Analysis & Opinions - Belfer Center for Science and International Affairs, Harvard Kennedy School

Digitization is Transforming the Art Market

| Mar. 30, 2021

Earlier this month, the bombshell sale of artist Beeple’s digital collage for a whopping $69M captured headlines and transformed a lesser-known concept called “non-fungible tokens (NFTs)” into a household term overnight. In case you missed, the piece, a .JPG file, was sold by Christie’s in an online auction in exchange for the cryptocurrency Ethereum (ETH). It brought the debate over the legitimacy of digital art NFTs, a nascent asset class, to the forefront of public attention, along with the world of blockchain, “tokenization,” and digital currencies. Saturday Night Live even parodied the topic in its “NFTs” sketch over the weekend (it is a worthy satirical explainer). Indeed, it is part of the greater shift to the digital world that we have experienced over the past year. However, the importance of the “Everydays - First 5000 Days” transaction, along with its attention-grabbing price tag, is that it represents a paradigm shift for the art market and established markets on the whole.

This revolutionary transaction has been accurately described by Elizabeth Hapsburg, Managing Director with the Winston Art Group, who said, “It is clear that we are at an inflection point in the art market right now. Not only is this groundbreaking for digital content linked to blockchain technology, but an entirely new group of buyers has been welcomed into the art market, ones who have no particular interest in the prior icons of tangible Contemporary art. Furthermore, this places blockchain technology front and center in helping bring transparency to the traditionally opaque art market.” Hapsburg’s points are reinforced by the recently revealed identities of the buyers of the $69 million piece, Vignesh Sundaresan and his partner Anand Venkateswaran. Known in the transaction by their pseudonyms “Metakovan” and “Twobadour,” Sundaresan and Venkateswaran were early investors in cryptocurrencies and blockchain technology, and have no substantive history in traditional art transactions.

For this new group of buyers, Diana Wierbicki, Partner and Global Head of Art Law at Withersworldwide, cautions that “The art world is unpredictable. There is a lot to be learned from the challenges contemporary artists have faced in sustaining long-term interest in their works. As with all art, it is difficult to predict which NFTs will be desirable a few years from now – some NFTs may go up in value and some will surely go down as well. In the meantime, for those who have purchased or are planning to purchase NFTs, as you would for any other art, make sure that you are discussing insurance coverage with your insurance broker and reviewing your rights under your purchase contract with a lawyer.”

Two Worlds Collide

The confluence of the art world and the digital realm may seem confusing, and for good reason. Artwork is an artifact in the most traditional sense. It exists in physical form; it is tangible and carries intrinsic value. The digital world appears the near opposite. However, digital currencies and NFTs are not new to the art world. Various platforms that sell traditional artwork (as well as NFTs) through blockchain have been around since the early part of the last decade.

Cointemporary was one of the first to launch in 2014, conducting transactions strictly in Bitcoin, with dozens of similar platforms emerging soon after. The market has not grown significantly enough to garner broad attention, but the arrival of Christie’s to the scene marks a dramatic shift. When one of the oldest and most reputed art auction houses not only opens its doors to NFTs and digital currency, but does so with a blockbuster transaction, it is hard not to see it as confirmation that digital assets and digital currencies are here to stay. Christie’s, Sotheby’s, and Philips are akin to the central banks for the art world.

If you examine art markets more closely – specifically art as an asset – it becomes easier to understand why it was ripe for expansion into the digital space. It also helps to expose parallels with other markets, which will likely recognize similar benefits and open their doors as well. At its core, artwork is an expression of one’s creativity captured in form. It is also a medium of exchange and a store of value. It derives value from demand. Demand at scale is founded upon qualitative attributes such as established stylistic and aesthetic standards, which are further supported by originality, authenticity and verifiable provenance. The latter are all central tenants of blockchain, the network within which cryptocurrencies and NFTs exist.

Traditional Artists Move into NFTs

Damien Hirst, the United Kingdom’s wealthiest living artist, has himself begun to launch his work into the NFT market. Hirst proclaims that his work involving NFTs and sale by means of cryptocurrency has been “the most exciting project I have ever worked on by far.” In a recent set of transactions, Hirst earned $22.4 million by selling 7,481 of his prints to about 4,000 buyers in 67 countries. This statistic is not only baffling because of the overall profit, but also because of the sheer number of prints sold and in a diversity of countries. The potential to reach 4,000 buyers in 67 countries is facilitated by the use of cryptocurrencies. The normalization of this process will only continue to gain momentum as more and more traditional artists make a foray into NFTs, further extending access to previously unindoctrinated members of the art community.

