Why do we prefer crypto art over physical art?

This article was published on November 19, 2020, on the "C Company" public account, as part four of the paper "Crypto Art: A Decentralized View."

1. Why do we prefer crypto art?

1. Crypto art grants true digital ownership of artworks, meaning anyone can carry their entire collection anytime and anywhere, and can also gift it to anyone on Earth. The hosting of artworks also becomes easier.
2. Owning and displaying animated works will become simpler. In the physical world, owning a painting and displaying it on a collector's wall is easy, but showcasing a 48-frame animated artwork is not as straightforward. However, both can be accomplished in the virtual reality world (though resolution and file size limitations can be troublesome).
3. Both the primary and secondary markets are fully observable, transparent, and never stagnant, requiring no trust from either party.
4. Like all ERC-721 tokens, crypto art is also programmable. These tokens can be atomically swapped in pairs and can be used as collateral for loans.
5. Anyone can bid on any crypto artwork at any time without needing to place items for sale.
6. Artists can receive appropriate compensation for secondary sales in a provable and programmable manner.
7. With the help of smart contract platforms, forgery is nearly impossible (though proving the authenticity of artworks remains a challenge).

2. Core Issues in Pricing Crypto Art

As collectors, we have been building pricing models for crypto artworks, which inevitably involve various questions about crypto art. Relevant aspects include:

1. Is the creator real, or just a bot stealing content from other platforms? To assess this, we typically use their social networks, online presence, and the types of content they have published so far as references. This information comes from the open market, meaning the market itself can verify it for us (e.g., "verified creator" badges).
2. Is the artwork original and has it never been marked on other platforms? Currently, we do not have a simple solution to this question. Ultimately, a reputation system needs to be established that exists outside of each trading market while covering all trading markets.
3. Assuming the creator is a real person, are they a well-known artist? How do we know if an artist is being impersonated? In some cases, we contact the artist via email to confirm their identity and that their digital works have not been misused.
4. Artwork quality. For static images, we can use their physical equivalents to assess quality. For animated works, there are additional elements to evaluate quality, such as the nature of each frame, perfect loops, annotated frames, transitions between frames, and the timing of elements in the scene.
5. Is it suitable for virtual reality galleries? For animated works, we care about issues like strong flickering, fitting rhythm, and appropriate colors.
6. Social metrics (views and likes). This is not a very strong indicator.
7. The total number of works by the artist. If there are too many works, it can be a problem, as it severely diminishes the collector's appreciation experience.
8. Starting price, time, and current bidding history.
9. The current state of the crypto art market. What are the starting prices these days? How many bidders are there on average?
10. The current Ethereum market conditions priced in Ether tokens. If the market allows bidding and sales priced in stablecoins, this is actually unnecessary (as of May 2019, only OpenSea allowed this). Stablecoins are ERC-20 tokens designed to track the value of tangible assets. DAI from the MakerDAO team is a well-known example, pegged to the dollar (1 DAI = 1 USD).
11. The artist's historical sales data, especially in the secondary market.
12. The quality of the NFT provider/market. For example, if the SuperRare.co market shuts down, we will still retain ownership of the NFTs, which means we need to rely on secondary markets (like OpenSea) to view and trade our collections.
    In addition to the artwork pricing model, we are also continuously assessing the systemic risks of investing in crypto art. We particularly need to focus on the proliferation of NFTs (with relevant use cases including gaming, collectibles, artworks, and virtual real estate) and the development of the underlying blockchain Ethereum. In fact, many of the data points mentioned above require us to extract manually. If we could use a cryptocurrency art analysis platform, it would enable us to better price and manage investments.

3. Issues Crypto Art Needs to Focus on Next

From a decentralized perspective on crypto art, we categorize the ongoing and future work into the following areas:
1. Understanding the Crypto Art Movement and Value
T'ai Smith and Blake Finucane are two scholars who have a deep understanding of the crypto art movement, providing much-needed historical and critical depth. They found that while the fusion of blockchain technology and digital art is a new phenomenon, there are still precedents to consider and understand. In this regard, crypto art offers scholars a compelling entry point to study issues of art, technology, and socio-economic systems within the digital industry.

The value and phenomenon of crypto art are closely linked to the value represented by blockchain technology. In the words of Jonathan Perkins, the owner of the SuperRare gallery, crypto art is "new ideas in ancient domains."

• From the perspectives of artists, gallery owners, and collectors, decentralization, democratization, and personal control are significant themes in crypto art.
• From the artist's perspective, crypto art represents a way to gain and maintain control over their works and receive related benefits. Not all values of crypto artworks will be realized. For instance, in the verification and authentication of gallery-centered artists and artworks, these transactions do not realize value. This issue has been previously discussed by James Morgan of KnownOrigin and artist Martin Lukas Ostachowski.
  2. Participation and Community
  As an artistic phenomenon, crypto art is now attracting an increasing number of potential artists and collectors, with its influence extending beyond the crypto community.

Artists and gallery owners have clearly pointed this out, noting that their peers and client communities in the art field show great interest in crypto art and express appreciation for it. Artists Martin Lukas Ostachowski and Sergio Scalet from Hackatao exemplify how crypto art allows them to explore art across physical and digital industries with unprecedented speed and freedom. Considering this, the space for exploration in crypto art remains vast.

