By Derek Schloss and Stephen McKeon
Over the coming decade, we believe verifiably scarce and boundary-pushing digital works will power one of the internet’s most valuable industries. Crypto art is a natural evolution of the perpetual question: what is art? But in a natively digital medium, art takes on a more expansive role, intersecting with virtual worlds, decentralized finance, and the social experience.
Don’t quite understand the opportunity? We’ve got you covered.
The Case For Crypto Art
To understand crypto art, it’s important to frame the opportunity in the context of previous art movements. Looking back across history, legacy art movements can typically be viewed as reactions to (1) prior art movements; and (2) relevant cultural events.
If you asked “what is art” in the mid-1800’s, you might hone in on realism: the more accurate and realistic the art, the better. But this movement morphed into impressionism, where artists reacted against accuracy by playing with conceptual ideas, and then expressionism and abstract expressionism, where artists distorted their work for effect, focusing more on emotional intensity rather than literal depiction. (Note: We are collapsing 20,000 PhD dissertations into sixty words, and we acknowledge art history is far richer and nuanced.)
Given cultural context, and the lens of the artist, the form of an art piece can also be ephemeral and intangible — think street art or performance art.
While it’s a bit difficult to define an art movement’s period while it’s happening, we do know creative expression in recent history has become more strongly influenced by cultural trends in technology. As our lives have become increasingly digitized, so has the creative work we make and share with the world.
While “digital” art has been around for nearly four decades, many creators haven’t enjoyed the same monetization potential relative to physical works.
One reason? Over the course of art history, much of the monetization potential around creative expression has been predicated on the physical scarcity that travels with the art. You can’t buy and resell a one-time live performance art piece, at least not in the same way you can buy and resell Cézanne’s The Card Players for $250M or Damien Hirst’s formaldehyde shark for $12M.
The monetization limitations of ephemeral art creation have plagued the digital world as well, but for the opposite reason — the features of a digital original can be perfectly copied and shared. Digital GIFs and MP3s are readily duplicated, without reference or attribution to the originator. Outside of enforcement by a legal layer, there’s been no native way to create and track digital scarcity that travels with creative digital property.
Over the past decade, Bitcoin has illustrated that digital scarcity is possible in the realm of money. BTC has become a store of value commodity money with an aggregate value of over $100B as of this writing. Ethereum extended the concept of digital scarcity beyond commodity money, enabling any digital good (3D objects, music, files, GIFs, memes) to become programmatically scarce. In many cases, these objects are unique, or in other words, non-fungible. Jake Brukhman from CoinFund wrote an excellent piece about this idea earlier this week.
ERC 721 is a standard interface for non-fungible tokens on Ethereum (i.e. tokens with a unique identifier). We can observe every address that’s ever held it, bid on it, or transferred it. In other words, perfect provenance. Today, when it comes to blockchain-based art, we must not conflate an object’s reproductive capabilities with its underlying rights. Ownership over a digital work can be imbued with programmatic scarcity by its creator, a first step to indicating authenticity.
Property lawyers (including IP attorneys) tend to think about property rights as a “bundle of rights,” much like a bundle of sticks. All the different sticks in that bundle (e.g. usage rights, rental rights, publishing rights, film rights, distribution rights, etc.) may be held by one person or many people over the course of a property’s lifecycle, parceled out in unique combinations.
A token’s verifiable scarcity through standards like ERC 721 is the first building block by which digital artists can start enjoying these property rights, and the transfer of those different rights, for their sovereign digital creations. Standards like ERC 1155 build off this idea, allowing owners to create licenses and model out each exclusive right provided under the Copyright Act. We expect more innovation on this front by teams like Open Law.
In this way, crypto art will be as subversive to the traditional art world as BTC has been to the traditional financial world. As we describe below, BTC and crypto art are more similar than different. Art is one of society’s favorite store-of-value assets. Sales reached $64B in 2019 alone and the aggregate value of traditional fine art is estimated at over $3T, but these figures just barely scratched the surface.
A large portion of the current market for art is driven by the wealthiest segment of society, but crypto art promises to bring a new generation of market participants into art, as it merges with the markets for collectibles, gaming, and investments. Measuring the market for crypto art based on the current traditional art market is like measuring the aggregate market for air travel using only data from passengers that travel on private jets.
