How to Define the Value of an Art NFT? (WAC Weekly — Jan 26th 2022)

It’s six months now after the Institute for Contemporary Art Miami announced the addition of CyperPunk’s Priscila to their collection thanks to a generous donation.

Priscila is one of the 10,000 NFTs, generated by Lava Lab.

That is six months stuck in escrow as appraisers are still figuring out how much exactly is Priscila worth?

Here is the thing: the financial worth of an NFT doesn’t REALLY depict the peculiarity of that NFT. And since museums are not exactly in the market for speculation (what influences the cost of NFTs), there needs to be a value system.

This value system will determine the real worth of NFTs, which would greatly help toward their integration into the art community seamlessly without complications. For one, this will regulate NFTs’ typical inflated cost. Most importantly, it ensures art institutions tread on the path of unlocking web3 toward audience development rather than the financial incentives.

So, where do we start from? This was the central discussion during the WAC Weekly’s sixth session, which we will explore in this article.

A Value Model for Determining an NFT’s Worth

To determine an NFT’s value, we first need to have an appraisal system including factors that would individually be considered. Here are some recommendations:

• Factor in the institutions involved

There are different markets and art institutions. And each of these has its motivation for jumping into the NFT’s bandwagon. For instance, we have galleries mainly for financial incentives and museums’ art appreciation. So when building a value system, we will need to factor in these institutions and their markets.

• NFTs alignment with museums mission

How does an NFT align with the mission of the museum? Each museum, like the different art institutions, has its mission statement. So, a museum is ideally supposed to place more value on an NFT that aligns with its mission.

For instance if there are two NFTs from different artists. One is about heroes and leaders and the other about social change. These two NFTs were donated to a museum, which prioritizes social change. Now, you get the idea because the NFT art about social change will be accepted and accurately worth more,

• Cultural significance

Ideally, we’ll need to wait on this because NFT has only just arrived. For now, we can use John Holden’s definition of the cultural value of art. He breaks cultural significance into these:

• Historical,
• Authenticity,
• Symbolic,
• Social,
• Aesthetics and more

All of these come together to give an art piece a cultural significance. To value NFTs, we will need to analyze each to what a digital art offers towards pinpointing it’s cultural importance and then value.

• Other collections and artists

Another factor to look at is: how does the work relate to other art pieces in the museums? Again, the idea is to add art pieces, NFTs included, to what is already displayed in the museum. For instance, the Whitney Museum of American Art follows John F. Simon Jr.

So, when Simon Jr.’s art piece, Traffic Boogie Woogie, was turned into an NFT, Whitney Museum grabbed that digital piece with both hands. In short, that NFT will be deemed valuable.

• The aesthetic and historical value

Physical artworks have aesthetic and historical value. As such, NFTs should be the same. Otherwise, if there is nothing peculiar about it, the digital art shouldn’t be worth much.

• Value from the artist perspective

Just as art institutions are involved, the artist behind an NFT also has a big role to play in creating an appraisal system. Here is how:

• It is also important to consider how they value their work from an artist’s perspective.
• Consider the artist’s purpose (it should be significant) for creating that art piece.
• Pegged to a fiat currency or any other security

NFTs could also be backed by security like stablecoins. Stablecoins like USDT to the US dollar, are pegged to fiat currencies or other security. This prevents high market volatility compared to other cryptocurrencies like Bitcoin and Ethereum.

Most importantly, it holds demand from influencing price. This is the problem with NFTs, where the market essentially determines the financial value of an NFT.

The best thing about this strategy is that it will help insurance companies have more security and be fully aware of the risks when transacting NFTs.

• The technical players involved

The big question is who will value these NFTs? The idea is to combine different sectors to create a complete valuation model:

• People that understand technology
• Attorneys should be involved
• Platform involved in minting and auctioning NFTs
• Smart contracts; how secure are these smart contracts?
• The link to IPFS or centralized body

Now, know that from a legal point-of-view there will be future complications with this in particular. This is something art institutions want to steer clear of. Can the appraiser report be questionable in case of any digging from the authorities?

To deal with this, we will need a qualified appraiser. For now, we have bots doing the work.

A Value System or A Qualified Appraiser: Scrutinizing the Latter

ARTBnk is one A.I appraiser we can look at. This data-driven platform provides a real-time valuation of NFTs. You see, ARTBnk provides an unbiased approach to estimating the worth of artwork. This may help reduce any future legal complications.

However, before using A.I appraisers, we first have to move past some trust issues that will likely turn up, like:

• Who they are; who is creating the A.I algorithm
• Where do they come from
• What are these platforms’ objectives beyond financial value on an NFT?
• The data points go into the valuation.

There may be a solution.

What if these A.I appraisals work with human appraisers? For instance, Wondeur, an A.I collection agency for art, liaises with a physical body when valuing art for clients. That is an option.

The Bottom Line

There needs to be an appraisal system in place. It could be a combination of several factors as discussed or an A.I platform liaising with physical bodies. Whichever, the outcomes will arguably curb the inflated financial costs of NFTs and give them more value.