The Future of the "Crypto Art" Market

This article is sourced from: “Harper's Bazaar Art · Vision Foresee” February 2021 issue, Author: Qinwen, Head of Web3 Foundation China

Artworks themselves carry financial attributes, and the art blockchain opened a new chapter in the integration of art and finance in 2021. The disruption of traditional art trading models established a shared order for transactions in the virtual world, prompting artists, collectors, art industry practitioners, and capitalists to explore new avenues. While cross-domain integration has created low-cost cognitive links between the public and artworks, the fixed flow of traffic inevitably dilutes artistic value. So, can the emerging "crypto art" spark a new trend in the art blockchain? How long can the capital bubble in the virtual world last? How strong is the public's confidence in the integration of technology and art?

Technology and art may seem like two opposing worlds, but the underlying logic is surprisingly consistent. Technology seeks truth, while art seeks beauty; both are driven by curiosity and imagination, requiring relentless research and creativity. The birth of the internet gave rise to the era of Web 1.0, where tech enthusiasts in the 1990s ran personal servers and websites, focusing on academic research. At that time, the internet had no connection to social structures, and people had yet to discuss the topic of "net neutrality."

The “CryptopPunks” Series

In the era of Web 2.0, the reality of social structures involving giants and intermediaries was transferred online. The internet helped artists connect with their enthusiasts through platforms like Instagram (social app) or Artsy (art trading platform).

The transformation brought by the decentralized internet era of Web 3.0 is even deeper, using decentralized technologies like blockchain to change the control of tech giants and return power to individual network participants. Solutions like zero-knowledge proofs address current issues of internet data privacy and personal data sovereignty. Thus, blockchain has two different integration directions with art: the first is to help traditional artworks digitize and map onto the blockchain, solving traceability issues. The other is the burgeoning field of crypto art, along with the decentralized art market infrastructure that has emerged.

The concept of Web 3.0 was first proposed by Dr. Gavin Wood, known as the "invisible brain" of Ethereum. He is the CTO of Ethereum and the creator of Polkadot.Network and Kusama.Network, proficient in music and art while also fascinated by game theory, social sciences, and political studies. He is also supporting tech projects in the art world through the network he created.

Blockchain Artwork “Portrait of A Mind: Block 21,” Ben Gentilli

In 2018, Christie's, a top global auction house with a 250-year history, chose to cross into technology and actively focused on the development of the intersection of technology and art, with blockchain technology being a top priority. In 2018, Christie's in London initiated a dialogue on art & technology, exploring whether "blockchain technology is ready to establish consensus in the art market." Subsequently, Christie's announced that it would record art sales on the blockchain. At the "Art & Technology" conference in Hong Kong in 2019, I shared insights on the industry trends of "Art and Blockchain" with friends from the Asian market ------ "The Construction of a Decentralized Art Market."

In October 2020, Christie's in New York announced the auction of the blockchain artwork "Portrait of A Mind: Block 21" created by Ben Gentilli, which included a physical piece and an NFT collectible. Recently, Christie's also announced the auction of the NFT artwork "Everydays - The First 5000 Days" created by artist beeple, which will be the first purely digital artwork supported by a major auction house, with bidding open from February 25 to March 11. The news attracted global attention from the crypto and art circles.

"Crypto Art," the Native Art of the Crypto World

Note: The term "Crypto Art" is a direct translation of Crypto Art.

The Ptolemaic dynasty of Egypt established the Library of Alexandria, collecting books from around the world. Unlike the Library of Alexandria, which was ultimately destroyed in a fire, "crypto artworks" in digital wallets can achieve immortality in the digital world. "Crypto art" refers to native digital artworks that are first issued on-chain in the form of NFTs through blockchain smart contracts. The year 2020 was a booming year for "crypto art," with impressive results.

A digital trading card of LeBron James was sold for $75,000 on the blockchain game NBA Top Shot. Creators mint their works as non-fungible tokens (NFTs) and sell or auction them on blockchains like Ethereum or Flow, earning cryptocurrency as income. On the popular Ethereum art platform SuperRare, the total income for artists and collectors has reached $4.5 million and $1 million, respectively.

Digital Trading Card

What is driving this emerging trend? The reason for the trend is the result of collective cognition. Economics determines the superstructure. The timeless artists and luxury brands are all built on a "consensus" established by the wealthy class with good aesthetics, social resources, and discourse power. Today, in the twelfth year since the birth of Bitcoin, its price has surpassed $50,000 after a surge of mainstream institutions in the United States in 2021. The "crypto world" has a market value of about $600 billion, resulting in a small-scale wealth "redistribution" globally. Wealth has been distributed to contributors of decentralized network codes and community participants, creating a new class of "crypto world" elites and establishing new discourse power and "consensus." Some of them have become the new generation of collectors and platform investors who spend lavishly in the crypto art wave.

