I wrote in a previous post how the NFT opportunity will be more than just scarcity and status games over JPEGs.
Instead, the real unlock will be NFTs as a means of conveying memberships. Buying an NFT would be like purchasing a membership pass. Creators could build worlds (content or experiences) for their customers.
The example I used was a text-based game where writers could build on top of fiction created by other writers and split their fees in exchange for piggybacking off of an existing audience.
While working on designing this in both solidity for the smart contract and evaluating game engines, I thought we could revisit the NFT art market with a different approach.
This time, I looked at what creates value for art.
While pixelated NFTs still drop and fetch thousands of dollars, such as the recently dropped CryptoToadz, I think there’s an opportunity where it’s not just status and artificial scarcity which creates the market.
NFTs can augment the traditional components that make traditional, versus crypto-native, art valuable.
Why is this important?
Enabling the productive creating, ownership, and valuation of art benefits everyone: artist, consumer, and society at large.
However, the art market follows Power Laws and Blockbuster effects, constraining ownership to the Super Rich while limiting sustainability for artists.
Decentralization through NFTs can expand the total addressable market: more artists, more owners, which ultimately leads to informed global citizens.
What makes art valuable?
“The art market functions as a big consensus marketing machine,” Velthuis continued. “so what people do is look at quality signals.” [2]
Let’s look at some of those signals by pulling directly from this article from Sam’s Original Art (those are in italics, my commentary is not formatted): [1]
1. AUTHENTICITY
The first element that sets a cheap painting apart from an expensive one is, of course, its authenticity. A real Van Gogh is always going to be worth more than a copy.
NFT’s provides this for living artists. But for many that are pushing out NFT’s, authenticity of an artist no one cares about doesn’t contribute much value.
2. PROVENANCE
An artwork’s provenance, the documented history of who it has belonged to, is a huge determining factor in its value. For example, if a painting was once owned by a celebrity, a prominent collector, or perhaps a respected gallery, it will certainly attract higher offers when put on sale.
The blockchain creates an immutable audit trail of owners on the blockchain. IF prominent owners associate their identity with the wallet used to purchase, provenance can be verified and add value. But if identities remain unknown, this doesn’t add much value.
3. CONDITION
This one is a bit of a no-brainer, but a painting’s condition is also an important factor. If, for example, an artwork has sun damage or a tear, that will generally adversely affect its price.
Right now, NFT’s are associated with digital art, so the condition is not as factor. However, is it possible smart contract functions can be added which mimic this attribute?
4. HISTORICAL SIGNIFICANCE
Does the work in question have significant historical importance? If so, that adds more zeros to the price right away. In some instances, it can make the work priceless. Think of the Mona Lisa, for example.
We will likely see NFTs that have some historical significance show up, such as a photo of the first lunar landing or the Zapruder film. But these will be valuable, whether released as an NFT or not.
5. POPULARITY OF THE ARTIST
Likewise, if the artist is super trendy at the moment, his or her work may command a higher price, regardless of whether the work has real staying power. Who the artist is always affects the value of the artwork.
#1 and #5 go hand in hand: who cares about the authenticity if the artist isn’t popular?
6. RECOGNITION
If the artwork in question exhibits recognizable features of a famous artist, it will be worth more. For example, a Cubist painting by Picasso will typically cost more than one of his early landscapes, because people associate Picasso with Cubism.
NFT’s don’t directly add to it, but can when we layer in the ecosystem dynamics I discuss later.
7. WHAT’S THE BACKSTORY?
If an artist has an interesting back story, such as an early death, for example, the price will be affected. This is partly because if he or she produced less work, by virtue of dying young, then supply and demand come into play right away, but also because artist’s lives tend to fascinate the public, so any captivating story will play into the value their work.
No real value from NFT’s.
8. PARTICULAR MEDIUM
Generally speaking, works on canvas will always sell for more than those on paper. Likewise, paintings will sell for more than a sketch or, of course, a print.
This has potential by turning nearly every medium into performance art. Those participatory signals can move the consensus machine to value the art.
9. COLOR
What… color? That’s right. Color also comes into play when determining a painting’s value. Historically, paintings that contain red, for example, always cost more.
Not impacted by NFTs.
10. SUBJECT
Similarly, artworks of certain subjects tend to sell for more than others. For example, paintings of beautiful women tend to be worth more than paintings of men. Sunny landscapes tend to win out over dark ones, as do ships in calm seas over ships in a storm.
Not impacted by NFTs.
11. ‘WALL POWER’
Although difficult to quantify in words, an artwork’s ‘wall power’ is perhaps the biggest determining factor making art valuable. Does it shock? Does it inspire awe? Does it just draw you in and you don’t know why? All of this will help the price soar.
This time, I started by looking at what creates value for art.the galleries are online. This falls into perhaps the “quality” -- is the art “art”?
What attributes can be possible with NFTs to make art valuable?
