ICO, IEO, STO, Defi, and Now NFT!? Would Blockchain Shake the Art World? Part II
By 3Ar.T
👉 Following our Part I, see here.
Let’s keep our critical thinking in this crazy market.
Before we examine the feasibility of digitizing different kinds of physical assets, let’s question first: Will the art market and market of other collectibles face any shaking transformation because of NFT and blockchain technology? Seemingly, every time an innovative idea appears, they are declared to be the next thing that’s going to change the world. From ICO, IEO, to STO and DeFi — Some were completely eliminated in the market after the fad and some continued their bullshit after they were disguised under a different name, while very few of them are seemingly somewhat believable with relatively sound and ground technological basis… As to NFT, after the fad, what can we expect to see…?
What is NFT? This question is answered in the part I of the same-name article (here). Or you can take a look at Opensea’s NFT bible to grasp a quick understanding. Simply put, this so-called ‘unique’ encryption technology can bestow physical assets with a digital identity certificate. Likewise, creations that are crypto native, be it texts, images, videos, or music, can also be tokenized with a series of code that represents their uniqueness or scarcity. Once this is done, the token possessors can use the code to declare their ownership of the original even when the files are still copied, transferred, or downloaded elsewhere. Given these qualities, NFT can be of actual demand in the high-end art market. On the one hand, authenticity is one of the biggest concerns among high-end collectible collectors. We already know how likely it is to have dollar bills being counterfeited. On the other hand, a centralized cloud hard disk can be hacked. Thus, once NFTs are more and more accepted by the mainstream and other game players, they can be one of the solutions.
As to online digital contents, they have to have very special meanings to have the necessity to be marked as authentic, e.g. Jack Dorsey’s first tweet, the first video on Youtube Me at the Zoo, or, let’s say, if we get to auction Bill Gates’ text exchange with Melinda French Gates. It is true that all of these above-mentioned contents can be multiplied and forwarded unlimitedly once they are available publicly, but if the ownership thereof can be authenticized, it’s also true that possessing them can be a showoff. Now, NFT’s unique role in the market is clarified as long as we are able to distinguish the original digital content from their copies. And yet, certainly, if Twitter HQ steps out to validate their first-ever tweet, it can achieve the same-level effect as well.
It would be an overstatement to declare that NFT can bring about a digital trading revolution. Our pre-existing computer science and algorithms can already achieve O2O (online-to-offline and vice versa) integration at a large level. If the tech tycoons and leading financial institutes are willing to take part, they can already be accountable for ensuring the authenticity and the cost might not even be high The only thing is that they are ‘centralized institutes’, and this centralized nature hugely violates the decentralization ‘faith’ of the blockchain world. On that note, crypto players continue to promote (or hype?) the value of NFT and blockchain for the sake of their interest.
Nyan Cat by Chris Torres, an internet meme that went viral for whatever reasons which was ranked as the top 5 viewed on YouTube in 2011, was deemed as one of the earliest publicly known NFT. Needless to say, a crypto native ‘artwork’ as such can easily be copied and pasted; and thus, NFT can play an important role in distinguishing the original GIF file from all of its copycats (and they are truly copied ‘cats’!). The meme was auctioned in 2021 on NFT marketplace Foundation and sold for 300.00 ETH — nearly 600,000 USD at the time! Was there any middleman mediating this? Perhaps. Yet behaviors of mass craze are never predictable. For example, personally, I never understood why those limited edition sneakers can be sold for a few hundred grand to millions of dollars (Those Solid Gold OVO x Air Jordans shoes were sold for 2M!). The market works the way it does. Most of the time, actual values are not even evident (most coins on the blockchain don’t have any value), but as long as there is demand and the suppliers are willing to sell, a deal is made.
Subsequently, the first quarter of 2021 saw an extreme hype of NFT prices. Jack Dorsey’s 15-year-old tweet “just setting up my twttr” was tokenized as an NFT asset and had its final bid of $2.9M. Crypto artist Beeple’s 21,069 pixels x 21,069 pixels JPEG file Everydays: The First 5000 Days was even more dumbfoundingly sold for just shy of $70M (42329.453 ETH). Okay, now, no need to say more, you are feeling the heat of the hype already.