The Winklevoss Brothers, Bitcoin billionaires worth $3.2 billion, invested in the online art auction platform Paddle 8 back in 2014 and facilitated the integration of Bitcoin as a payment currency. Although the two brothers have been enthusiastic about the art world for many years, their first art collection was ------ Larva Labs' CryptopPunks. In 2019, they officially acquired the now highly sought-after NFT trading platform Nifty Gateway through their crypto company Gemini, recently setting a record for a single piece at $700,000.

The Winklevoss Brothers purchasing “Cryptopunks” at the New York Art Fair, with Larva Labs founders John Watkinson and Matt Hall in the middle

The "crypto world" is expected to bring a new generation of collectors with backgrounds in crypto knowledge into the art collection field. You might ask why they don't directly enter the art market to purchase works by contemporary artists but instead choose the emerging "crypto art"? I think it can be summarized in two points: "cultural identity" and the competition for discourse power brought by technological innovation.

Open Source Culture and Community Power

The term "open source" comes from geek culture. Throughout history, most human organizational models have adapted to scarcity. The simplest organizational model is a command system; however, the open-source world of blockchain is built on an open community of "freedom" and "consensus," where global community members gather around shared ideals, equally possessing the right to shape and optimize software through code contributions, gaining reputation or economic incentives through personal contributions. This is a true global decentralized movement.

Take the physical and NFT work "Portraits of a Mind," which debuted at Christie's in New York in October 2020, as an example; the work itself embodies Bitcoin culture. The entire series consists of 40 pieces, with the numbers on the physical pieces representing the original code of Bitcoin. Each piece is dispersed around the world, with a unique digital geographic coordinate embedded in the codebase, each coordinate related to an important location in Bitcoin's history. The gilded characters on the code can be found through an algorithm developed by the artist.

It not only resonates with the name of the project behind the proof-of-work mechanism for "mining" Bitcoin, which is Robert Alice, because Bob and Alice are the most famous pair in the field of cryptography. How geeky yet romantic! Top-notch works have also attracted top collectors from the "crypto world," including Binance CEO Changpeng Zhao and Bloq Chairman Matthew Roszak, both listed as Forbes Crypto Billionaires, as well as Jehan Chu, founder of Kinetic Capital.

The NFT technology behind "crypto art," how does it reshape or establish the "power structure" of the digital art world? Based on blockchain, NFTs, or Non-Fungible Tokens, mean that you cannot equate one Picasso with one Monet for each artwork. In the blockchain world, for assets that can be traded on the same standard, such as Bitcoin, we call them Fungible Tokens; while as "objects" (non-standard assets) in the crypto world, they are referred to as NFTs, allowing each piece to achieve uniqueness and traceability on-chain. For collectors, this marks the true era of digital ownership, where you control your digital assets through private keys. One of the most important innovations of blockchain for art is the creation of digitally provable unique versions of goods.

At the same time, this will be the first time in history that artists participate in the revenue sharing of the secondary market, returning discourse power to creators. The birth of Ethereum in 2015 brought about Turing-complete smart contracts, which can be understood as transactions that can only be completed when both parties meet specific conditions. In the trading of NFT crypto artworks, artists or platforms can write the revenue-sharing conditions for each future on-chain sale into the contract, allowing artists to engage in the secondary market of their works. Every time crypto art circulates in the secondary market, they will receive a share of the creative rights revenue as stipulated in the contract. Additionally, programmability can help digital artworks achieve fractional trading. This may be the first time since the Renaissance that artists hold such a high status in the market.

The art market has always relied on galleries as intermediaries, with collectors at the core, while artists only provide output, and the subsequent sale price of the works has nothing to do with them. The emergence of blockchain has changed this power dynamic. The economic benefits for emerging artists are significantly better than in traditional systems. However, this does not mean that collaboration with galleries is no longer needed. Especially with major galleries, they possess exceptional star-making abilities and strong operational skills, with financial resources, collector networks, and platform advantages that can rapidly elevate an artist's market status, causing the prices of favored artists' works to soar tenfold in an instant.

Daniel Arsham's Work

For "crypto artists" already recognized by the market (of course, the artistic quality of the works is always paramount), the next more ambitious goal could be to collaborate with major galleries to expand their influence into broader fashion and consumer industries. Influential global communities have formed a unique IP for the "crypto world." The cross-industry influence brought by the financial system of the "crypto new world" is something that most artists do not possess. For example, both KAWS and Daniel Arsham, who have collaborated with Dior, share the commonality of developing their IP and controlling the primary market. They are also both on the roster of Hauser & Wirth, where representation by a major gallery is no longer their only means of survival but a powerful alliance. Moreover, smart contracts can clearly stipulate revenue-sharing ratios through code, which will undoubtedly be a win-win situation.

