by dfurlong | August 18, 2019 | Comments Off on Can you Afford U$90m for a Piece of Art?
2018 saw a record year for art prices, sales volumes and auction sales. Christies had their best year in history with over U$7bn in art sales. Sotherby’s sales increased 16% on the previous year. These are astounding numbers and one piece in particular – David Hockney’s 1972 Portrait of an Artisht (Pool with two figures) fetched a little over U$90m
Against the backdrop of digital connectivity and globalization buyers and investors seem rapacious in their desire to access the market. This may offer nice returns for the galleries and auction houses but not necessarily for artistic community. Moreover, with the majority of art being sold via private sales to a discrete set of investor’s broader access to this asset class is extremely difficult.
However, the art market could be set for disruption. Enter the blockchain. While many see this technology as merely a more modern iteration of track and trace. The real value lies elsewhere. The ability to record the meta data of art pieces on an immutable ledger to assist with asset verification is proving very useful. In addition, deconstructing and tokenizing the components of the core asset – the pieces of the piece of art – offers more interesting and remunerative opportunities, and open new markets
Why is this necessary? The total size of the global art market is roughly U$70bn, but around 60% of all art is priced at more than U$50,000. This makes it extremely hard for mass participation for both artists and investors alike. Not many people have a spare U$50,000 lying around to invest in a new wall hanging, especially millennial’s who have become increasingly interested in asset diversification. In addition, while historically art was bought and held for long periods of time, often being rarely seen outside of private collections, millennial’s want to experience and engage with art in new ways. The development of social media is certainly a contributor to this, but blockchain affords an additional set of capabilities to enhance that experience.
Several startups are working on alternative business models that can open the art market to new opportunities. The Blockchain Art Collective, MakersPlace, Maecenas, Verisart, Artnome, Artory, BLKART, Plantoid, Fresco, Adappcity, Scarab Experiment, Portion, Ink Labs, Yair, DADA and Snark.Art are all trying to disrupt the status quo. With Blockchain Complete solutions it is possible to digitalize a physical piece of art – or take an existing form of digital art – and deconstruct the resulting bytes (pixels) into a set of fragments and object logic. This allows for fractional ownership – critically not just of the buyer/investor pool (which is less interesting in terms of more traditional crowdfunding), but also of the original asset itself.
As an example a piece call 89 Seconds at Alcazar first was shown about 15 years ago in the Museum of Modern Art and is valued at around U$200,000 – out of the reach of many investors as a single asset. By breaking the video into 2,000 pixelated fragments each of U$100 and tokenizing the fragments allows for new investors to come to the piece and for the piece itself to be shown in new ways. For example, if only 70% of the new owners agree on aggregating the video only 70% of the video is shown.
This raises additional opportunities. For example, incentives could be attached to the various deconstructed fragments to nudge investors towards aggregation of all fragments. Or 70% could be set as the threshold for all fragments’ owners to accept the public display of the art piece. The fragments could also be securitized. Time sharing of ownership could be attached to fragments e.g. for limited viewing periods. A secondary art market (which currently doesn’t really exist) could be established which offers the original artist the potential for additional revenue by attaching royalty payments through the use of smart contracts. The development of newer token standards like the ERC 1400 series will improve fungibility, compliance, and reassure investors and therefore improve tradability.
The art market is not the only asset class where these opportunities are being explored. Real estate, transportation and the literary market all have active research and development.
So, what illiquid assets do you currently own, manage or invest in which may benefit from this approach? And what is your token/digital asset strategy as an enterprise to take advantage of these opportunities?
David Furlonger is a Research Fellow at Gartner. He pioneers in the field of blockchain, and foresight research. He is the author of a new book: The Real Business of Blockchain: How Leaders Can Create Value In A New Digital Age.
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