When you look up the word “art,” there is no readily agreed upon definition. Instead, it’s generally recognized that the ideas of what constitutes art have evolved over time. In a broad sense, art refers to something created with imagination and skill, expressing beauty, emotion, and ideas.
The practice of investing in art has been around for hundreds of years, with billions of dollars exchanging hands along the way. Today, a new art investment has taken the market by storm—yes, I’m talking about non-fungible tokens, or NFTs.
To give some perspective on this new era of art investment, an NFT by digital artist Mike Winkelmann, also known as Beeple, sold for $69 million at an online auction in March. Beeple’s work compels with colorfully rendered supernatural landscapes and powerful composition. Earlier this month, sculptor Jeff Koons announced that he too planned to enter the online market. However, many NFTs don’t possess the same level of skill or beauty as Beeple’s work, nor the name recognition of Koons—making it difficult for some to understand why people are shelling out millions of dollars for them. Plus, NFTs can be looked at (and even downloaded) online for free, so why is their ownership valued at such outrageous rates?
Before we go any further, let’s take a closer look at the origins of art provenance.
From Cave Paintings to Flying Cats
The first documented pieces of art are cave paintings in Spain and France during the Ice Age. It’s unknown whether these paintings had a practical purpose behind them such as hunting strategies or power structures, whether they were the first forms of visual storytelling and entertainment, or if they were simply a way that our ancestors depicted what a woolly mammoth looked like.
Art has evolved tremendously since its birth in the Stone Age, from Neoclassical to Postmodernism to Digital Media. The reason for humans’ seemingly natural impulse to create art is a debated topic, but it is agreed that art is a large part of the human experience; one that reflects, documents, and shapes our culture.
But many NFTs you hear about today consist of things like digital pet rocks, which currently sell for hundreds of thousands of dollars, a pixelated flying cat called Nyan Cat, and Pudgy Penguins, to name a few.
Does that sentence make your head spin? I totally understand. Let’s break it down.
Reimagining provenance with NFTs
As we began to collect and, therefore, value art, the importance of authentication and ownership came into view. With the surge in art theft during World War II, these issues became a major concern, along with the moral and legal validity of chains of custody. Today, art provenance is vital when buying and selling a piece of art, and is the only way to prove true legitimacy of a piece. The provenance of a piece of work can sometimes be as interesting as the piece itself, and its value can skyrocket depending on its history and who owned it last.
Traditional art provenance can come in the form of a signed statement of authenticity from the artist or an expert on the artist, an original sales receipt from a gallery or artist, or an appraisal from an expert in the era. Although people can create fraudulent paintings, it’s very hard to exactly replicate a piece of this type of work, and it would be difficult to fool an expert.
When digital art was born, artists struggled with this exact problem. Digital photographs, animations, and drawings can be duplicated an infinite amount of times without any loss in quality—thus making it difficult to prove ownership. But the emergence of NFTs helped solve this dilemma. For the first time, digital artwork can be sold, properly owned, and recognized as unique.
With traditional art provenance, physical proof of ownership can be lost, stolen, or ruined. NFTs use blockchain technology, which is a system of storing information in blocks that are chained together in chronological order. Many people believe that with blockchain technology, keeping records of sales and ownership is more accurate and secure than ever before, as these databases publicly keep track of transactions that are unable to be modified.
On the flip side, NFTs rely on a central entity such as a person, website, or company saying that there is only one NFT relating to one artwork. What if that entity disappears? This process of authentication relies on an honor system that assumes that whoever creates the NFT is the original creator of the work. Additionally, although the blockchain is a fixed digital ledger, there is no requirement that people attach their identity to those transactions. This can—and has—led to NFTs sold without the artists’ consent.
MarketSmiths Case Study
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So, why are people spending millions on rocks and cats?
When it comes to NFTs, the allure is often connected to community, nostalgia, and history. Nyan Cat, a 2011 viral YouTube video turned meme, marks a historical time in internet history. This was the moment memes became a mainstream medium for people to connect with one another. Nyan Cat, like so much of the art that covers the walls of institutional museums, offers a new way to experience something abstract—a pivotal juncture in pop culture.
From a marketing perspective, scarcity is the key component here. As with anything, the less there is of something in existence, the more valuable it becomes. For example, there are only 100 Ether Rocks available, the digital pet rocks harking back to the sedentary pets that swept the nation in the 70s and 80s. Because there is a finite amount, owning one comes with status and exclusivity.
Along with scarcity, the value of NFTs also has to do with market speculation. Sure, this is the case for all art investing—but with NFTs, maybe even more so. Will we put millions of dollars of value on simple digital designs that everyone can see without purchase ten years from now? Only time will tell.
Revolutionizing the art market
Whether it be a cave drawing, abstract sculpture, or digitally rendered flying cat, art possesses power and depicts the human experience as our culture continuously evolves. The value of art is subjective, so who’s to say a digital drawing of a rock isn’t worth $1.3 million, or won’t be worth more later on? If someone is willing to buy it at that price, then intrinsically, it’s worth that price.
There is something to be said, however, about the possibility of this new art investment going too far. Will NFTs saturate a market where otherwise more “impressive” digital works of art are losing sales? The speculative aspect of NFTs seems particularly volatile and may end in money not-so-well spent. Remember when we thought beanie babies would be worth a fortune?
NFTs have revolutionized the digital art market and become the new art investment, and blockchain technology may be the future of art provenance as a whole. As with any innovative idea (especially relating to monetary profits), there are benefits and drawbacks, and since this technology is still new, many components have yet to be ironed out. Although it is unknown what these digital assets will mean to us years from now, one thing we can be sure of is that they have already left their mark in history as the new art investment.
Ready to invest in high-quality content that will captivate your audience for years to come? Get in touch with the MarketSmiths creative team today!