Crypto is creating an angel investing market for arts and culture

Thanks to artists like Beeple and projects like CryptoPunks, NFTs have been the main character of crypto news in 2021. This has led to an avalanche of NFT sales by artists and celebrities all over the world. Despite the heavy focus on people with clout cashing in on their social capital, I think NFTs will have an even bigger impact on artists emerging today.

NFTs (non-fungible token) at a glance:

One common criticism of NFTs is that, as they are simply data in a public database (albeit a new type of database), they can easily be copied, reproduced, and created without permission. Why would you buy something anyone can copy? People making this criticism are missing the value of NFTs entirely. NFTs are more comparable to a certificate of ownership and authenticity than they are to a physical piece of art. When buying a Rothko, art collectors do not lament how easily they could be reproduced. This is because the value of owning a Rothko is not because it looks like a Rothko, but rather because it is (provably) a Rothko! Through NFTs, blockchains provide a more robust record of ownership than ever before (there is no reason why NFTs couldn’t be used to represent ownership for physical art, too). Meanwhile, reproducibility will inevitably only get easier as the world becomes more digital — this makes a reliable record of ownership even more valuable, not less.

A thriving art market, with proof of ownership bestowed by trusted marketplaces, has existed for a very long time. On the surface, the technology behind NFTs may seem like an incremental improvement to this system. In my view, NFTs have already significantly changed the future of the art market, though. They’ve done this by making the ledger of art ownership available to artists no matter their career stage, rather than just those who can draw the attention of the likes of Sotheby’s. This means collectors can invest in artists from all over the world at the start of their careers rather than only after they make it big. This new market of early-career (and therefore cheap) art also opens the collector market to anyone.

The ability to easily and safely find and purchase art from artists who are only just starting their careers is creating a huge opportunity for collectors of all calibres. By investing in an artist at the start of their career, you can achieve much more ambitious long-term capital gains than ever before. Taking a risk on an emerging artist could eventually pay off massively. This essentially creates an angel investing market for art and culture. This angel investing market will strongly favour those with a good eye for what will eventually become very successful, which probably means other artists. This will empower artists to become art collectors, reinvesting the capital they’ve made from their art, into the next generation of artists. This will look a lot like the world of startup angel investing.

Essentially, the world of art investment will look much less like the ultra-rich investing in already-famous artworks, and more like everyday people and artists re-investing their capital in the next generation of artists. The ultra-rich will continue to acquire their fair share, of course.

Lastly, another feature of blockchains is that they are programmable. This means new rules can be built into blockchain-powered markets. Artists choose where they sell their work, so they can choose a rule set that looks out for them. For example, OpenSea (like many other NFT marketplaces) allows artists to configure royalties when creating their NFTs. NFTs with royalties configured will pay a commission for any future sale to the original artist. This means if you sell your artwork for a small amount today and later become very successful, you’ll continue to earn royalties from future sales of your now highly sought after artwork. This, and other future marketplace innovations, will create a more artist-friendly market.

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