Bitcoin, Ethereum and now… Banksy?
Author: Andrea Casetta
According to the last "The Art Market 2019" report, by Art Basel and UBS, sales in the 2018 year alone reached $67.4B. A market that is capable to move financial resources across the globe and shape the wealth of countries, as Fine Arts is estimated to be worth a total of $3,000B. Many players are involved: from buyers, being collectors, but also investors; sellers, as private ones or Institutions; and intermediaries. The latter, in a sense, are arguably the core itself of the concept of Art itself, being those who dictate the rules of the game by making the market, setting prices and playing the role of guarantors in million-dollar transactions. Among these, two major Auction Houses are responsible for around 80% of all transactions, setting high barriers to entry.
So, in such a concentrated market, is there space for tech breakthrough in The Galleries?
As this dilemma requires extensive discussion (more details arriving soon), in this episode we will only focus on what we could describe as a sub-problem in the market. The same intermediaries above mentioned, as well as other dealers, mention the search for new buyers as the most enduring obstacle to be faced in the future. In Asia, especially in Singapore and Hong Kong, Millennials had approached and established themselves as responsible for a big share of the transactions in their region. It is true, however, that the figures in the Asia-Pacific are still far from those in the US and UK, that remain the two major markets worldwide. To engage with the same age group in these regions there might be a need to invent a new strategy. One that is being explored, and, as expected, the focus of our research involves blockchain and the digitalization of Art: the ICOs of tokenized artworks. An Initial Coin Offering is the sale of digital and encrypted tokens registered in a blockchain. The tokens are real tradable assets that, in the case of Art, represent a percentage of ownership of the piece itself. In the case of a Dynamic Pool, the issuer limits the supply of tokens by setting the number issued. The price will be set by the market via an auction. Doing so allows, in our case, to auction the coin just as we would do with the regular art piece with our auction method of choice.
One company that explored the tokenization of Art is called Maecenas, Latin for "patron": based in Singapore, they tokenized a painting by Andy Warhol in 2017 for $5.6M. As a model for every piece, the company begins with an evaluation of the item and all of the case checks, drafting an informative prospect for the public. After that, the mint tokens are minted, compliant with the Ethereum ERC20 standard, ensuring the possibility to be stored in an e-wallet with the security of the well-known protocol. The auction of the tokens takes place according to the Dutch Auction formatting as in many IPOs, involving starting from a ceiling price going down until the full sale. Once the final bids are in, investors would pay using any fiat or cryptocurrencies. They would then have access to a 24/7 Fine Arts Market, where Smart contracts would ensure transparency and certainty behind transactions involving the tokens.
The changes in the classical business model are drastic, two of them especially as they redefine the current paradigm. The first being the perpetual access to the market by the players: in this regard, the radical change will be also in the way by which the value (price) of Art will be set, as it will be driven purely by supply and demand. The second one is the dejection of some of the barriers to entry, specifically the elimination of the need for the physical transportation and the preservation of the artwork as well as a much lower price to enter the market given by the greater pool of investors and the more than halved commissions.
Nevertheless, firms visioning going toward this route would still have to face the problem we discussed earlier: how to reach out to new clients and how to let them enter the market itself, both as collectors and/or investors. If the works of artists such as Vermeer or Seurat will still appeal if offered in this way, only experiments will tell. However, there is a specific market segment where this concept might have immediate and surprising results. Youngsters show interest in Art that has exposure to Social Media, which is very new Art. The same is true for their inclination in trusting new tech and in experimenting with digital assets. Consequently, they might be interested in engaging deeper into this world by entering the market, by buying a Banksy-Token, for example. We could even witness the transition from the ancient form of Maecenas to Maecenatis*, as artists themselves could access this segment of buyers or investors to crowdfund the making of their Art.
The World of Fine Art is so complex that it is difficult to draw any conclusion. New concepts and visions might imply the modification of the current paradigm of Art and extensive effort to be implemented. Nevertheless, innovation is possible anywhere: one day, we might be able to mint virtual tokens with Van Gogh self-portrait "on" them.
*plural of Maecenas, in Latin