Key Highlights:
- Tokenization of art started back in 2014.
- With tokenized art, fractionalization of high-value assets is possible.
- This type of asset tokenization increases accessibility and liquidity within the market.
Asset tokenization is a process where real-world assets are converted into digital tokens on the blockchain. When this same concept is applied to paintings, sculptures, and other high-value artwork, it is tokenization of art. So for example if a painting is worth $1 million, then many investors can own small fractions of this painting and they can trade those fractions globally.
The art and the collectible market, which is estimated to be around $65 billion, has been something that has been hard to enter since the beginning. The price of the art piece or the token is usually so high that it does not allow many of the interested investors to enter the market. This means that there is less access, the sales of these art pieces is slow and the involvement of the middlemen also shakes up the market.
Tokenization changes this scenario and increases accessibility of the art pieces and collectibles to a wide range of investors. If at all transaction is to be made, it can be done in minutes and pricing becomes transparent.
It is being projected that by 2026, if regulatory guidelines develop in favor of the crypto market, then tokenization has the capability to bring in more liquidity within the system.
What is Tokenization in the Art Market?
Tokenization of art, as mentioned above, is a process that turns physical art or collectibles into digital tokens on the blockchain. Once tokenized, the tokens here represent the entire art piece. The beauty of fractionalization here is that multiple people can own a piece of high-value items like paintings or sculptures.
Origin of Tokenization of Art
It is interesting to know that even though tokenization existed since 2014 but the boom was only observed in a period of 2021-2022.
In 2014, Monegraph was the first to register digital art on Bitcoin’s blockchain. With this registration, tokenization of art began. This tokenization of art was hyped in 2018 when Maecenas fractionalized Andy Warhol’s “14 Small Electric Chairs” and sold 31% for $1.7 million on Ethereum.
Examples of Tokenization in the Art Market
Back in 2021, Sygnum Bank and Artemundi tokenized Picasso’s Fillette au béret. Around 50 investors owned this piece through 4,000 tokens. In the same year, Beeple sold “Everdays – The First 5000 Days” for $69.3 million, which showed the value of digital art tokens. Moreover, Damien Hirst tokenized “Everyday Objects” to prove blockchain can verify physical art ownership.
Benefits for Investors and Creators
For investors, entering the market is not the same as it was. As of now, they can simply own a small fraction of the art piece and enter the market. Fractional ownership changes everything here. These fractionalized tokens then can also be traded on 24/7 secondary markets. This is something that was impossible with the traditional art world. Tokenization of art also cuts out the need for brokers or galleries.
Creators, on the other hand, start earning more as tokenization opens up a new revenue stream which includes royalties. So, each time a creator’s work is resold, they get royalties for the same. Intellectual property rights are better protected, and artists can directly sell to collectors worldwide. Here again, the intermediaries are cut out.
Platforms like Brickken have made this possible in a compliant and regulated manner, as they raised $250,000 in funds for an Off-Broadway production named as “Kowalski”. This also indicates that tokenization is also capable of supporting creative projects.
How Tokenization is Changing Art Investment
The digital age has come a long way with tokenization and even though we mentioned the merits in the above paragraphs, let’s paint a clear picture and understand how exactly tokenization is changing art investment today.
- With the help of fractionalization, accessibility has increased as more and more people can easily enter the market.
- Once are is tokenized, these tokenized assets can be bought or sold 24/7 digitally which increases liquidity.
- There is clear indication of the ownership of the tokenized asset or art.
- Artists and creators can earn royalties and sell to a global audience.
- The tokenization is not restricted by the global boundaries, buyers and sellers can be from any part of the world. This expands the market way beyond the traditional galleries.
- With blockchain, an authentication process is carried out which means that fake or forged art cannot enter the market and be resold, something which is very common within the art market.
Challenges
For every innovation, there is always a good side and the bad side. With tokenization of assets or arts, challenges like regulatory compliance and price point exist. For example, the regulatory compliance is different in different countries, so there exists different laws regarding securities, ownership and digital assets.
Fixing the price of the art is also a task because each piece is unique and there is no standardized market value. Liquidity is at risk if niche tokens do not bring expected buyers.
Security risks also remain because the digital token must accurately represent and remain linked to a safely stored authentic physical artwork, while both the token and the assets are vulnerable to theft, loss or fraud. Some traditional collectors are still not sure if it is safe and secure to own artwork through blockchain technology.
Future Outlook
As the industry grows, the tokenization of art could feel more like investing. As AI has become a huge part of every industry these days, it is possible that AI could also be used in this field which might help with pricing of the artwork and figuring out the trends and demand within the industry. People could also make use of VR/AR and explore virtual galleries, and look at the art and its precise details.
There are chances that tokenization will also spread beyond art and collectibles to luxury goods, and other real-world assets. There might emerge new income models for the artists and more.
Also Read: Music, Movies, & Art as NFTs: How Artists Are Using Crypto
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