Can Blockchain Impact The Future of Art Collection?
What can a craze for digital kittens teach us about blockchain, tech culture, and the future of art collecting?
Do you remember Tamagotchis, the ubiquitous egg-shaped keychain games from the late 90s? Rendered in blocky, black-and-white animation, Tamagotchis were virtual pets who could be fed, played with, and walked by their “owners.” When neglected, the Tamagotchi would die, erasing the game’s progress and forcing the owner to start again. 79 million individual Tamagotchis were sold globally, creating a sensation. Now, twenty-something years after the Tamagotchi craze, virtual pets are back, but instead of living inside plastic keychains, the newest digital animals can be found on blockchain, and they have the potential to change the way that art is bought, sold, and collected.
It All Started with CryptoKitties
On May 12, an artwork titled “Celestial Cyber Dimension,” a computer chip containing a CryptoKitty–a one-of-a-kind digital cat, similar in appearance to a Webkinz or Neopet– sold for $140,000 at the Codex Protocol Ethereal Live charity auction. This may sound quite bizarre ($140,000 for a digital cat?), but that is only because it is.
CryptoKitties is most analogous to a digital version of the Tamagotchi trend, the beanie baby frenzy of the 1990s, or the Neopets of the 2000s. You can trade, breed and collect the kitties with Ether, a cryptocurrency generated by Ethereum blockchain. The technology behind CryptoKitties is blockchain. At a high level, using cryptography to keep exchanges secure, blockchain provides a decentralized database, or “digital ledger”, of transactions that everyone on the network can see . Cryptocurrency, most notably Bitcoin and Ether, is a network of exchange based on blockchain technology. Unlike traditional payments that pass through banks, cryptocurrency is sent directly from person to person, known as a peer-to-peer system (P2P).
Thanks to blockchain technology, digital assets like CryptoKitties can be created as rarities, with verifiable and traceable ownership. Each kitty is one-of-a-kind and can only be owned by one individual; it cannot be replicated, confiscated, or destroyed. CryptoKitties are adorable and unique, yes, but their popularity is also symbolic of how technology is shifting the way we buy, collect, and trade goods. The success of projects like CryptoKitties suggests that numerous other assets can be collected digitally – various markets have emerged for virtual land, sports fandom, natural commodities, and last but not least, art.
How Do Crypto Collectibles Work?
Like numbered prints, digital art files are deliberately made scarce – in the case of virtual collectibles, rarity is established by converting the items into non-fungible tokens on the Ethereum blockchain. There are two types of tokens: fungible (meaning interchangeable) tokens that function as currencies, like US dollars, Bitcoin, and Ether; and non-fungible tokens that are assigned to unique collectibles like artworks. For instance, the R.A.R.E. Network, a marketplace for digital art, uses both fungible tokens (RARE tokens) and non-fungible tokens (digital artworks) to trade. When an artist uploads a digital artwork to blockchain registry, the individual work is minted to a non-fungible art token with a certificate of authenticity for permanent record. To weed out fraud and spam, RARE Tokens are awarded to participating art experts who authenticate the artworks.
Art collection on blockchain presents methods to verify authenticity and copyright, two issues that have long been a challenge in the world of traditional art collecting. From an investment standpoint, digital artworks have real market value just like traditional, tangible artworks, because each digital piece is backed by verifiable scarcity and authenticity. The ownership record embedded in tokens permanently links the represented artwork with its creator, making content safe and easy to share without compromising copyright.
Blockchain uses smart contract, which is essentially lines of code with predetermined conditions that run automatically when initiated. Since the transactions are made peer-to-peer, the need for a third party is eliminated reducing transaction costs. Through smart contract, artists also gain automatic royalties from secondary sales of their works.
Re-imagining Art Collecting
Blockchain technology presents the opportunity for buying and selling digital editions of work that are coupled with material pieces. The physical artwork can directly affect value of the digital editions. For example: an artist registers her physical artwork as digital assets on blockchain by tokenizing the work into 10 identical editions – with each token representing the same artwork. Each edition or token is worth 1/10 the value of the physical artwork’s market value. Now the digital edition of the physical artwork is available to trade on a decentralized marketplace, just like a purely digital work. Sellers may earn more by selling both analogue works and digital editions. The market performance of the physical work is likely to affect the value of the digital counterparts. However, if crypto art collecting gains momentum, it may influence the valuation of the original physical artworks as well — for example, if an artwork performs well on digital collecting platforms, its virtual popularity could imply an increase in demand for the physical piece.
To take the idea of digital collection even further, blockchain also enables shared ownership of a single artwork by splitting a token into multiple shares. For instance, if a Warhol painting is tokenized and split into 100 shares on Maecena’s blockchain, you can buy and sell a share of the painting, much like trading stocks. This could potentially disrupt the exclusive art market and encourage a greater majority to start collecting. Furthermore, collectors or collections can diversify their portfolios by owning a fraction of work for more artworks. Imagine a museum has to sell its Impressionist collection for fundraising. In a traditional auction, an unknown collector buys the works and keeps them private. On a blockchain auction, the public can bid for shares of the paintings. Since the collection is owned collectively, the art can remain on display in the museum, while also raising funds. However, with shared ownership, shareholders, and not the public, would collectively control the artwork.
A Bright Future With Some Shadows
The art market is buzzing with talks of blockchain innovations. In reality, the majority of the art market is still lagging behind in terms of adaptation. This is partly due to the relative small size of online art market and what a report from UBS and Art Basel calls “the asymmetrical structure of the art market, with the majority of value and most of the highest value transactions conducted via a small number of companies and virtually all offline”.
Blockchain is a system that many consumers still have difficulty understanding. Because blockchain is still considered to be a niche platform, with most of its users coming from the worlds of tech and finance – two industries that have long struggled with a lack of diversity – the blockchain community tends to be more homogenous – as of July 2018, 91.2% of Bitcoin community engagement comes from men.
In addition to issues with accessibility and a lack of diversity, blockchain’s technological infrastructure is also changing rapidly, which presents more issues with the medium. There is an intractable problem in linking digital assets to physical ones, making blockchain adoption hard to implement. There are also fears that anonymity on blockchain could make illicit activities like money-laundering much easier (although it may be argued that the established art world is no less immune to these activities).
Despite challenges in accessibility and adaption, blockchain brings necessary transparency to transactions, which could potentially disrupt the art world. The art world has a history of being reluctant to make pricing and ownership available to the public. Since every transaction on blockchain is available on a single public ledger, each artwork leaves a traceable trail of pricing history and change of ownership. However, while sellers may try to keep trade secrets, art buyers could stand to benefit from the increased transparency afforded by blockchain technology. By offering transparent pricing and provenance, blockchain can help build a more equitable art market.
With all the opportunities and challenges that it faces, will blockchain technology define the future of art collecting? Or is it just a passing fad, destined for the same fate as our once-beloved Tamagotchis and Neopets? Blockchain technology has the potential to create positive change in the art world, enabling digital scarcity and collection and increasing transparency, access, and equity in the art market. However, the technology is also a double-edged sword. As artist Simon Denny articulates, “digital capitalism is expanding in a kind of neocolonial way”. The male-centric tech and finance industries are still dominant in the landscape of blockchain innovation. To increase diversity and equity, digital literacy has become an urgency. While the future of blockchain is bright and exciting, we must also ensure that everyone has the opportunity to take part in its possibilities.
–Cassie Zheng, 07/11/2018
Further reading: Does Blockchain Have a Place in Museums?