Now that we have an overview of ways art signals to the “consensus marketing machine” it has value, let’s look at other attributes that are possible by NFTs that are not inherent in traditional art.
Time Scarcity
Messari’s article on “Time Scarce NFTs”[3] gives some possible ideas that could be applied to art.
NFTs/badges rewarded for performing several habitual tasks in a DAO (e.g. voting)
NFTs representing ownership in art could be rewarded for performing tasks. Those tasks could be either part of the art itself (perhaps a more acceptable version of flash mobbing?) or in service of the artist’s community (for example, Tweeting about it or TikToking about it).
This being art, the more clever and not “bribe-cringe” the activity is, the better.
I think opening the space where the community participants in the “performance art” and that accumulates ownership which increases value could be a really great design space for the right artist.
Non-tradeable NFTs awarded based on skill or effort (e.g. NFTs for people who hold over X amount NFTs from verified OpenSea contracts)
This could extend the “performance art” across multiple actions and multiple NFTs. Example: singing as song on TikTok gains ownership in an artists NFT piece titled “song”; writing a haiku on Twitter may earn another NFT piece called “poem.” Ownership in two of those may result in another NFT of piece called “together.”
“Together” is owned and has value because a string of events happened.
This is the “single player” mode with multiple unlocks.
What happens if the effort is in “multi-player mode”?
Suppose a more experienced and well-regarded artist agrees to airdrop an NFT to a collector who purchases with real money 10 emerging artists that are under the wing of this experienced artist?
That artist bootstraps and “lends” credibility to those emerging artists such that they can pay the bills and accrue social signal. The art created by the experienced artists and given for “free” to the collector has value in the market should it ever be sold because it “collateralized” the purchase of 10 other artists.
Ecosystem dynamics play an important role in tech valuations; why couldn’t it be leveraged in the art world?
One change would be for artists to stop holding a single-player, individualist (dare I say solipsistic?) worldview. And, instead, bring a “collectivist” approach to not just the exchange of ideas, but to bring market power and meaning to each other’s art.
Non-tradeable NFTs that require being created from acquiring non-tradeable subparts (also NFTs)
The Messari article was working off an analogy to the game Rune, so I could see the inspiration for this concept. Not so much for the art market.
However, I could see the ecosystem and bootstrapping concept work where an artist or a writer creates an NFT that is not tradeable and gifts them to lesser known artists. Those artists then mashup or re-use or repurpose this original NFT and then bring their art to market.
The provenance, authenticity, and recognition of the original artist conveys value to the original artist. That artist could construct the contract so that all sales of the derived / inspired work pays out a royalty, as well.
The benefit is extending permissioned inspiration (don’t all great artists steal?) into something recognized by the art market.
Membership
Artist ownership amongst the super-rich has been primarily about status.
I believe an artist who shifts the value to be about membership (already being proven out a bit) by Patreon can create value.
Ownership of NFTs can create access to unique experiences with the artist, airdrops of future art, and -- back to the ecosystem dynamics -- access to emerging artists that the original artist likes and supports.
The Unlock Protocol makes this feature easy to extend across multiple web properties and revenue stream.
Ticketing
Similar to membership is the issuance of tickets, where the on-chain activities of the ticket, themselves convey value.
Perhaps an artist just does live or streaming performance for which there is a ticket (as an NFT). Ownership permits added benefits including the issuance of NFTs from other artists, or discounts on future ticketed NFTs.
What should a forward thinking artist do?
The “NFT Art Dealer” is more than just someone who takes art and finds buyers.
This Art Dealer works with the artist to come up with the right ways to incorporate NFT features right into the art to bolster signals into the consensus machine.
As the Art Dealer begins to take on more projects, the network effects strengthen.
Whereas a traditional art dealer has some network effects by knowing more buyers and galleries, that’s a pretty small market. Therefore, the effects are weak.
By enabling a much wider audience of owners and participants with each artist, the NFT Art Dealer now can leverage ecosystem dynamics to create thriving communities of meaning that support artists.
Because the NFT Art Dealer is a provider of technology and community building, the best artists in this new economy works collaboratively to both come up with their art and to exhibit/market.
What is different about the New Art Dealer in the NFT Era?
The new art dealer is more collaborative with the artist. This may actually mean only those artists who understand participation by their audience and ecosystems with other artists would benefit from this collaboration.
We are acting like a studio, gallery, co-creator, and market maker.
By combining bespoke technology that can create different incentive, ownership, and participation capabilities on the blockchain with narrative and community development, we can expand the surface area, meaning, and value of a given artist’s work.
By adding those two elements -- technology + narrative -- we are essential market makers. The distribution systems and access points already exist as core infrastructure.
But the rails are insufficient to create value. Zero cost distribution doesn’t create value. In fact, it has contributed to its erosion.
If you’re interested, ping back on this Twitter below:
1: https://samsoriginalart.com/what-makes-art-valuable/
2: https://www.vox.com/the-goods/2018/10/31/18048340/art-market-expensive-ai-painting