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NFTs: Valuable New Art Form or Financial Ploy?

Techonomy recently hosted a conversation about the dramatic rise of nonfungible tokens (NFT) and what they mean for the future of blockchain-driven technologies in general, and the art market in particular. Highlights are below:

David Kirkpatrick, founder and editor-in-chief, Techonomy: Jim, I want to quickly lay out the land of what is an NFT, and why is it important that we be talking about it right now?

James Ledbetter, editor and publisher of FIN: I first became aware of NFTs way, way back in December, when I noticed that people were using blockchain to sell what were being labeled works of art, but were really just tweets. For example, they would take an Elon Musk tweet about cryptocurrency and buy it registered on the blockchain, and then turn around and sell it. It struck me as kind of cute, because the prices were really modest; they would be like, “I got $300,” and people would get very, very excited about that. Obviously now we’ve seen in recent weeks works of NFT selling for tens of millions of dollars and rivaling some of the foremost artists of our day, which is a tremendous development and lightning fast. This is really the first mass application of blockchain technology outside of cryptocurrency. The blockchain conversation to date has been largely technical, and largely dominated by people within cryptocurrency. And now you’re exposing this technology to a whole new group of people who are by definition creators, and where they take this technology, I think, is going to be one of the most fascinating developments of this decade.

DK: I want to just elaborate one thing Jim said: NFTs really are not about art per se. An NFT is just means a record that’s kept on a blockchain that is unique. Many of the claims we’ve heard for a long time about blockchain’s impact on society depend on NFTs, if we ever were to buy and sell houses or even keep record of the flow of water in a dam. NFTs will be necessary because NFTs are a nonfungible, meaning a unique record that is kept on a blockchain of something. Max, what are you doing with NFTs? Who is Pak?

Max Moore, co-head, Contemporary Art Day Sale, Sotheby’s: My interest is in emerging art and emerging markets. I didn’t know what blockchain was six months ago. I’ve learned enough to make myself equipped for these conversations, but I understand my limitations when explaining these concepts. About three months ago, I was put in touch with an artist by the name of Pak, it’s a kind of a pseudonymous artist, very minimal, very conceptually driven. I was immediately intrigued, I now have a daily call with the artist and a running text message with them. It’s opened my eyes to to how creators can use this technology and create something quite beautiful.

We had an announcement about two weeks ago, that we were partnering with Pak in our first endeavor into this digital marketplace. We released another teaser, visually and acoustically beautiful; the sale dates are April 12-14th.

DK: Mark, what’s your reaction? Why did you feel compelled to write a fairly funny but acerbic column about NFT?

Mark Hurst, founder, Creative Good: Well, acerbic is the only way I know how to write. So that’s my excuse. I’m not a blockchain expert, certainly not an art market expert. So I’ll defer to the other panelists on some of those deep dives. I’m a generalist, I look at how technology is affecting us. And what was interesting to me seeing the initial high profile NFT sales is not how they’re being sold; what was more interesting is what was being sold. This artwork that sold for $69 million was basically a compilation of digital artworks that he had posted to Instagram over many years. He’s a talented artist, but it’s not worth $69 million dollars. What’s even more interesting to me is that a few days before, the Nyan cat animation sold. And this is a looping GIF. If you’ve been online long enough, you’ve seen it. And by the way, you know, if you’ve seen it on your computer, then you have it. In other words, this thing is worthless. It’s not unique, you can get it for free, anywhere and anytime.

We’ve had a market where assets have been bought and sold for a long time. And we’ve had various ways of valuing assets. And for a long time assets, let’s say on the stock market would be valued by what’s called intrinsic value. This idea of intrinsic value was was written about in a 1949 book called the Intelligent Investor, by Columbia Business School professor named Benjamin Graham, who was the mentor to Warren Buffett. And that idea of intrinsic value was that one share of Apple is backed by an actual company. What if we use that frame and apply that to the Nyan cat animation? You see, there’s something new here, there is no intrinsic value to a GIF animation. And yet someone assigned half a million dollars to it. That, to me, is the more interesting point, not so much how blockchain is being used.

MM: I think Mark’s skepticism is valid, when viewing the Nyan cat purely from the intrinsic value point and comparing it to how one would associate value to a stock market. When you break down the components of a painting, the canvas and the paintbrush and the paint, that’s the economic value. That’s not a one-to-one transaction, you’re buying the concept behind it, you’re buying the thought behind it, you’re buying the skill set that this creator has embedded.

