Towards a blockchain art market: a use case beyond NFTs
Sell shovels in a goldrush, so the saying goes. An art market goldrush is happening with non-fungible token (NFT) mania. Although too nascent and volatile to accurately predict, it’s estimated that around $4 billion of NFTs were sold last year, with some claiming that sales of the digital works already account for 16% of the total art market. It’s the shovels and not the gold, however, that’s most exciting. NFTs digital architecture – the blockchain – has applications far beyond its current use.
NFTs are inherently divisive. Either you think they’re an expression of the separation between price and value in the art market: the cultural vomit of crypto hype-men. Or you believe in their utopian potential, allowing individuals to own folkloric internet culture.
Whatever you think, one thing is clear: the way NFTs are bought and sold will – or should – revolutionise art trading well beyond the circles swapping CryptoPunks and Bored Apes.
The vast majority of NFTs are bought and sold using the Ethereum blockchain. A blockchain is an append-only data structure, ie a ledger to which only new information can be added, and no existing data can be edited. It’s a literal term in that the data is stored in chains of blocks, which are linked together by cryptographic hashes.
Ethereum is a type of cryptocurrency, but it’s Ethereum’s own blockchain that makes the trading of NFTs possible. For cryptocurrencies, the blockchain acts as a ledger which securely records all transactions taking place. This is broadly the same for NFTs, but they contain additional data and each one is unique and non-divisible, ie non-fungible. Unlike cryptocurrency therefore, this requires “minting” to take place – the process that converts a digital file into a digital asset stored on the blockchain.
The attraction of using blockchains as ledgers are their security, transparency and decentralisation. Their security comes from their immutability, the transparency from their open-source nature and decentralisation as a result of existing across multiple networks; all participants within a network can have their own identical copy of the ledger, which is updated in real time.
THE USE CASE
When people buy art they have two main concerns: that the work of art is genuine, and that the seller holds the appropriate title – ie they’re entitled to sell. The more aggressive estimates put the number of fakes in the art market close to 50%. In terms of individuals selling works they don’t own, the recent fraud carried out by the disgraced dealer Inigo Philbrick shows how easy it can be to appear legitimate, and just how high up the problem goes.
Using the Ethereum blockchains as a ledger – in a similar manner to NFTs – would solve many of these problems: both for “born-digital” works selling for the first time, and older physical works which have already been traded. The opaqueness of the market, issuing from the lack of a central, open-source database, is undoubtedly causing the current proliferation of fakes and frauds.
Despite being renowned for its lack of innovation, the art market has responded well to NFTs and trading using blockchains: partly in response to the shock success in 2020 of Beeple’s $69m sale of his Everydays NFT – then making him the third most valuable living artist in terms of auction prices. This momentum should be carried on into the trading of all works of art.