Art and fashion have always had intricate relationships. More and more luxury brands realize the importance of leveraging artists, and the process of selecting and exploring suitable artists for collaboration is itself an important chapter in each brand's ongoing "legend." I believe that the "crypto world" will inevitably draw closer to the industries of art and fashion, where discourse power is paramount, through "crypto art." The latter will also feed back into the crypto world with more application scenarios and new users.

Opportunities in the New World

Most artworks in the crypto field are associated with one emotion ------ greed; not all works can be called art, and truly collectible and epoch-making artistic styles and innovations are still rare and fiercely sought after by the market. For instance, regarding "Portraits of a Mind" mentioned above, are the new generation of collectors ready to discover a Picasso in the new world?

Kusama.Network Crypto Art “Chaotic Parachain,” Artist: IOYOI Hong Sisheng

Can "crypto art" establish an art capital? Unlike previous art trends, the emerging art movement surrounding art technology is not concentrated in traditional art capitals like Paris or New York, but is a truly global decentralized movement. This means that for countries and cities wishing to position themselves as new cultural vanguards, they only need to open their doors to and support these frontier thinkers and artists to achieve this goal.

The discourse power and rules of the traditional art market have always been dominated by the West, while Asia has certain advantages in user markets and engineering talent, especially in the crypto world. Some transformative events and institutions that will have significant impacts on the future are currently happening. Technological innovations will inevitably accompany the emergence of service institutions, and Asia's first "crypto art" ecological brand BCA (BlockCreateArt) is advancing towards creating a "crypto art world" ecosystem, operating services ranging from galleries, art IP, tech art education to trading markets.

The world's first offline crypto art exhibition will be held from March 26 to April 4, 2021, in a dual-city exhibition at UCCA Lab in Beijing and Jinghua Art Center in Shanghai. At that time, the Bitcoin culture NFT work "Portraits of a Mind," which will be auctioned at Christie's in New York for the first time, will also be present. The exhibition organizers hope to introduce the blockchain culture represented by Bitcoin and the Polkadot community to a wide audience of art and technology enthusiasts. They aim to build a platform and bridge for the new generation of traditional and crypto artists to connect with the broader art and crypto ecosystem.

The world's first offline crypto art exhibition will be held from March 26 to April 4, 2021, at UCCA Lab in Beijing and Jinghua Art Center in Shanghai

The potential of art finance: NFT + DeFi. We are entering a decentralized future art market built on blockchain public chains. This includes ecological auction platforms and virtual galleries, with OpenSea on Ethereum being the largest trading platform for crypto collectibles, where "crypto artworks" are a major trading type. Art brokers like SuperRare are also emerging, providing work issuance and promotion services for "crypto artists." Meanwhile, the virtual space Cryptovoxels offers online display space for artworks. However, the issues of network congestion and high transfer fees on the Ethereum network undoubtedly trouble everyone.

The third-generation blockchain Polkadot effectively addresses this issue with its underlying Substrate's composability, allowing over 100 chains to work simultaneously. The NFT chain does not have to compete with financial applications, maintaining the ability to offset fees while connecting with the crypto art ecosystem on Ethereum. The Kusama.Network, the canary network of Polkadot, has also showcased its virtual gallery Chiba Gallery in China through the world's first crypto art exhibition, where artists can experience the process of minting artworks on-chain through RMRK.app and PolkadotAsset modules during the exhibition's workshops. Additionally, Unique Network can support various ownership models ------ shared ownership, exhibition leasing, and ownership until use. Indeed, the scenarios of art finance are likely to be realized under the dual combination of "NFT + DeFi (Decentralized Finance)," achieving the democratization of a new generation of art collection consumption.

"Art finance" simply refers to financial services in the art market, including art financing, mortgage financing, art funds, and public institution operations and financing. New York's MoMA financed through bonds in 1980 with an Aa2 Moody's credit rating, using its property as collateral, and its strong operational and fundraising capabilities are also important guarantees.

The "crypto world" undoubtedly brings fresh water to the operations and financing activities of public art institutions. In 2018, the Whitney Museum in New York established a blockchain-based donation program. The Kusama.Network, led by Dr. Gavin Wood, known as the "code poet," actively provides funding support for "technology and art" projects that support network ecological construction. As a decentralized network, the network's parliamentary members control this treasury through on-chain governance, sponsoring projects including the Voxel Bridge project of ArtProject2020 and the upcoming world's first "crypto art exhibition" in China.

Whether art blockchain and "crypto art" become the new toys of capitalism again, they have opened a new chapter of possibilities between technology and art. The current market is growing in chaos; heroes emerge in turbulent times, and opportunities and potential coexist.

How will the future of the crypto art market develop in the Web 3.0 era…