Next Up: Digital Art

Why the future of art is cryptographic – and filled with emerging opportunities 

Ben Gentilli (2020) Portraits of A Mind: Block 21. Image: Robert Alice/Ben Gentilli 

See this piece here? 

Looks like a series of grey disks that may not say too much to an average viewer. Yet one of them just sold $131,250 at Christie’s last month, marking the first time a major auction house sold a non-fungible token (NFT) work at auction. 

The physical part of this artwork is shaped, indeed, like a disc. But not like any disc; its surface is inscribed with 322,048 digits some of which are highlighted in gold. If you look closer, ‘Block 21’ can be found on its inner rim; a reference to the scarcity of Bitcoin, being capped at 21 million coins, of course. No coincidences here. The digital part of this piece is even cheekier. It has a geo-tag with its physical twin’s location, and only viewable during the twin’s daylight hours.

In many ways, this work by Ben Gentilli is a symbolic expression of Satoshi Nakamoto’s vision, reflecting on multifaceted identities and presentation of the new, decentralized age.

It’s part of a 40 object collection titled ‘Portraits of a Mind’, making it total 12.8 million digits of hex code inscribed on the discs – the exact transcription of the v0.1.0 code that launched Bitcoin. With each of these 40 Blocks serving a specific reference, from libertarianism to the exact location of the first Bitcoin transaction, it is a physical manifestation of our current movement towards a cryptographic reality. 

Because that is what’s happening here. The fact that Block 21 sold for $131k isn’t the story. Neither is the fact that it ended up selling 7 times higher than its original estimate of 18k. Although Christie’s recognition as the world’s leading art auction itself already is a landmark for digital art, this is all part of a much bigger story. 

What is happening 

Lately, there’s been a significant uptick in the crypto art space. Specifically NFTs have witnessed tremendous growth these past months, alongside Decentralized Finance (DeFi). Just to give you a rough idea, one of the leading digital art platforms SuperRare reported a 72% percent growth in October 2020 alone, selling over $4 million worth of artwork on its platform in just one month. And it’s not just crypto native creators. The Guggenheim-collected artist Shu Lea Cheang announced her premier on Ethereum-based art platform MakersPlace last month (which itself already speaks volumes) and earlier this summer, DC/Marvel comics artist José Delbo launched an Ethereum-powered virtual “gallery exhibition” in Decentraland. 

The significance of all of this? Several indicators are now pointing to the arts community and blockchain converging more than ever; making the intersection of proof of authenticity and verifiable scarcity a sweet (and covid-proof) match for both worlds. Already in 2017, the European Fine Art Fair reported that 75% of auction houses were looking into blockchain, expecting to offer some sort of solution within the next 5 years. So regardless if you’re an aspiring founder, a prominent artist or an avid arts enthusiast, like me, cryptographic art operates in a space which many are already referring to as the next big bet.

Digital art vs. Traditional art 

If you think selling an NFT for $131k is peanuts, you aren’t exactly wrong. In the digital art world, this may have broken auction records but compared to the traditional art world, this is small. The global art market sold $64 billion in 2019 alone and the most expensive piece sold to date is Leonardo Da Vinci’s ‘Salvator Mundi’ at no less than $450,000,000. 

But just like any industry today, things are moving digital; and with that, more geographically disperse, decentralized and distributed. What this means for the traditional art world is changing power dynamics between the art business and the artists. Essentially, these lines are becoming more blurred.

To understand where digital art is moving towards, it’s important to understand where it’s coming from. Traditionally, the most important stakeholders in the art industry are some sort of a mix of the following: artists, gallerists, critics, primary market, secondary market, collectors and curators. They all play a different role in the ecosystem and serve their own interests.

The best way for an artist to rise in the ranks is through a known gallery or art dealer. Here the artist will make most of their early money; this is the primary market. Art dealers typically pocket a 50% percent cut of the artist’s sales, regardless of the artist’s or gallery’s prestige. By the time art hits secondary markets (auction houses etc.), it’s already disconnected from the artist in terms of profit. Indirectly, it can help promote the artist’s brand and future value, but the artist gets 0% of the sales. 

Changing landscape of art

Understandably, a market like this has led to a heavier industrialization of art; heavy-hitter names with strong brands attract all the attention. International art fairs cluster all stakeholders via big events and eat up breathing room from independent galleries which play a crucial role in introducing a wider range of artists.

Cryptographic art isn’t going to solve all the industry issues. But what makes it uniquely fitting, and different from just normal digital art, is its ability to verify scarcity. Valuation of art is all about its prestige; therefore a digital painting that can be duplicated 1000x (for free) loses that. Opportunities in tracking, providing authentication and creating infrastructure for secondary market royalty layers are groundbreaking to the traditional art world. Not to mention the ability to use blockchain as a medium itself for artists’ creative expression. 

“I cannot find a better use case for blockchain than art” 

Recent words of Nanne Dekking, former executive of Sotheby’s and chair of the European Fine Art Foundation. 

Strong statement, so let me unpack this a bit. 

