The Art World Underestimates the Power of NFTs

NFTs will bring about a profound structural shift in how art is created, enjoyed and sold.

AccessTimeIconDec 15, 2022 at 2:57 p.m. UTC
Updated Sep 28, 2023 at 2:22 p.m. UTC

“Is it art? All of these people really amuse us, but the annoying thing is that none of them are worthy of the title ‘artist.’ It’s a con, a hoax, and endangering art history and the whole aesthetic tradition.”

What sounds like an argument during a debate in 2022 about non-fungible tokens was actually said in 1940 when gallerists were discussing an Art Brut display, a period in art history that is part of every museum collection today.

The art market of today sounds identical in their condemnation of NFTs and their characterization of these digital tokens as a fad, a bubble, a modern version of tulip mania. Obviously, the sudden collapse of the NFT market, the FTX hoax and the lack of education paired with the arrogance of crypto-bros doesn’t help to invite the art world to look beyond the money bubble.

Magnus Resch is a professor of art economics at Yale University. This article is part of CoinDesk’s Crypto 2023 series.

But that’s wrong. Unlike common belief, NFTs are not art. Overpriced, celebrity-endorsed JPEGs that often are associated with NFTs will go away. But what stays is the technology to help authenticate artworks.

The current convergence of digital art, crypto money and blockchain technology will bring about a profound structural shift in the art ecosystem: Collectors won't buy if a work is not registered on the blockchain; artists will exert more control over their work and earn royalties from resales; more collectors will populate a transparent market and the art market will become more regulated, for the better.

Changing powers in the art eco-system

Let’s look at the role of artists: In the future, it is not unlikely that every artwork that leaves a studio will be registered by the artist on the blockchain. So when it’s traded the artist not only gets royalties but also knows who the new owner is. This allows them to work more independently and not rely on galleries entirely to promote or authenticate their works. As a consequence, artists will earn more on every piece they sell.

Traditionally, it’s been a 50/50 split with the galleries. In the NFT space, it’s a 90/10 split in favor of the artists. So, we will end up somewhere in the middle. Additionally, artists and their heirs will benefit from royalty income. Artists will also tap into new revenue streams. for example converting some of their community into paying members for additional services, unique content or early access.

With this change in the commission set up, there will also be a change in the power structures: Similar to the entertainment industry in the 1930s, the power in the art world will shift from the distribution channel (galleries) to the creators (artists). And with more independence for artists also comes more responsibilities. In a world where collectors communicate directly with the artists, who is selling the works, then, when the artist is busy creating? In order to sustain this shift, artists will need to become more entrepreneurial and learn to manage new tasks. Some will hire more staff, others will gladly work with galleries that take on the jobs of selling, promoting, placing and supporting – roles galleries today are already performing. But the power dynamics will have switched.

Collectors will be most impacted by the development of the new art ecosystem. Given that the role of the middleman has shrunk, they will be in closer, more direct contact with artists. When every artwork is registered on the blockchain, collectors will feel more confident buying art because they will know current prices, past prices and comparable prices. And more collectors will enter the market because information on provenance has become clearer and more accessible. And selling artworks in the traditional market is currently very difficult and always requires a middleman. Using NFTs the sale process is much easier and allows for much faster transactions, demonstrating easier ways to get a return on investments.

Art market opposed to change

Does this mean the art market will change entirely tomorrow and all its key players will vanish? Definitely not, because changes in the art world take time. And because the inner sanctum of the art market will surely endure, relying as it does on established relationships. Does that, then, mean that Picassos will be replaced by Beeple and MFA programs will mostly graduate digital artists? Also, no. Painting is not dead, and digital art as a medium will continue to constitute a small share of the market. Only a few projects out of the current NFT hype are likely to make it into the top museums. Most will resume their pre-bubble relevance.

The advantages of NFTs and blockchain technology will contribute to a better art market, one that is fairer and more equal and democratic. A market that is more inviting, less exclusive and more transparent – converting a large number of new visitors into buyers who purchase art.

Art institutions can benefit tremendously from the new capabilities that NFTs and their underlying technologies give us by better engaging their communities and giving them ownership through participation and involvement in governance.

Obviously, not everyone is excited about the prospect of change in the art industry. But the writing is on the wall. Nostradamus-like predictions of the gradual decline of the traditional art world into antiquity may be slightly premature. We’re simply entering a new era. It’s time for the art world to embrace it and Web3 builders to collaborate with art traditional institutions as they won’t go away.

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Magnus  Resch

Magnus Resch teaches art economics at Yale University. He is the co-author of “How To Create And Sell NFTs. A Guide For All Artists.”