The Business of Art Markets
Now that we’ve laid the foundation for crypto art, let’s talk about the business of art. Broadly speaking, there are six participants in the traditional art market:
- The Artist (Creator)
- The Gallery (Primary Market)
- The Critic (Writer/Author)
- The Auction House (Secondary Market)
- The Collector (Investor)
- The Curator (Museum)
The artist is the creative that powers the business of art. Without them, the industry ceases to exist.
The gallery is a business partner and agent for an artist, and primary sales of new art will occur at gallery shows and exhibitions. It’s easy to mistake a gallery for just a room with white walls to hang and showcase art, but the real function of the gallery is that of broker, sales team, operations, logistics, and collection management.
The critic reviews art publicly, often publishing critiques in newspapers, magazines, and art blogs. An artist’s financial career, and the investing public’s demand for their work over time, is heavily influenced by the opinions of critics and curators.
The auction house is where secondary trades occur. While secondary sales can occur anywhere, the majority of secondary art sales for top artists will occur downstream at events led by auction houses like Christie’s and Sotheby’s.
The collector is the investor. Collectors often rely heavily on the opinions of curators and critics, sale prices at art galleries (primary) and auction houses (secondary), and the progression of an artist’s career and work over time.
The curator is the specialist within each museum charged with conducting art research, developing exhibitions, managing the site’s collection of works, and educating the public on the progression of art movements over time. There are also independent curators not associated with a single museum, but stage their visual essays in museums, parks, and galleries around the world. For example, every two years the Whitney Museum puts on the Whitney Biennial, where two of the best curators in America team up to create a visual essay about what it means to make art in America during that particular moment. The art that appears in that show will set the tone for the art world over the next two years.
Importantly, while all six participants of the traditional art ecosystem help bring new value into the art market, incentives are often not aligned:
- The artist is focused on the primary sale;
- The gallery is focused on the primary sale;
- The critic is focused on attracting readers/views for the publication;
- The auction house is focused on the transactional aspect of the secondary sale;
- The collector is focused on appreciation in the secondary market over time;
- The curator is focused on representing the museum’s institutional interests.
The question then becomes: for crypto art to thrive in the same way that the traditional contemporary art market thrives today, is it possible to bring the mechanics of the contemporary art industry into the digital age, while simultaneously improving the design for how art is curated, purchased, critiqued, and collected in this new digital space?
We think the answer is yes.
Case Study: SuperRare
Today, SuperRare is one of the world’s leading crypto art marketplace and social galleries by GMV. Built on Ethereum, the platform is equal parts gallery, auction house, social forum, and museum. Think Instagram meets Robinhood meets The Whitney. A curated, social-finance platform tailor made for the growing world of contemporary digital artists.
As more and more crypto artists, collectors, critics, and tastemakers have entered the SuperRare ecosystem this year, art sales in their marketplace have jumped:
Since launch, over $2 million has been earned by crypto artists and collectors from over 178 countries on SuperRare, the majority of which has occurred in just the last few months. What’s powering this emerging trend?
First, the creative sandbox that crypto art provides is unmatched across other mediums. For the first time, digital artists can monetize provably scarce digital works, whether it’s memes, GIFs, or VR installations. The creative surface area for digital art is vast, and by linking these works to an ownership token that carries collection and investment potential, more artists, investors, collectors, and critics are jumping into the crypto arena.
Second, crypto art is going mainstream. Celebrities like Ashton Kutcher have brought attention to the space. Pieces now regularly sell in SuperRare’s gallery for thousands of dollars. Influential digital artists like @Pak and @Hackatao have broken down economic barriers in crypto art, with some pieces commanding $10,000+.
Third, infrastructure projects like SuperRare have built compelling digital spaces to house the growing crypto art market. In SuperRare’s case, the team has taken the principles of the traditional art market and created a more efficient, trustworthy, expansive ecosystem to support the budding crypto art industry.
On SuperRare, new artists must first apply in order to tokenize and sell their digital art in the marketplace. Each submission is carefully reviewed and vetted by committee each week, leading to a curated roster of 400+ (and growing) digital artists.
