Digital art as a store of value

From physical gold to digital gold, the world is changing rapidly. With the rise of non-fungible tokens (NFTs) and blockchain technology, digital art is quickly gaining traction as a valuable asset. In this article, we will provide a brief overview of this emerging asset class and how it compares to traditional art as a store of value.

Introduction

Contemporary art challenges established norms and beliefs. As a part of the contemporary art movement, digital art has existed for decades but has struggled with provenance and scarcity. However, with the advent of blockchain technology and the introduction of NFTs, digital art has gained significant traction, with works selling for high prices at major auction houses. Let's delve deeper into this phenomenon.

Contemporary art

Contemporary art refers to art created during the present time, encompassing a wide variety of styles, mediums, and subjects. Unlike traditional art, contemporary art often breaks away from conventional rules and explores new avenues of expression.

One defining characteristic of contemporary art is its ability to challenge established norms and beliefs, sparking dialogue and debate among viewers. It can be controversial, provocative, and thought-provoking, addressing a range of social, political, and cultural issues.

The mechanics of how contemporary art accrues value can be complex. Artists who gain cultural relevance and remain relevant often need to navigate various factors beyond artistic skill, including market trends, networking, and the support of influential collectors and curators.

A valuable resource for understanding the complex economics of contemporary art is Don Thompson's book, "The $12 Million Stuffed Shark: The Curious Economics of Contemporary Art." In this book, Thompson delves into the inner workings of the contemporary art market, exploring topics such as art auctions, art fairs, and the role of collectors and galleries in shaping the value of contemporary art.

Digital art

Digital art has existed for decades, and with the emergence of blockchain technology and non-fungible tokens (NFTs), it has managed to overcome the challenges of provenance and scarcity. Previously, digital art lacked a reliable way to prove authenticity and ownership, making it difficult to establish its value. Additionally, because digital files can be easily copied and reproduced, there was no inherent scarcity, which further devalued the art.

However, with blockchain technology, digital art can now be uniquely identified and authenticated through NFTs. These tokens serve as digital certificates of ownership recorded on a decentralized blockchain, making it nearly impossible to counterfeit or tamper with. This makes it easier to track the provenance of digital art and establish its authenticity, which, in turn, can increase its value.

Moreover, NFTs also add scarcity to digital art. Each NFT represents a unique digital asset, meaning no two NFTs are the same. This creates a level of scarcity previously unattainable with digital art, increasing its perceived value as a collectible.

Status quo of digital, blockchain-based art

The current state of NFT art is rapidly evolving and gaining significant traction in the art world. The sale of Beeple's "Everydays: The First 5000 Days" for a staggering $69 million on March 11th, 2021, marked a turning point in the acceptance and valuation of blockchain-based digital art.

Following this landmark sale, NFT art has continued to appear at major auction houses such as Christie's and Sotheby's, with some works fetching very high prices. This newfound interest has led to a surge in demand for digital art, and a new generation of digital contemporary artists and collectors is emerging, exploring the unique possibilities of the medium.

Artists and collections

Discussing digital art without including examples would be incomplete. Here are five all-time favorites, each with a "first" and highly relevant in the NFT space, gaining more and more traction outside of the NFT world as well.

1. CryptoPunks

CryptoPunks is a collection of 10,000 unique 8-bit pixel art characters created by Larva Labs on the Ethereum blockchain in 2017. Each CryptoPunk is distinct and has its own combination of attributes, such as hats, glasses, or facial expressions. They were one of the earliest examples of non-fungible tokens (NFTs) and quickly gained popularity within the cryptocurrency community. CryptoPunks are considered a groundbreaking project that paved the way for the explosion of NFTs in recent years. They are now highly sought after by collectors and have sold for millions of dollars in auctions.

At the time of writing, the floor price (i.e., the lowest price one can buy a CryptoPunk for) is 64 ETH or around USD 115k. The Larva Labs website is a good starting point to learn more.

2. Chromie Squiggles

Chromie Squiggles is a collection of 10,000 unique on-chain generative art pieces (not all have been minted yet though). The artist, Erick Calderon (Snowfro), is also the founder of the ArtBlocks platform, home to the most recognized generative artworks. Chromie Squiggles are considered to become something like the "Swoosh" of web3 and have accrued significant value over the past years. At the time of writing, the floor price is around 10 ETH (USD 18k). SquiggleDAO is a good place to learn more.

3. XCOPY

XCOPY is a pseudonymous digital artist known for creating surreal and dystopian images using a combination of traditional and digital techniques. He often explores themes related to technology, capitalism, and the future of humanity. He was creating digital art long before NFTs (like Beeple) and sharing his work on Tumblr. Around five years ago, on March 22nd, 2018, he sold his first GIF for GBP 1. He is a pioneer in crypto art and the glitch art genre.

The 1/1 piece shown above, titled "Right-click and Save As guy," was purchased by Cozomo de' Medici, one of the most important digital art collectors, for 1,600 ETH (USD 7m) on December 9th, 2021.

People often compare XCOPY with Banksy, with some referring to XCOPY as arguably the world's most relevant living artist.

4. Claire Silver

Claire Silver is an anonymous artist leveraging AI in her creative process. She is a pioneer and leader in the AI art movement, which is currently rapidly gaining relevance. Her work is accruing value accordingly, with the piece mentioned above selling recently for 52.69 ETH (USD 89.3k).

5. Nakamoto Freedom

"Nakamoto Freedom" is an edition of 300 identical pieces by 6529er. It refers directly to the Bitcoin whitepaper and was published in June 2022. With the banking crisis unfolding and crypto under immense pressure, especially from the US, the artwork has become a symbol for digital rights and has accrued significant value (current floor is 19 ETH or USD 34.6k).

Digital art vs traditional art

Digital art and traditional art are two distinct forms of artistic expression that differ in their medium, technique, and characteristics. Blockchain technology adds additional dimensions to the comparison.

Provenance and storage

One of the key advantages of digital art, particularly NFT-based art, is that it is easier to track the provenance of the artwork. NFTs are unique digital assets that are recorded on a blockchain, making it possible to trace their ownership history. This is in contrast to traditional art, where provenance can be difficult to establish and authenticate.

In terms of storage, digital art is also much easier to preserve and display. Unlike traditional art, which requires specialized storage conditions and may degrade over time, digital art can be stored on a variety of devices and platforms without fear of damage or decay.

Liquidity and advanced functions

Another advantage of NFT-based digital art is its liquidity. With smart contracts and decentralized marketplaces, NFTs can be bought and sold easily and quickly, providing artists and collectors with a more efficient way to sell their assets.

In addition, advanced functions within smart contracts enable collectors to access liquidity through the use of decentralized finance protocols. These allow NFT holders to lend and borrow against their digital assets, providing additional value and utility to the artwork (NFTfi).

Conclusion

While traditional art will always have its place in the art world, digital art, especially NFT-based art, offers numerous advantages in terms of provenance tracking, ease of storage, accessibility, global reach, interactivity, and environmental impact. These factors make digital art an increasingly attractive option for artists, collectors, and investors.

As the digital realm continues to expand and develop, it's likely that we'll see the gap between digital and traditional art narrow, with digital art gaining even more recognition and value.

Finally: none of this is financial advice. Do your own research and stay safe.