Perfect Provenance

Perhaps one of the strongest arguments for cryptographic art is its provenance. This is also what makes crypto art fundamentally different from other digital art. Each piece is a single edition and provably scarce, timestamped, trackable and immutable. Since the higher echelons of the art world relies heavily on trust, blockchain provides a powerful way of linking the right information to the right work.

In 2010, it was estimated that 20% of the art in major U.K museums might be fake. In 2014, The Fine Arts Expert Institute (FAEI) warned that over 50% of the artworks circulating on the market is either forged or misattributed; as a staggering 70-90% of all art the organization examines ends up not being created by the artist claimed.

Unfortunately, these aren’t anomalies. Remember that Da Vinci piece I mentioned earlier that sold for $450 million? Well, not that long before the sales, it had been misidentified as a fraud, therefore changed hands for £45. Not a typo, literally 45 Pounds. Up until late last year, there was still division amongst experts of the origins of this piece. And as the two sold prices show – such information does make a difference. 

Starve no more 

Provenance doesn’t just link the right history to its creator, but also rights – and therefore credit. In the traditional art world, artists aren’t entitled to any profit sold at auction houses. There are no royalties linked to their original pieces on secondary markets. And although this has been a multi-decade long battle for artists, there aren’t any real “solutions” to this. 

Two months ago, the iconic street artist Banksy just lost a legal case against a greeting card company that used Banksy’s ‘Flower Thrower’ mural and claimed rights to the image, due to the artist’s anonymity. Let’s not forget that this is the same artist who shocked the entire art community a few years back by auto-shredding his “Girl With Balloon” to pieces the second it was sold for over £1million at Sotheby’s; staying true to his own artistic essence. The irony here, of course, is that anonymity and trolling our modern society is Banksy’s art. That’s the whole point.

Those characteristics that brought him fame in the first place are now the same ones that are putting his entire trademark at risk. 

Would the situation be any different if Banksy’s physical art had a linked digital twin on the blockchain? Hard to say but it is possible. Especially if he himself was incorporated into a legal entity on the chain, reserving certain IP rights. Intellectual Property sometimes includes a bundle of rights; the owner can give different rights for different purposes; a publisher has the right to publish a book but a producer has the right to make it into a film; a postcard maker has rights to sell prints but a toy manufacturer to produce merchandise, and so on. Creating material art and selling its digital equivalent is becoming big business and an important part of the ecosystem. Therefore, the ability to link credit to original artists through time and controversy does matter to the creative community, for obvious reasons.

New art, new display, new collectors 

Most big art you see today travels more than its audience. The Picassos, Jeff Koons, Takashi Murakamis and Kusamas – you’ve experienced them because they’ve been shipped to your city. Handling the logistics of physical art is an industry itself. And to gain more international visibility, art fairs have become the predominant economic model for the traditional art world. In the words of Abby Bangser, Frieze’s artistic director, art fairs benefit collectors with “an enormous amount of art all in one space and it is especially useful for galleries outside the major urban centers, who may see far fewer clients at their galleries.” 

Crypto art changes the way we display art, just like it changes the way we collect it.

Personally, I’ve always considered private art collections to be – well exactly that, private, even intimate as a set of store-of-value-assets. They are purchased for a variety of different reasons but showcasing them has traditionally been limited to the amount of physical space you have. Many serious collectors I know don’t have enough room to display everything they’d like to, resulting in all kinds of storage and warehousing arrangements which, if you think about it, is quite counterintuitive for visual arts. 

In the digital world, art collections are public. Therefore ‘curation’ gets an entirely new meaning as you might like following individual collectors better than virtual galleries. All history, bidding and purchasing information is transparent, providing both artists and collectors with valuable information for decision making.

Co-own, co-create, co-collect and co-invest

Fractional ownership is gaining momentum amongst the arts business community and co-investing in blue-chip fine art is unlocking new opportunities. The reason why this is considered such a big deal especially in the traditional arts market is because the industry is largely considered a “winner takes it all” market. To give you a rough idea of this, in 2017 Art Basel reported a total of 52,105 artists identified with fine art sales globally. Out of these artists, only 1% accounted for 64% of all the sales; signaling heavy clustering of capital and attention. Against this backdrop, democratization of the market is certainly an attractive thought to the art community.

A living example of this would be the world’s most valuable “crypto artwork” ever sold: ‘Forever Rose’ by Kevin Abosch. For $1 million worth of crypto, the price was split between 10 buyers, each chipping in $100k in exchange for the ROSE token. These co-owners can do whatever they want with their own portion of the piece: hold it, sell it, give it as a birthday gift.

Because that’s the thing about crypto art: you can multiply it without losing the original work’s scarcity. 

Royalty structures and incentives

For collectors, valuation of art is a big part of the game. Therefore, provenance in this case doesn’t just serve as a proof of authenticity for art; the past “resume” and journey equally matters. Regardless if you’re buying or selling, it’s important to understand the trends; how much the value of your artwork may have changed.

Access to this kind of information is traditionally very limited to the ‘insiders’ of the art world; heavily based on geography and word of mouth. The global art market, for good and for bad, is greatly arbitrary. And especially for contemporary art, its prestige can be heavily influenced by its previous ownership: the collector, collection, when, where, how much and for what purpose. So we can see how information that travels with the art itself can be of tremendous value to the industry.