One of the three-big auction houses Sotheby’s immediately caught up with the flow — although I am not very sure whether they fully understood what NFT is used for, or whether they had thoroughly investigated how necessary it is to apply blockchain technology here. In one of their spring auctions in April 2021, Sotheby’s auctioned a Ressence to Auction First Watch with NFT. This “limited edition titanium wristwatch with rotating dial and day of the week indication, with unique NFT digital artwork”, fashionably coming with an NFT certificate, was sold for 378,000 HKD.
Like what we discussed above, all of these priceless NFTs are somewhat scarce in nature. Artist Mike Winkelmann, aka Beeple, has already had a large follower base on social media and received public acclaims before his NFT-induced skyrocketed fame. And surely we need not explain what is the significance of the first tweet on Twitter. But, frankly, with the extreme hype of NFT and the lack of a proper selecting mechanism (although there perhaps shouldn’t be any mechanism that imposes limitation, given the nature of blockchain), most of these self-declared art ‘drops’ in the marketplaces are, sadly, pieces of shit. Unless these NFTs are endorsed by ‘real-world’ celebrities or mediated by some crypto world KOL, buyers know it at heart: Buying these crypto art pieces is just to consume the extensive amount of cryptocurrencies that they don’t know what to do with. After all, they don’t know what else they could do with them other than flipping the crypto prices.
Art collecting encompasses some certain qualities: aesthetic and critical appreciation, having idle funds, and the fact that the value of the artworks has a high potential to increase hugely over time. Aesthetic sense is pretty subjective, but it still has some thresholds. For example, a randomly generated barcode or a bitmap generally wouldn’t be qualified as crypto art — perhaps we can only call them ‘crypto statics’. Even if they receive some attention caused by artificial promotion, their lack of depth won’t pass the test of time. As to having idle money and free time, they can be quite difficult for most people. Just like how art normally wouldn’t be categorized as a daily essential, it is something only the well-off can enjoy. Now, let’s examine its investability nature. We are already aware of the high investible potential of fine art in the physical world, but with the crypto world, how do we know whether time will only break the temporary bubbles or we can actually expect crypto art to become a new category in art collecting accepted by the mainstream?
Various forms of creative endeavors, be in art, fashion, etc, largely rely on the so-called ‘celebrity effect’. If you are famous, even if you are just shitting, people will still consider your shit art. (Whether it is NFT shit or actual shit) Likewise, if you are nobody, you are still more likely to remain nobody even with the NFT or whatsoever hype and rely on infrequent commission to get by, whether you are selling them on the street or receiving these jobs on Upwork. (To read more, check out Artist’s Shit (Italian: Merda d’artista), by the Italian artist Piero Manzoni in 1961.)
In the following part of this article, I’d like to point out some of the potential directions of NFT’s future development, especially the positive impact it can have on the art market. (We won’t cover the negative ones because they are a bit too many… but don’t get me wrong. We definitely believe the technology will make some constructive impact. It is just that, with the dramatic fluctuation in the blockchain world, there are too many fantasizing about overnight wealth. These speculators don’t care about anything else but money, and that’s definitely bringing a craze.)
The ecosystem of blockchain, including the smart contract and NFT technology, did lower the thresholds in the art world since it allowed anyone with internet access to enter to create or collect art on these marketplaces. But we would be too naive to believe the newly emerged NFT can transform people’s beliefs on traditional art appreciation. For any normal person, appreciating the Mona Lisa in the Louvre and looking at it on your screen are like comparing apples and oranges. (Even if it is an ‘authentic’ digital copy with a smart contract certificate.) It is not difficult to foresee physical art continuing to predominate the art market when NFT will likely be used as a tool of digital signature and original authentication here. It might also catalyze the artworks’ visibility and transportability with the art’s digital twin, but it is unlikely that NFT will reshape people’s ways of looking at art.