As T'ai Smith and Blake Finucane point out, crypto artists are currently more focused on relatively traditional rectangular images and GIF formats. However, crypto art can provide artists with opportunities to interact with new partners in the digital art field and attract new buyers, while gallery owners can continuously enhance and improve their platform services through community interaction.

For Jonathan Perkins, the greatest opportunity in the current crypto art field is to design an exchange that serves art transactions and facilitates the circulation of artworks. In terms of transparency, provenance, liquidity, social signals, and online collection management, this exchange will strive to provide users with a perfect experience while also generating revenue, leading to a maturation of collectors in the entire crypto art market.
Although current crypto art is still created solely in the digital realm and outwardly resembles traditional digital art, innovations have emerged in communication and experience. Collector Sebastián Hernández provides a compelling example—the art exhibition platform Decentraland in the virtual reality world.
3. Crypto Art Critique System
Crypto art is often positioned as an alternative to traditional art, but in exploring its forms, we notice it tends to express itself as two-dimensional rectangular images (like paintings) that follow academic logic. Since works can be viewed on screens via computers, phones, or tablets, many crypto artworks feature vibrant colors and are often more concentrated, large, and bold images.

To our knowledge, very few cryptocurrency art practitioners engage with the implicit value systems of blockchain, utilizing relevant principles and token distribution mechanisms for artistic creation. However, Plantoid is an exception. In the future, there may be more artworks in this area.

The cryptocurrency world places great importance on anonymity. Anonymity allows individuals to express opinions and participate in critiques of crypto art without barriers, while the traditional art industry places more emphasis on the author's fame. However, anonymity can also lead people to refuse to take responsibility for specific actions or choices. Generally speaking, art requires artists or critics to take a stance and be accountable for it. Without historical and critical reflection, crypto art may even face the risk of extinction.
Considering this issue, we advocate for the inclusion of a rational "critique" system in the crypto art world, which could provide a semantic space for dialogue, qualitative judgment, and critique, and this system could potentially be deployed on the blockchain.
4. Economic Analysis of Crypto Art
For almost all contributors, the economic mechanisms of crypto art are crucial.

For artists, crypto art provides a way to sell their artworks directly and quickly without intermediaries. This is particularly important for artists like Martin Lukas Ostachowski. Due to this characteristic, crypto art offers unprecedented possibilities for new artists.

Art scholars T'ai Smith and Blake Finucane discuss the direct economic incentives of crypto art and point out that it can sometimes lead to unexpected consequences. In a historical turning point, crypto art finally "materialized" Duchamp, while conceptual artists attempted to break free from material objects to disrupt the traditional art market.

According to data scientists, crypto art has created a faster trading market for digital artifacts, making crypto art transactions somewhat similar to financial transactions. Possibly due to the increasing speed of artwork releases and a relative lack of control, crypto artists currently face significant challenges of artwork over-inflation (as pointed out by Sergio Scalet) or over-tokenization (as suggested by Martin Lukas Ostachowski).
Once a large number of new artworks flood the market, users and buyers may not have enough time to experience, digest, and ultimately purchase these new works after they are released. Hyperinflation not only depresses prices but also makes it difficult for crypto artworks to appear in the secondary market. Subsequently, third parties and process parties may propose suggestions for this issue, and decentralized autonomous organizations (DAOs) and token-curated registries (TCRs) may also offer corresponding recommendations.
5. Blockchain Technology and Applications
Although crypto art employs cryptographic technology, it is now understood that the crypto art movement has not fully utilized and explored the potential of blockchain technology and value systems.

The question of how to use cryptocurrency has garnered attention from relevant parties, but the volatility of cryptocurrencies makes the behavior of the market, especially collectors, more difficult to analyze and predict. Martin Lukas Ostachowski and Sebastián Hernández have discussed this issue, suggesting that locking pricing mechanisms and adopting stablecoins may improve these problems.

Another notable example is the lack of interoperability between galleries, which use different standards for artist and artwork identification, effectively limiting internal trading within galleries in the current secondary market.

Additionally, there are issues of forgery verification within the crypto art system. In this case, solutions for the entire crypto art community may require the assistance of decentralized autonomous organizations (DAOs) and token-curated registries (TCRs). System-wide interoperability could allow crypto artworks to be reused outside the system and create third-party services. For instance, Sebastián Hernández has proposed the creation of a crypto art analysis platform.

The crypto art analysis platform would first need to collect data from different galleries or require these galleries to adopt universal standards to programmatically disclose relevant data. In the future, it will also be necessary to develop useful crypto art metrics for different platform users (such as artists, collectors, gallery owners, and even bystanders), which is also a future work direction proposed by data scientists Massimo Franceschet and Giovanni Colavizza.

Moreover, the openness of crypto art data or "environment" will ultimately enable data scientists to model the crypto art trading system and predict whether individual artworks and artists will succeed in the future. Crypto art trading platforms can provide artwork data (images and metadata), transaction data (bids and sales), and social data (likes and views), thus offering us insights into the mechanisms of success in the art and creative industries. This could be an unprecedented initiative.