed his salary, and he was able to quit his remote job with a British tech startup to become a full-time artist.

Like many successful NFT artists, particularly those from non-Western countries, Jacob emphasizes that one of the greatest offerings of the NFT world is access to an international market that would otherwise be impossible. NFTs are “the most international and global thing that’s ever existed” he says, explaining how his sales and exposure have not been restricted by visa regulations or export barriers

It is not just the access to foreign buyers, but to foreign currencies that NFT artists value. NFTs are bought and sold with cryptocurrencies, most commonly ETH, which can be exchanged for almost any fiat currency including dollars, pounds, and euros within seconds on cryptocurrency exchanges. “When you have an income in dollars or other currencies,” says Jacob, “it’s more money, it’s more valuable and it’s more stable.”

One of NFTs’ most ground-breaking financial features is automated royalty payments, whereby with every resale, the creator instantly receives a cut. For artists like Jacob, this means his NFTs can generate a perpetual income stream and ongoing access to crypto and foreign currencies through the secondary market.

There are, however, many Georgian artists who are struggling to penetrate the world of NFTs. One of the main reasons for this is, as Jacob highlights, is a lack of Georgian language NFT resources. Many of the online groups for Georgian NFT artists reflect this; it is common to encounter questions from artists struggling to find clear instructions for how to mint NFTs or navigate the blockchain. Those who do excel within the space are often fluent English speakers.

Beyond digital assets, NFTs can bring an invaluable layer of authenticity to Georgia’s leading physical exports. Take, for instance, the wine industry. Wine accounts for a whopping 4.4% of Georgia’s exports, and globally speaking is a notoriously fraudulent industry with an estimated $3 billion a year being lost on counterfeits.

Companies such as WiV Technology are using NFTs to guarantee authenticity and prove provenance. WiV certifies fine wines, stores them in a bonded warehouse, and issues them NFTs which producers and collectors then sell and trade on OpenSea and other marketplaces. As with digital assets, this not only improves transparency, but it also facilitates international trade; collectors can avoid the costs and risks involved in shipping fine wines, and instead trade the NFTs, redeeming the bottles only when they are ready to be opened.

A number of Georgian wine producers have seized upon the opportunity. One of the first cases on the WiV OpenSea is a 2014 Usakhelouri wine produced in Lechkumi. WiV’s head of Georgian operations is leading NFT, blockchain and smart contract legal expert Levan Bodzashvili. Levan has held professorships at Fordham Law School in New York and the Georgian American University in Tbilisi, and he is a passionate advocate for scaling NFT technology across the entirety of Georgia’s wine industry and beyond.

“NFTs can bring Georgian products quality assurance on a new level,” he says, referencing the Norwegian Seafood Association’s use of blockchain to revolutionize its billion-dollar fish industry as an example of how this new technology can deliver a competitive edge to entire industries at a time. However, nation-wide NFT adoption for wines and other products is a monumental undertaking that would require government investment, training, and intervention. Though there has been speculation within the crypto community that this may soon happen, no such scheme currently exists.

Georgia would make the perfect home for such a project. Following the controversial and energy-intensive crypto-mining that exploded in Abkhazia and Svaneti in the late 2010s, Georgia has long been on the radar of crypto entrepreneurs. The low living costs, high quality of life, and, crucially, the absence of taxes on crypto gains in Georgia have retained the interest of the crypto community, and the country is home to a large number of crypto entrepreneurs.

Beyond bringing NFTs to wine and other agricultural industries, Georgia could harness the potential of this community and carve out a niche as a crypto and NFT hub. For this to happen, Georgia needs a specifically designed regulatory framework to attract investment, start-ups, and talent. Levan argues that the entire country should become a technology tax-free zone. There is already a special status for the tech companies who work here, but it requires two years to secure which is “not rapid enough” and leaves Georgia struggling to compete with countries such as Dubai.

Establishing Georgia as an NFT hub would not only fuel industry and investment, it would also encourage Georgian institutions and individuals to make the most of NFTs’ fundraising possibilities. Inspiration can be taken from NFT cultural heritage projects in other parts of the world such as the Non-Fungible Castle, an innovative NFT auction whose proceeds went to restoring the Lobkowicz Castles and public art collection in Prague. The auction not only sold out, it also successfully engaged a young, international audience with Czech history and art.

Many of the NFCastle pieces corresponded to original physical artworks and made use of digital tools to reveal new histories and hidden dimensions in the work. Unseen Gaze NFT, for instance, which depicts the Italian Renaissance painter Paolo Caliari’s portrait of David with the Head of Goliath, incorporates an x-ray of the painting, revealing a painted over and previously unseen face in the shadows beneath David’s arm. It sold for 25 ETH, which at the time of auction held a dollar value of $93,800.

So, what does the future hold for NFTs in Georgia? Well, in April, Levan will launch the NFT school Georgia where classes for NFT beginners and advanced users will be conducted in both English and Georgian; in July, the NFTbilisi hackathon will take place; and in the meantime, artists like Jacob have no plans of slowing down. With this sort of initiative locally, and a seemingly exponential growth in the space globally, Georgia has a unique opportunity to jump right in as an international forerunner for NFT innovation in the coming years.

Kitty and Reuben are partners at Blackwood, an international advisory and PR service specializing in crypto, blockchain and NFTs.