With the popularization of O2O (online-to-offline) applications, we might continue to fixate on the artworks made in the physical world, instead of the crypto native ones in the current period. Crypto art’s evaluating system still has a long way to go. It is similar to other types of open platforms, Twitter, YouTube, Facebook, Medium, etc. As the thresholds are lowered, quality works are like a drop in the ocean. With the free content on the abovementioned platforms, only the ones of the most unique attributes, such as the first-ever tweet, can truly be leveraged by NFT. On the contrary, physical art/creation that had already been proved with value is likely to be leveraged by this digitalization movement. This is not any new idea. Museums have been using Augmented Reality to show digitized exhibits for a long time. Whether these artworks are minted with NFT doesn’t seem to be particularly important.
Apart from art appreciation and acquisition, auctioning plays a very important role in art valuation. Value is created in trading processes. For most people, their ideas on how valuable a piece of artwork is might largely depend on its pricing, before they collect enough knowledge and understand the meaning behind the work, and that’s why NFT can be effective in auctioning, like the various examples given in Part I.
Let’s assume data on the blockchain are immutable and the infrastructure has been built thoroughly. Then NFT’s digital certificate can theoretically enhance the efficiency of art dealing in the physical world. Not only that, NFT will also create a new model. On the blockchain, we can track the entire transaction history from the very first time an artwork emerges in the market. This is similar to the House Price Index (HPI) in real estate, which allows buyers to evaluate a reasonable offer and increases transparency. Since all the data are traceable, blockchain can also preclude money laundering in art dealing. For example, the 2015 Bouvier Affair [5] at Freeport, the series of lawsuits against Swiss art shipper and dealer Yves Bouvier, was mainly caused by the opaqueness of information about the dealing history of the artworks.
Furthermore, based on the consensus that the NFT can represent authentic physical artworks, NFT can be directly used in auctions as the targeted items for bidding. Once they are sold, the final bidder can directly ‘redeem’ them from the physical storage or representative institute. This physical institute can be auction houses, local galleries, museums, the artists themselves, or it can even be the Freeport in Switzerland, where its opaqueness was a problem in the past. This whole process can be used to avoid a substantial cost in logistics, labor, and insurance, caused by the traditional long procedure of transporting, storing, and transferring.
Not only that, now that the ownership is tokenized with NFT, the art collector doesn’t necessarily have to ‘redeem’ the physical artwork. They can continue to ‘lease’ the original to museums, public spaces, or even biennales and retain the ‘viewing right’ for the public. After all, owning art is to show off unless buyers really need to decorate their mansions. Isn’t it better if more people know that you own an important artwork?
Another interesting thing about NFT is that it allows ownership of an asset to be divided limitlessly, which opens up the possibility of collective investing. If we can split stocks into more shares, why can’t we do the same with art investing? The same concept is applied in security token offerings (STO), where tokenized physical assets can be simultaneously shared by various people. In STO, a group of people can collectively own financial assets at the same time. The idea is also similar to buying properties together. When two parties pay for different percentages to buy a house, they will hold ownership of the asset in the same percentages. And yet, we can still argue that this model is not limited to NFT. For example, a group of people can also designate a trusted representative as the bidder for the auction item. After they acquire the item, they can hire attorneys to draft a loan agreement or investment agreement plus escrow agreement and even use asset securitization to legally secure a large pool of people’s collective ownership of an object. The difference of NFT is only that it digitalizes the whole process and seemingly can save time and legal expenses.
Needless to say, owning art collectively can be a form of investment. Since we can expect the artwork to rise in value over time, this group of owners can eventually sell the share of the artworks like how they sell their stock shares. Meanwhile, collective ownership can also enable increased exposure and even rise in the prices of the artworks.