Noah Davis, Specialist, Post-War and Contemporary Art, Christie's New York noted that "there is tremendous potential for NFTs in the art market and beyond. As a mechanism, the potential that NFTs have to shift the way that we establish ownership has no bounds. The results of this sale demonstrated huge enthusiasm within the market for digital art, and to a larger extent, the boundless potential for this artistic medium. Digital art is a long established artistic medium, which has been in existence since the 1950’s when civilians were first able to gain access to computing systems. However, before the introduction of NFTs and Blockchain technology it was impossible to assign value to works of purely digital means. This is all to say that digital art isn’t new, it is only new to the art market, and we are now seeing it make up for lost time. We are honored to now have the opportunity to use our platform to bring this medium’s most innovative artists forward to the international art market."

Questions still remain, however, about the place of NFTs in the future of artwork and art markets. Jean-Paul Engelen, Deputy Chairman and Worldwide Co-Head of 20th Century & Contemporary Art at Phillips, the world’s third largest auction house as measured in turnover, noted, “What is totally missing in the current debate is the quality of the art. The Beeple transaction is really the ‘Kardashianing’ of the artworld. It has become famous for being famous. It is for certain an artwork, but placed in the canon of art history the work is neither new nor innovative. So will the traditional academic artworld judge the NFT artworks or will they live in their own parallel ecosystem?” In this regard, Wendy Cromwell, founder of boutique advisory Cromwell Art, is optimistic. She notes, “The art market follows the money, and increasingly, so do artists. Long term, I anticipate that NFTs will be supported by the traditional art market because if the quality of NFT art improves, collectors will want to participate.”

Digital Art and the Digital Dollar

With the largest digital currency transaction in artwork finalized, governments around the world continue to conduct research on the potential of central bank digital currencies (CBDCs). Though decentralized digital currencies (cryptocurrencies) have gained significant attention and press coverage over the past few years due to their exciting volatility and ease of access, CBDCs have garnered considerably less attention. As China pushes to roll out their Digital Currency Electronic Payment (DCEP) pilot program in multiple cities across the country, sovereign nations across the globe look to advance their own CBDC systems. With the promises of greater financial inclusion and increased efficiency in managing payments, digital currencies add significant benefit to the expansion of the art market. By bringing non-physical stores of value to the mainstream and providing banking services to the previously unbanked, digital currencies increase access to traditionally exclusive markets. Buying a piece of higher end artwork may have previously required consummate understanding of business processes, personal connections to auction houses, and a certain societal status to make a first entry, but digital access expands the market audience exponentially. As decentralized, alternative digital currencies and CBDCs begin to garner more attention and research, this trend will continue to gain momentum.

Digital Currencies are For Good

This year we have witnessed a tremendous shift in value to almost all things digital. Stock market valuations for technology companies are through the roof and cryptocurrency prices have more than quadrupled. Beyond value, the popularization of NFTs and mainstream use of cryptocurrencies has profound implications for market access and financial inclusion. Schools, charities, non-profit organizations and small businesses in need of funding all stand to gain from access to a larger variety of sources. As we think about industries and sectors that were previously “reserved” for those in the know, these frameworks are beginning to change, and so are the possibilities for any person with access to the Internet. Markets are being exposed in every corner of the globe as connectivity expands and newer, easier ways to get involved in previously exclusive types of transactions emerge. Artwork, access to financial institutions, and charitable giving are only a few of the many opportunities that will emerge in the continuing digital transition.

Statements and views expressed in this commentary are solely those of the author and do not imply endorsement by Harvard University, Harvard Kennedy School, or the Belfer Center for Science and International Affairs.

Michael B. Greenwald is Director at Tiedemann Advisors. He is a fellow at Harvard Kennedy School’s Belfer Center for Science and International Affairs and a Senior Fellow at the Atlantic Council Geoeconomics Center and the Financial Crimes Task Force at the Antiquities Coalition. From 2015-2017, Greenwald served as the first US Treasury attaché to Qatar and Kuwait.

This article is supported by research advisors Logan Weber and Michael Poor. Weber is a graduate of Harvard University and graduate student at Texas A&M University studying International Affairs. Poor is a graduate student at UC San Diego’s School of Global Policy & Strategy.

For more information on this publication: Belfer Communications Office
For Academic Citation: Greenwald, Michael.“Digitization is Transforming the Art Market.” Belfer Center for Science and International Affairs, Harvard Kennedy School, March 30, 2021.