Now the Nyan cat creator, even if you or I may not find the visual quality so appealing, it was a huge viral sensation. And that’s a social currency. So we need to decouple the idea that there is no intrinsic value with NFTs. I have spoken to several of these top collectors, who approach the collecting space the same way my traditional contemporary art collectors would ask the same types of questions. There’s not as much history or data points to educate their financial decision in a way; we’re a little bit blind in terms of assessing value at this current stage. But what we’re seeing is a true collecting mentality that’s being applied to a lot of these purchases.

JL: What’s so interesting about the question of “intrinsic value” is that a lot of the NFTs that I see are engaged with that very question. This art movement is provoking these hard questions about why we value what we value. I’ve seen NFTs that say, “I got you to pay for this NFT.” It reminds me, in that sense, of the spirit of Dada and some of the early surrealists calling into question “What is the value of these traditional works that we’ve always seen venerated and valorized as art?”

The second thing is your comment about Benjamin Graham. You are correct that the stock valuation model is not appropriate here. It is not the right frame in which to look at NFTs. I suggest it’s closer to why is cryptocurrency valuable, right? Because it’s directly related to cryptocurrency. When I started covering this space I had to wrap my head around: what makes Bitcoin go up and down on any given day? It is not the same thing that makes stocks go up and down. There aren’t things like price-to-earnings ratios, there aren’t fundamentals attached to the value here, you have to look at value creation somewhere else. That could be a very slippery area. I’m not endorsing that. But for those who want to understand it, you have to develop a different framework.

DK: Max, I know that you believe that one of the reasons Pak is a particularly interesting artist to represent in this auction is because Pak is a practitioner of blockchain creativity on their own. Talk about that a little bit.

MM: My relationship with Pak has been fortuitous because I’ve really uncovered and developed my own sense of understanding of what the possibilities of NFTs are through these conversations. There’s three different kind of types of classification we can give to some of the NFTs that we’re seeing right now. You have social creators that are capitalizing on their assets. You have Gronkowski as an athlete, or some of these musicians that are capitalizing on a huge following. Then you have Beeple, for example, who was previously a digital artist, but is now using the NFTs to tokenize and sell off those creations. But for me, Pak brings a different element to the entire equation, in that they are pushing the boundaries of what the technology of blockchain offers. There is an intrinsic link between the value of cryptocurrency and these NFTs; I think Pak is uniquely positioned to comment on the this close interaction. I would characterize Pak more as a conceptual digital designer, if you will, that doesn’t necessarily a real world asset that then just gets digitalized and NFT-tokenized for commercial gain.

MH: I think it’s a good point to bring up: the intrinsic value or lack thereof of a painting or photograph is not the only component when it goes up for auction. Max brought up the the same thing: is it the paintbrush or the paint? And that’s a that’s an important point. How much would the Mona Lisa sell for right now—for that little canvas and a little bit of oil paint, it would be tremendous. And it’s because of the fame that’s associated with with that piece of work. And similarly, as Max knows better than I do, the entire art market has has that fame or notoriety component in the prices. I just want to again bring up the fact in terms of the Mona Lisa example. There’s the fame component. And then there’s the actual object itself, the unique object, “I own the Mona Lisa, I can prove it because you can see it in my living room. I own it and you don’t.”

And what’s different with at least some of these initial NF T’s is that the fame, the notoriety and my column I write about the social media president presence of the creators, that’s certainly present. But there’s no substance, there’s nothing unique being sold, except the idea that I bought this thing. So the only uniqueness in the entire transaction is embodied by the NFT itself. And to Jim’s point, it may look like a Dada phenomenon. But I don’t see a lot of artists, frankly, who are behind this. I see a lot of technologists who are excited about blockchain. And I think we make a mistake if we conclude that this is in any way an artistic phenomenon. This is something being driven by technologists and financiers to make money, full stop.

DK: A question has come in from Chee Pearlman, a TED person, somebody who I’ve known for a really long time, knows a lot about art: “What does it do to Sotheby’s and Christie’s when they lend their imprimatur, their credibility as art historians and keepers of provenance to an artwork like Beeple’s? To me, it looks super opportunistic. As one artist said to me, “the art has just left the art market. All that’s left is the money.” What do you say to that, Max?

MM: It’s a good point. I have met with criticism, from the traditional collecting world, given that there’s a lack of understanding or a lack of appreciation that a digital artwork doesn’t have a physical manifestation. My one comment would be that what we’re seeing right now is not necessarily an overtake of the art market—it’s more so attracting a completely new list of creators and a completely new audience. I think that’s what’s really interesting, from Sotheby’s perspective, we’re bringing a new audience that would never have interacted with contemporary art before, would never have interacted with Sotheby’s previously, and may not even know who Sotheby’s is. So they would assume that what we’re buying for millions of dollars, that we’ve ascribed value to, is absolutely crazy. But they’re completely enamored with this digital medium in ways that some of the traditional collectors would find crazy. So you have these two polarizing views, and they can all be considered under one umbrella. And I think Sotheby’s has a very unique position to educate and to move forward in that direction.