Since the smart contract has programmed the entire process, it can save a lot of time and labor work on the executive aspect. Thus, we can explore more diverse ways of playing with it. For example, different types of philanthropic ideas can also be included, which can bring the ‘function’ of art beyond being appreciated, collected, traded, and invested. Let’s take Micah Johnson’s photographic artwork sä-v(ə-)rən-tē on async.art as an example. Each year, on the two boys’ respective birthdays, a Layer change on the digital work’s billboard artwork in Los Angeles reveals what each brother wants to be when they grow up along with a QR code directing the audience to donate in their bitcoin wallets. The two photographed boys will be able to withdraw 100% of the donation on their 18th birthday. (Starting in 2021, a Dai wallet, decentralized stablecoin by MakerDAO was also created to add another source of the contribution.)
The above concept can be analogized with a charitable trust, yet, in reality, the charitable trust procedure is highly time-consuming and complicated. Merely hiring a trust manager to surveil the account until the beneficiaries turn 18 is a considerable expense. If the capital is not substantial, attorneys might not even want to do this. Which means that using smart contract and crypto wallet can really solve these problems. Although it is still a question of whether there is a big enough market to participate in this.
Let’s bring the focus back to artists. Since our core mission here is to encourage more people to follow their hearts and focus on their dedications, this aim brings us to the first obstacle: artistic endeavor is a life-long investment and it is often difficult for artists, especially emerging artists, to survive in their starting years. While there are other ways of funding solutions, such as grants and fellowship, crowdfunding remains to be a less noticed strategy in the art world. We already know that tech startups are accustomed to considering crowdfunding to sustain their lifespan along their fundraising journeys, as we can easily observe this with a quick scan on Kiva, Kickstarter, or LendingClub. Meanwhile, platforms such as Donorbox and GoFundMe also prove that the crowdfunding culture is evident for charities. But it is still a smaller market in the art world. And NFT might be a solution to bridge the two, along with some application of proper business models.
Imagine the advanced smart contract technology can even enable artists to tokenize the ‘future ownership’ of the artworks when they are still working on the piece. Wouldn’t it be an attractive system for both the artists and collectors? This is a common strategy in the venture capital field, which is called Simple Agreement of Future Equity (SAFE), or the Simple Agreement of Future Token (SAFT) that was popular in the ICO period.
Based on these models, it is possible to create a system where every transaction can release percentages of commission that is directed into every contributor’s wallet. We hope to use this model to encourage everyone to fully dedicate themselves to what they are good at: artists can focus on their art and other art lovers can also take part in the community to promote, curate, or explore ways to increase the liquidity of the works.
What’s the coolest about this system is that every co-owner of the artwork can directly participate, even just emotionally, in the creative process. It is similar to being an angel at a startup company. As a shareholder on the board, angels can contribute their ideas about the future development of the startup. Maybe the same can apply to art. Well, it’s true that it can be a problem with too many in the kitchen, but who knows whether these ideas won’t add layers to the artist’s creative thought process? Surely, we know that artists are famous for their artist bile, but the point is, ideally we can lower the threshold in a creative process and allow more parties to take part in it. Some are artists and some are collectors (as art collecting is a creative process). What NFT can enable here is the infrastructure to build a relatively low-cost mechanism and create a potential free market, or, community dynamic.
Lastly, when we are so excited about all these potentials NFT are bringing to the table, artists have already thought of all of these concepts long ago! Let’s take a look at our dear friend Wiskey’s art crowdfunding idea that he developed back in 1989, long before Bitcoin was even invented. His Metanoia Project proved exactly the collective ownership, investing, and crowdfunding concepts we visited above. We highly encourage you to take a look at his vision statement here, where he detailed the whole concept that matched perfectly with what we believe the positive potential NFT can assist to execute.
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Will NFT shake the art world? We doubt so. It might entice con artists trying to get famous under the name of NFT or over-the-hill celebrities who want to attract attention along with the trend. But we believe that the application of its technology will be of some use, especially with the integration with physical art. Still, we are optimistic to see new business models that can make things easier for more to immerse themselves in art, elevate their spiritual level, and of course benefit from the profit as well!
(End)
PS. These articles are contributed by Jack H. & Jamie M.M., and authorized Ar.Token to publish, translate, and rewrite.