Another aspect I’d like to touch upon takes us a bit further down in the future of crypto art. There’s no reason why we couldn’t have different layers of royalty structures between primary and secondary markets. Down the line, these would help govern and incentivize both artists as well as collectors. If such ecosystems can help attract new artists and more diversity into the space, it would already be a win.  

Freedom of expression 

I was recently looking at a digital photograph of this strangely captivating face. For some reason, I kept staring at it for a long time, trying to figure out the visual details. Then I realized it was not a photo; but rather an extremely detailed still illustration. Then suddenly, he blinked. 

Creative possibilities like this don’t even begin to describe what can be expressed through contemporary realms. Think virtual portraits whose movements are pegged to the value of your favorite currency, time zone or physical location; think art that reacts to different cycles of the moon; changes color according to weather or “ages” along with their owner. 

Besides creative freedom, crypto art also provides a safe space for controversial or politically motivated art. Physical art can be censored, decentralized art cannot. And if art’s purpose is to react, comment and express our minds against culturally significant phenomena, then such freedom is the spine for the very nature of art itself. 

Cryptographic art: the next big bet?

“This transition to a digital art world is not a question of if it will happen, but rather when. In fact, I personally believe that the digital art market cap will grow to become larger than the physical art market cap. This may sound ridiculous today, especially since the digital art market cap is less than $10 million and the traditional art market is more than $60 billion, but this is exactly what disruption looks like.”

This is what Anthony Pompliano wrote to his investor community two months ago. The context is that he’s been trying to look for a new, promising market that is still too early for most people to have spent time building an investment thesis on. This is based on the assumption that world-class investors who make generational returns tend to look for outlier opportunities: unpopular investment strategies but nevertheless correct strategies. And for digital art, Pompliano claims they’ve finally found “the perfect opportunity”. 

What we know

Okay, so let’s take a quick overview on things we know about the traditional art market. Over the past years, the global art market has sold roughly $65B per annum. And if we extend our view over the last 20 years, fine arts has outperformed the S&P 500 by over 180%, which is quite remarkable to say the least. The art market shows returns that are uncorrelated with traditional investment vehicles (bonds, real estate, stocks) and the leading markets are the U.S, U.K and China – accounting for 82% of the global sales. 

While it certainly is early, what we also know is that art and technology are increasingly converging. Over the last 8 years, ArtTech startups have raised $600 million, with current findings suggesting that capital flow is shifting from transactions-related art market solutions more towards art infrastructure areas: insurance, contracts, storage, legal, data and standardization. Echoing this trend, Deloitte reported last year that a mounting 80% of all surveyed stakeholders felt art market businesses needed to be modernized, shifting focus towards establishing a strategy on how to best self-regulate the art market. 

What we don’t know 

Like with anything new and emerging, virtually anything could happen. While we’re certainly seeing the digital art space benefit from blockchain maturing and riding along exponentially growing DeFi, a number of things is still in the open waters. For instance, lack of interoperability of different protocols, or regulatory aspects. Art collectors are increasingly seeing art as an integral part of their wealth portfolio. Therefore, as an asset class, in the EU for instance, art stakeholders (dealers, auction houses etc.) now fall under the same regulation as other “gatekeepers” such as banks, accountants and lawyers within the scope of anti-money laundering law. 

Another perspective on this is more on the social side. Art Basel’s interview asked four industry leaders to weigh in on this topic and one of the concerns raised by the group was how much interest in art + blockchain is coming from people who aren’t, in fact, so interested in arts. In the words of the crypto-multidisciplinary artist Simon Denny: “They are really just interested in the idea of finding another way to make money.” If so, then what would be its implications to an industry that conventionally, at least on the creator side, has not been driven by it. 

Final thoughts

It’s still early for cryptographic art but there is momentum. Younger people are entering the space and exploring loads of new ways of creating, consuming and trading art. If the traditional art market is fragmented and relies heavily on geographic clusters, crypto art operates on a giant ecosystem with global accessibility and full data transparency. Everything that keeps the traditional art market’s engines running – artists, critics, dealers, collectors and curators – have started to identify new roles in the decentralized space. This means that an emerging artist today can gain global exposure, sales, funding and collaboration without having to worry about provenance or their rights (or even leaving the house).

Blockchain-powered arts together with collectibles, gaming and investments is a social movement; the kind that already has a monetizing model.

The ecosystem itself serves as the infrastructure as well as the creative medium for artists and all relevant stakeholders. Hence, the future of crypto art is so much more than just a digital illustration on a screen; think arts-led financial products, collateral, DAOs and self-governing royalty systems. Crypto art market is here and it is challenging the traditional view of art as an item into art as a system.

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Disclaimer: We give zero investment advice. We incorporate blockchain-based companies and love to explore new ways of doing business inspired by our community. Content in our articles including opinions on specific themes and commentary regarding market trends is not intended for use in making any investment decisions; they are provided solely for informational purposes.