Wave One: Rarity — Fine Art
This is the 3rd part of an ongoing NFT classification series.
In the third part of this NFT series, we’d like to focus on the fine art scene and how NFTs are changing the face of the industry. From transforming the way auctions are conducted to the way ownership disputes are mitigated.
Editor’s Note: This is my naive attempt to describe what Fine Art is (I do not pretend to know everything about Fine Art) and its relationship with NFTs. Let’s start exploring …
The Mona Lisa at the Louvre is worth more than USD$800 million. Can you imagine owning a piece of that (in an alternative universe where fine art paintings were sold in fractions)?
Just having the rights to 1% of that painting would already be USD$800,000 and eternal bragging rights among your fine-art-collecting friends.
Well, the very first tokenised fine art piece might not have gone for that price, but it was a breakthrough for blockchain technology.
The Very First Piece Of Tokenized Fine Art
Andy Warhol’s painting “14 Small Electric Chairs” valued at USD$5.6 million was the first fine art piece to be tokenised with blockchain technology. 31% of the painting was auctioned off by a crypto-art-friendly gallery in the UK with the help of its tech partner Maecenas, raising USD$1.7 million.
The entire auction was run entirely on Ethereum using smart contract technology as buyers were able to purchase fractions of the painting with BTC, ETH, or ART coins. This is made possible via tokenisation where data contained in a digital file is transformed into unique digital tokens.
Since the Warhol sale in 2018, NFT art sales and NFT marketplaces have exploded in popularity.
The NFT market has undergone exponential growth in the last two years. In 2020, a little over USD$200 million in NFTs changed hands. This February alone saw more volume than the previous year — with approximately USD$340million in sales.
This August blew the roof off the market with over USD$4 billion in total NFT volume. When NFT marketplaces outside of Ethereum are considered, that figure surpasses USD$10 billion in secondary sales
If you’re already in the crypto scene, these numbers might not make you bat an eyelid. However, to the uninitiated greenhorn — it may seem ridiculous. To be honest, it is unfathomable.
Human beings are known to do ridiculously crazy things.
People are spending seven, even eight figures to buy a JPEG on the Ethereum blockchain. The most famous NFT titled “Everydays — The First 5000 Days” by Beeple sold for USD$69 million.
Why exactly are people shelling out millions of dollars for JPEGs? We take a deeper dive into the First Wave of Fine Art NFTs.
Wave One: Rarity
Rarity was what marked the first NFT trend. To understand this wave, we’re going to use one of the favourite pastimes of any 90s kid: Pokemon cards.
Throwback to 2002: Pokemon cards were the trend and the one card everyone wanted was the “shiny Charizard card”. One of these cards today retails for USD$8,000-$13,000, with some costing more than USD$100,000.
Many would argue that the card’s high value owes not to its power within the associated card game, but rather a combination of its status as part of the Legendary Collection, and the perceived value that the fanbase places on it.
Now, take that concept into the world of Fine Art and you have Wave One. (Check out our overview on the various waves of NFTs that we did over here)
Applying the principle of the Charizard trading cards, Wave One NFTs apply the same principles of rarity, collectability, and groupthink* to digital collectibles and art pieces to not only determine an NFT’s value — but also inflate it.
*Groupthink is a phenomenon that occurs when the desire for group consensus overrides people’s common sense desire to present alternatives, critique a position, or express an unpopular opinion. Here, the desire for group cohesion effectively drives out good decision-making and problem solving.
Fine Art NFTs
The Mona Lisa was painted more than 500 years ago, yet it has only been hailed as one of the greatest paintings in the world for a fifth of its existence. Some people might scoff, but others would dish out at least 9 figures for it.
Have you ever wondered why people would pay close to a billion dollars for the Mona Lisa? What made it so famous, apart from its masterful execution?
In 1911, the Mona Lisa was stolen from the Louvre museum. When it was eventually found and returned, the painting became an overnight sensation — newspapers went bonkers over the museum scandal. The mechanism that stimulates public interest, otherwise known as “hype” today, works without failure even today.
What took hundreds of years can now be done in a flash in this day and age through social media. Hype on social media surrouding popular NFT projects can push up the perceived value of an NFT collection by up to 8 figures.
Christie’s and Sothesby’s Utilising Blockchain Technology
Fine art as an investment has typically been reserved for the elite few for thousands of years. Blockchains and NFTs are changing the game to democratise access to one of the most exclusive industries in the world.
Just three years after the launch of Ethereum, Christie’s and Sothesby’s — two of the world’s leading auction houses tapped into the enormous potential of blockchain technology. Founded in 1766 and 1744 respectively, these auction houses are frequented by serious art investors, and are famous for their blue-chip collections of antiques, fine art, and jewelry.
What is worth noting about their blockchain adoption is that both institutions have reputations for being incredibly conservative — this speaks volumes about their unprecedented move and solid endorsement for blockchain technology.
In 2018, Christie’s New York became the first auction house to register an NFT sale on the blockchain. The Barney A. Ebsworth collection — one of the most sought after 20th century collections of 20th century American art in the world — bagged USD$318 million in sales.
The utility of blockchain technology extends through the industry far beyond the auction process. The advent of blockchain technology significantly mitigates the prevalence of forgery, allows for the easy trading of digital art, and creates greater access to fine art investment.
To top it all off, the immutable nature of blockchains can be used to resolve disputes about ownership or damages.
In the next article, we take a look at digital collectibles that also made up a significant part of the first wave! Stay tuned for the next article in our NFT series.
THIS IS NOT FINANCIAL ADVICE
Cryptocurrencies like NFTs are nascent and in very early-stage startups. They are heavily subjected to speculation on the secondary markets and should never be treated as a form of investment.
Our write-up is a humble attempt to show the technological advancements and innovation that the blockchain technology possesses.
Readers are advised to engage their own financial advisors and do their own due diligence before making their first purchase.
All information expressed here are in the views of the writer based on the date of article.
We are looking for industry leaders to co-create this together. Please write to [email@example.com] for your interest to participate in this community-written project.
LESLIE DANIEL CHAN. Founder, DEFI Singapore
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