Collectors place bids and flex their collections in an Instagram-like social feed. And critics, curators, and other crypto art influencers power crypto art’s education through long-form pieces in the popular SuperRare Editorial, a publication helping democratize the role of the art critic and educator.
Over the last few years, SuperRare’s thoughtful architecture has led to impressive growth for bringing new digital art collectors into the ecosystem.
But most importantly, by bringing together traditionally siloed parties of the art ecosystem into one community-powered digital platform, SuperRare now has the unique potential to align incentives across all actors of the crypto art space.
Today’s contemporary art market thrives because of its powerful (and invisible) curation layer, one composed of galleries, critics, curators, and collectors. Perhaps the future of SuperRare holds some decentralized version of this: a community owned and operated network for artist selection, primary and secondary markets, creative review/critique, and curated exhibition. In this way, we believe SuperRare’s future decisions around community governance (and aligned token incentives) could contribute meaningfully to the growth of crypto art’s financialization, and crypto art’s role as a powerhouse in the world of contemporary art.
To say we’re excited would be an understatement.
Crypto-Enabled Art Market Innovation
Better Economics For Creators. Like many platforms in crypto that collapse intermediation, the economics for the first link in the supply chain, in this case the artist, are demonstrably better than the legacy system. The creator of a physical piece of fine art typically nets about half of the proceeds from a primary sale at a gallery. SuperRare artists receive 85% of primary sales.
Capturing a larger fraction of the initial sale is a big deal for the long tail of emerging artists, but the economics get really interesting around secondary sales once an artist’s career is established. Today, traditional visual artists get 0% of secondary sales in the U.S. so there’s plenty of room to improve.
This is a known issue in art markets and artists have been fighting for years to capture royalties on secondary sales to get a taste of subsequent appreciation. At the national level in the U.S., bills to establish residual rights for artists have been proposed in 1978, 1986, 1987, 2011, 2014, 2015, and 2018. None passed.
In other countries the situation is a little better. For example, in France artists get 4% (up to 50k euros), but it’s a sliding scale and their cut drops down to 0.25% for higher priced works. This notwithstanding, enforcement is a massive challenge, differs by jurisdiction, and engaging the legal layer is often required to collect.
The current system has largely failed artists with regards to residual rights. In contrast, SuperRare artists receive 10% commission for all secondary sales of their scarce digital creations in perpetuity. Perhaps more importantly, payment is immediate upon a secondary transaction. Because the smart contracts have dominion over the assets, no legal layer is required for enforcement.
Today, dozens of SuperRare’s artists have earned over $10,000 selling art on the platform, with the leading artist having already earned nearly $100,000. The advent of millionaire digital artists is within view.
Democratized Access x Crypto Incentives. On the collector side, crypto art enables seamless investing into this asset class previously restricted by geography, information, and access. In the future, we expect the programmability of crypto art to result in unique incentives and royalty structures that affect the investment returns of a work to extend throughout its entire lifecycle, from creator to collector. Imagine secondary sale residuals that accrue not only to the creator, but also those buyers who identify valuable works early in their lifecycle. Game on.
Cost Reduction. Today, the contemporary art industry suffers numerous cost frictions. Think shipping costs, storage costs, payment processing, and legal contracting costs. On the crypto side, digitally native art flows outside of these meatspace limitations, moving frictionlessly across peer-to-peer crypto rails and self-sovereign wallet custody.
Provenance. In 2010, The Independent estimated that 20% of art in major U.K. museums might be fake. Barenaked Ladies’ musician Keavin Hearn released a documentary earlier this year chronicling his experience purchasing what he believed to be an original Norval Morrisseau painting, only to find himself caught in the middle of one of the largest art fraud rings ever discovered. Crypto art? Since each original piece is tokenized as a scarce ERC- 721, artists and collectors in the future will be better able to identify a forgery, claim infringement, and identify damages since virtually all of a piece’s history can be tracked on chain.
