“A Look into the Art Mark3t’s Potential with Web3”
Exploring web3 opportunities for the art ecosystem beyond the first hype
In March 2021, NFTs exploded into the public consciousness with Christie’s sale of “Everydays: the First 5000 Days” by Beeple, for $69.3 million, promising a new future for art made possible by the emergent technology. Collectible NFTs rocketed to the top of the market, with OpenSea exchanging USD 4.8 billion in NFTs in January 2022. By summer 2022, though, the cryptocurrency craze had suddenly faded, Bitcoin tumbled in value to an all-time low and the market for NFT collectibles has plummeted 97% by the end of 2022. When FTX, one of the largest cryptocurrency exchanges, collapsed last November, crypto winter had arrived. The art market had already shown a general reluctance long before, but in the middle of a bear market, with prices down, NFTs losing value, and crypto scepticism everywhere, it seems that the art industry is even less sure about how web3 will affect the traditional art market, and if at all. Is the hype (finally) over now?
Move Over, Hype!
Well, the hype may have passed, but the technology is here to stay, with further meaningful applications still being explored. The use of non-fungible tokens (NFTs) has already introduced the innovation of creating one-of-a-kind digital artworks that can be bought and sold like traditional physical artworks, ultimately gaining value through scarcity. And blockchain technology has so far presented several benefits to the art market: making sales and provenance records more transparent and unable to be changed, as well as making buying and selling more efficient and direct, reducing the need for intermediaries. Web3 technologies such as blockchain, cryptocurrency, and NFTs will certainly continue to play an important role within the art ecosystem. For wider adoption, however, we need to shift the focus from discussing the technical capabilities to focusing on the exciting innovations and the problems they can solve. So, in what other ways can web3 technology contribute?
The Art Mark3t’s Potential with Web3
1. The Rise of Digital Fine Art:
The art market will for sure see an even greater shift towards digital art as the use of NFT and blockchain technology enables the creation and sale of unique digital artworks, finally acknowledging them as an officially recognised category of art by the art market and canon. Thanks to web3 technology, the popularity of generative art will most likely continue, and the creative use by artists of the technology (on chain) will be pushed further, exploring new concepts such as dynamic (or living NFTs) or leveraging the play on open editions (OE). Although the secondary market will matter, collectors of art NFTs will be holding and showing their artist support rather than flipping them, as the cryptocurrency crash is luckily having a least effect on art NFT collecting (see Art Basel and UBS Survey of Global Collecting 2022 ). And after all, the prefix NFT will most likely be obsolete in the long run because it only describes a technology (and caused a lot of negative associations recently), so why not start referring to it as Digital Fine Art?
2. Pairing Physical x Digital
Since web3 creates numerous new opportunities for artists, collectors, and art institutions to connect and transact in new ways, we will observe the blending of physical and digital, sometimes referred to as phygital. Digital artworks on the blockchain already come with permanent, clear records of who owns them and where they came from. But NFTs can also be linked to physical works of art. This way, the digital token can represent ownership of both the physical and digital assets, making it possible to trade physical artworks in the digital world. Artists might also explore giving away digital twins, like big brands have been doing recently: by purchasing either the digital or physical copy, you automatically gain access to the other version, creating one holistic collecting exprience. Another way to connect the two worlds are physical-digital pairings unique for specific art NFT holders, e.g. physical experiences (manifested by POAPs), as a way to grow the artist’s community. And lastly, distributed ledger technology can also be used to store and preserve information about physical artworks, to keep track of who owns them and where they came from. But as for now, art collectors’ general reluctance to reveal personal data and price information might still form quite an obstacle, as currently this information is typically kept private.
3. Utility: A new Quality of Artist-Collector Relationship
There has been a lot of talk about whether the intrinsic value of art in and of itself is utility enough for fine art NFT collectors. (Utility of a non-fungible token meaning going beyond just buying and holding a digital asset). But since NFT as a technology is allowing artists to connect directly with their audience, we will eventually see a clear attention shift to utilities, in addition to being fine art. If this is done right, it can be a new and personal way for artists to keep track of their collectors, stay in touch with them, and keep their interest and support constantly going as part of a closed circle, similar to a “token-gated community.” As a result, both, artists and collectors, will benefit from the uniqueness of a higher level of interaction between holders and the creators. Lastly, web3 provides the infrastructure that allows new models of collective ownership set up and maintained in a safe and transparent way. Now that there is a way to assess digital ownership, web3 will foster the emergence of collectively owned artworks, thanks to the options of tokenization and fractionalization of both physical and digital art. Such fractional shares are also accessible to collector-audiences who may not have considered buying art before. As a result, more people can now benefit from owning high-value artworks, and artists can more easily monetize their creations. Which, admittedly, challenges traditional models of art ownership and patronage as we know them.
Outlook
The art market is set to experience significant changes over the next years as web3 technologies, namely blockchain, cryptocurrency, and non-fungible tokens become more widely adopted. As more people become aware of the benefits of these technologies, they will be seen as an important tool for establishing a more inviting and efficient art market — beyond the impact on digital fine art’s rise. As the traditional art world and the web3 world start blending, long-established practices certainly will be challenged: We will see a continuous power shift to artists and collectors, as well as traditional value mechanisms being reshaped. We will also see new (centralised?) business models, web3 services and tools, unique hardware solutions, and innovative structural concepts emerge in how art, whether physical or digital, is created, bought, sold, distributed, and displayed in the future.
Maybe it won’t come as one big revolution, but web3 technology will gradually contribute to a more transparent, accessible, and diverse art ecosystem. And I believe that’s something to look forward to.
About the Author: Kerstin Gold is an art market strategy consultant for the art ecosystem and an arttech start-up advisor. She has a wealth of insight into the art business sector and a great passion for web3, NFTs, and the metaverse. Kerstin is co-founder of the ART+TECH Report, which in 2022 surveyed buying patterns and collecting motivations of art NFT collectors, and co-lead of the recently formed Berlin chapter of “Women in Blockchain Talks.” She is a DLT Talent and NFT Talent with Frankfurt School Blockchain Center (FSBC).
Please feel free to contact me at LinkedIn.