DK: So you’re saying the people who might bid for Pak think that to pay $20 million for a de Kooning is insane?

MM: I can’t speak for everyone. But yes, I would say that there’s a 25-to-35-year-old, someone who’s made some financial gains in cryptocurrency, who has adopted the blockchain into their daily lives–they don’t necessarily need that physical representation to appreciate something. I’m not going to be the one who’s going to tell someone that they can’t appreciate something because it’s a different form than what I’m traditionally selling.

JL: I want to build on that and respond to something that Mark said a moment ago about hanging the Mona Lisa in your living room and using that as evidence of exclusivity. NFTs did not invent the questioning of that particular form of ownership. It’s been 100 years since Walter Benjamin wrote “The Work of Art in the Age of its Mechanical Reproducibility,” he talks about the aura around the original object having a particular kind of value. But you could Xerox 100 copies of the Mona Lisa, or a million copies of the Mona Lisa. And people could still respond to it on some level. Some would look at that and say that it’s destructive, some would look at it and say that it’s democratic. But I think Max is right to say it’s sort of meaningless for people to object to that trajectory, because the market is going to exist, whether you and I approve of it or not.

MH: I’m a little uncomfortable with the argument “maybe you don’t like digital art.” I don’t know a whole lot about the digital art market. But I know that there has been digital art for some time. I’ve seen it at MoMA, I know downtown, there’s a gallery that has been selling digital art very successfully for many years. My concerns are not about the existence of digital art. My concern is that we’re creating a market that is not about art, because we’re actually not selling art, we’re not selling anything at all, because the art is already out there freely in the in the case of these animations, it’s only about money. And when we fully financialized any slice of the world, we see similar effects across the board: increasing carbon footprint, rising levels of inequality, the draining of humanity and artistic integrity. There’s a great book called The Death of the Artist by Bill Deresiewicz. If you haven’t read it, it’s excellent. It talks about the plight of artists, like musicians and visual artists and journalists in the age of digital platforms. And if we move the entire creativity market onto the blockchain, I’m afraid that we’re going to see some of those same parallel distributions where very few people like people get extremely rich, and everyone else gets pushed out to the margins.

DK:  Max, I think you you know something about who paid that $69 million for the people and what kind of person that is, or persons or people, can you just tell us what what you do know about it?

MM: I think that the price that was achieved was a real marketing stunt. And that is because it was purchased by a fund, and the fund had ownership of other works, and essentially increased the value of their entire portfolio.

JL: I understand completely why people want to focus on a $69 million sale. And we’ve shaped this conversation in a particular way by inviting Max from Sotheby’s, but it feels very urgent to me to point out that that’s one tiny sliver of what this technology is going to be used for. Kings of Leon has put out their new album as an NFT. I think that represents a way that artists can have a relationship with their fans, that completely transcends the way that music has functioned for decades. And we should not dismiss that because in some ways the blockchain is susceptible to abuse or creates inequality or increases carbon footprint—all of which are legitimate concerns. But I think we risk losing sight of the creative opportunities that this has presented.

Max, let me ask you, as we begin to wrap up here, where do you see this going? I said earlier, I think we’re in very, very early stages of this. I’m curious if you see the technology getting more sophisticated, and perhaps easier to use; if you see a new kind of audience out there for these types of creations and transactions; and finally, beyond the art world, if there are applications that you think we’re close to using blockchain technology for, what what are they?

MM: I think the next six months will be a very pivotal time for the development of this marketplace; Mark’s concerns are my concerns as well. And if you just apply the value exclusively to these NFT’s that will not build the foundation, that will just create this flipper culture and you will be left with the last one holding the bag. So I think quality obviously needs to be achieved and demonstrated in meaningful ways. I think that’s where someone like Sotheby’s can come in, and other marketplaces and other critics and kind of creators can really kind of push everyone into a global kind of acceptance of this world.

MH: Yeah, I appreciate what Max is saying. Obviously, Max, you are attempting to focus on the artistic relevance of this new movement. My concern is that the people driving this, and who are benefiting, are generally not the artists. And so outside of your sphere, more generally, it seems like more of a move towards financialization than anything else. And that to me is not going to lead to great flourishing of human creativity.

This piece originally appeared in FIN, James Ledbetter’s fintech newsletter. Ledbetter is Chief Content Officer of Clarim Media, which owns Techonomy.

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