Should You Tokenize Your Collection? (WAC Weekly — Jan 19th 2022)

Getting a better understanding of the collaboration between The British Museum and LaCollection with their Hokusai and Turner drops.

Some art institutions are adapting to Non-fungible Tokens, NFTs, in stride. Take the Hermitage Museum in St Petersburg, Russia, or the Uffizi Gallery in Florence, Italy, selling Michelangelo’s Doni Tondo NFT for $170,000. And they don’t plan to stop there as more mintings of their collection are on their way.

But we can ask ourselves, why are art institutions that epitomize cultural preservation suddenly jumping into NFTs? Yes, the initial goal was to find new revenue streams, engage better with the artists community and reach new audiences. While this is arguably working, the whole venture has become quite complicated.

Someone who buys Michelangelo’s Doni Tondo NFTs doesn’t own the original artwork. So, how will museums appeal to a wider audience by selling ridiculously expensive and famous artworks that people can’t really own?

This and many more complications was the central discussion in the 5th edition of WAC Weekly, with a special focus on the last NFT drop of the British Museum with LaCollection (read more about it here).

Two-Way Venture: Social Currency & Wider Audience Reach

One

Art institutions connect with people interested in art or not in the community, like individuals in technology and finance. This helps with relatively achieving one of museums’ core objectives: audience development. I use the word “relative” because as we’ve established, this audience development is not diversified enough.

Two

NFTs afford museums and other institutions a revenue stream. However, it is euphemized as a social currency or cultural capital for these institutions. This helps them to compete through access to capital effectively. Also, good to remember that this venture captures what DeFi stands for.

However, we can spot a loophole in this two-way venture. For one, at what cost are art institutions minting these NFTs to generate revenue and reach a wider and not-so-diversified audience?

The Stake 1: Carbon Footprint of Ethereum

Now, let’s get this out pretty quickly: Proof of work platforms such as Ethereum are not remotely eco-friendly. Ethereum is estimated to use up the energy of around 26TWh per year. For context, in gigawatt, it is compared to the energy consumption of a 17million populated country like Ecuador.

Yes, you read that correctly 17 million. The amount of energy consumed by 17 million people is what Ethereum uses up in a year. Add these statistics to a planet already struggling with a deteriorating Ozone layer.

Of course LaCollection, which is based on ETH, pledged to plant a tree for every minted NFT to offset carbon footprint. However, this pledge may or may not compensate. The stakes are way too high.

The most suitable solution would be switching to proof of stake platforms like Tezos, which is more energy-efficient.

Yes, Tezos is not widely recognized as Ethereum and is also less tested as more recent. However, it also demands less to mint and lowers transaction fees.

The Stakes 2: Minting & Transaction Fees on ETH

Minting NFTs on ETH is expensive. When you add in its transaction cost on the network, that’s probably one of the reasons behind NFTs’ sometimes “unnecessary’’ high value.

For instance, an NFT minted on Ethereum network is sold for around $1,000. When you deduct transaction fees, the cost of minting and commissions, the artist is not getting a bit more than half of it only.

This has led to something called lazy minting; NFTs are minted only when they are bought.

A Checklist for Every Museum Wishing to Start a New NFT Project

• Have an “all-inclusive” plan

OK, $170,000 for an NFT that you don’t own the artwork? How is that appealing to a broader audience? Not so much — except if the NFT is an artwork itself and made digitally from the start (or using Blockchain as a medium).

After their first successful partnership with the British Museum to release 200 Hokusai NFTs LaCollection, an NFT platform for cultural institutions, creating a reward program toward inclusivity.

In their second drop with paintings from Turner, LaCollection awarded the Ultra Rare and Open Edition NFTs to community members who previously purchased a Hokusai NFT.

• Figure a way to make it cheaper

Proof of stake platforms allows minimal transaction fees and minting costs. In this situation, there is more for artists in terms of commission fees.

And you know what this does? Art institutions indulging in NFTs become less like a social currency and more to draw in more people.

• Sustainability

There are insane ecological costs of NFT. This punctuates the need for eco-friendly NFTs. Museums have to be more involved in green projects by adapting clean NFTs. A good way to uphold this sustainability is for art institutions to be more transparent.

• Transparency

The British Museum demonstrated this through its sustainability ethos statement. However, not divulging their sales percentage for the Ultra Rare NFT edition is an issue. This transparency is necessary for artists.

Why? Artists like Joanie Lemercier, who have pledged to cut their carbon emissions, can indulge in a project in line with their goals. For instance, Joanie Lemercier, whose NFTs sold in seconds, couldn’t get access to the carbon emission and energy consumption involved.

• Minting of NFTs must be in line with museum values

Minting an NFT shouldn’t be about making money. Instead, it should be an avenue to express creativity uniquely by depicting what’s happening around us. In a nutshell, museums should only mint NFTs when they sync with their values.

Other items on the checklist include:

• Have an engagement plan with this new audience.
• Deciding if NFTs are worth the trouble for the amount of money fundraised.

The Bottom Line

See, we can spend all year deliberating museums’ involvement in NFTs and their many downsides. However, here’s the baseline: NFTs offer a massive opportunity for museums.

Yes, there are ecological issues to contend with. But with time, by using the checklist provided, art institutions can sustainably adapt NFTs toward audience development.