Global Markets. Today, the contemporary art market for both primary and secondary sales is deeply fragmented and heavily geographic. For example, many top contemporary artists work with a number of galleries spread out across the world, most often in places where wealth aggregates like NYC, London, Berlin, Singapore, and Los Angeles. Each gallery is responsible for the artist’s career in that geographic region. Alternatively, SuperRare facilitates a 24/7 globally-connected marketplace for buying, selling, and showcasing crypto art.
Data Transparency. When buying or selling contemporary art, it’s important to understand how the market’s value of an artist or piece may have changed. In the physical world, it’s expensive to pull this kind of historical sales data and often requires expensive subscriptions to proprietary data providers like Artnet.com. With crypto art, historical information always lives on chain, making it trivial to audit and track specific pieces, artists, and trends.
All of the innovations listed above that improve on traditional art markets are available right now. But the most exciting scenarios for crypto art will occur not just by solving existing market frictions, but instead by expanding how society interacts with art.
Let’s think about how it might evolve…
The Future of Crypto Art
As interesting as crypto art has already become, we believe digital creatives are just scratching the surface of what it might look like in the future. Within a blockchain-based digital environment, bits of value and scarce information will always find a unique way to converge — unbundling and re-bundling in new composable forms yet to be discovered.
What we do know is that in 2020, there are a few interesting trends beginning to emerge, with which crypto art may intersect.
Art Display Meets Virtual Reality. The vast majority of physical art is in storage. Some observers estimate that museums only display 5% of their collection at any one time, and even for the very top artists, it’s often less than half. Part of the problem is the amount of physical space required for display.
In contrast, virtual worlds are not similarly constrained.
Yes, you can always display crypto art in a physical format, like a screen on your wall. We believe digital art will extend out to the physical world in exciting ways, like Async Art’s dedicated digital frames. But the first time you engage with crypto art in a more immersive virtual environment your jaw drops. The experience moves from looking at art to interacting with art.
Earlier this summer, SuperRare launched a crypto art museum on Decentraland, simultaneously providing functionality for artists to monetize around this new virtual canvas (VR/mp4). The platform’s most recent VR exhibit Atlantis is an interactive art piece in and of itself, exhibiting larger than life sized 3D VR sculptures. In these new virtual worlds, we’re likely to see an expansion of what crypto art can be. From the smallest VR installations to the tallest skyscrapers, it’s possible the next few decades may begin to blend art and architecture, allowing digital artists to unlock salable creative work in new ways.
In the future, creative works of art may expand in directions that include all forms of creator-owned mixed-media NFTs, painting our future world with visuals, sounds, and creative expression in combinations we can’t yet imagine.
Decentralized Finance. It’s hard to write an article about crypto in 2020 without mentioning decentralized finance (DeFi). Protocols can now plug in and reference one another like lego pieces to create new rails and applications for the movement of sovereign on-chain value. Ethereum is the dominant player, but we expect these same composable ecosystems to develop on additional base layers like Flow and Polkadot.
As it relates to leveraging composability, valuable crypto art really isn’t that different from many other tokens. NFTs are simply another form of digital wrapper. They allow value in the form of art to be traded and priced on-chain, and used within the same trust-minimized (and composable) contracting environment as stablecoins and other programmable stores of value.
We believe that crypto art’s composability with the financial stack will unlock a new universe of potential for what has historically been a siloed asset class. Think collateral, revenue through subscription, fractionalization, and thematic DAOs.
This certainly wouldn’t be the first time art has intersected with finance. Bowie Bonds broke ground in 1997 as a new financial product where performance artists could capitalize royalty streams. The difference today is the ecosystem of money lego applications and protocols that are agnostic to asset class as long as the wrapper adheres to the same technical standards. Crypto art just represents another asset class that can join a vertical that is expanding at warp speed.
The future of crypto art is as incalculable as it is identifiable, as threatening to the status quo as it is empowering. A sandbox of untapped programmable value that will change the way we monetize, share, and think about the borders of sovereign creative works.
You’ve been warned. Don’t sleep on crypto art.
A special thanks to David Berezin, Jake Brukhman, Chris Burniske, John Crain, Brian Flynn, Roham Gharegozlou, Madison Page, Jonathan Perkins, Curtis Spencer, Nick Tomaino, Aaron Wright, and the Collaborative Fund team for their feedback and insights during the construction of this piece.