NFTs and the Redefinition of Art Ownership: A Paradigm Shift in Collecting
For a long time, there was no significant change in the way art institutions and collectors engaged in art acquisition. Like a few centuries ago, individuals and organizations still had to go through time-consuming dealerships, attend auction houses, and adhere to governmental regulations. Even the emergence of the internet and gradual democratization of art collecting weren’t enough to create a significant shift in the status quo until non-fungible tokens appeared on the digital scene.
Also known as NFTs, they emerged on the digital landscape in 2014 and, since 2021, have been a hot topic in the art industry. These unique digital assets utilize the blockchain to revolutionize the traditional approach with transparent digital ledgers, high-liquid sales, and art collecting accessible regardless of location, status, or financial capabilities. Moreover, with the establishment of facilitators like Digital Basel or LaCollection, both individuals and organizations were enabled to lower the entry threshold even further and discover more opportunities in the new era of art acquisition.
Let’s delve into the history of art collecting and discover what changes have been brought to the art world with the adoption of NFT technology.
The famous collection formed by Archduke Leopold Wilhelm of Austria depicts how a modern form of art collecting was developed during the Renaissance and remained almost unchanged to the present day.
Art Collecting in the Pre-NFT Era
Since the 17th century, when the first art auctions were held throughout Europe, and to these days, the traditional approach to art collecting has been characterized by conventional practices and emphasis on the physicality of dealing with art.
Art galleries, auction houses, or exhibitions served as the primary, if not only, venues to acquire artworks, ensure provenance, showcase art, and verify authenticity. In addition, being limited to physical spaces, this approach has enabled regional influences on shape collecting preferences and set art styles in trends.
Sotheby’s has been one of the world’s largest brokers of fine and decorative art since its foundation in 11 March 1744, organizing numerous auctions. Sotheby’s office on New Bond Street, London. Author: Dirk Ingo Franke.
As a result, transparency in the traditional art market was somewhat limited and required collectors and creators to seek professional help to discover the true value and origin of artworks. Leading to uncertainties about the true value and origin of artworks. Even in the age of digitalization, this led many organizations and individuals to hire art advisors and experts that navigate the market and ensure their purchases have true artistic value.
However, although there were many sides, specialists, and groups in the realm of art collecting, three crucial figures have stayed ultimately unchanged. These figures are art collectors, art institutions, and auction houses.
In the world of traditional art collecting, art collectors play a central and multifaceted role, acting as patrons for galleries and their affiliated artists. Selecting artworks that resonate with their personal taste and reflect artistic value, they carefully expand their collections and drive interest among other art enthusiasts. As patrons, collectors also support artists by acquiring their works and fostering their recognition among the general public and other art connoisseurs.
Beyond being passionate enthusiasts, art collectors also contribute significantly to the art ecosystem. Their financial investments in artworks can stimulate the art market, create demand, and encourage artists to experiment with various styles, producing even more exquisite works. Through collaborations with artists, commissions, and special projects, collectors actively engage with the creative process, promoting innovation and supporting emerging talents.
Galleries and museums play a pivotal role in the traditional approach. They act as guardians of cultural heritage, advocate for artistic expression, and provide a platform for artists to showcase their works to the public. There, art institutions assist them in curating exhibitions that coherently present artworks and foster a deeper understanding and appreciation of art.
Additionally, art institutions are representatives that help their affiliated creators generate revenue through auctions or artwork sales while ensuring transparency and credibility in the art market through meticulous verification. Thus, they not only look for their own profit, but also become valuable allies.
Although houses play a significant role as intermediaries in the traditional approach, they also create barriers for artists, galleries, and collectors who want to participate in art collecting. Eager to develop a structured and reputable marketplace, they often limit who can participate in the bidding based on location, status, or wealth. In addition, through extensive marketing and promotion efforts, auction houses can influence the trends in the art world, elevating one group of artists while others stay under the radar of collectors.
Ultimately, despite being present for hundreds of years, this status quo had its own share of disadvantages that have become obvious in recent years.
Challenges & Obstacles of the Traditional Approach
Engaging in art collecting through a traditional approach, all parties, including galleries, collectors, and creators, have faced various challenges and obstacles that hinder their effort. Among them, there were those that have become a driving force for the rise of the era of NFT in the art industry, like:
- High Costs: Entering the art market required significant investments, especially for emerging or niche galleries. In addition, only a limited pool of collectors can usually get access to bidding due to the private connections between participants or restrictions based on status, wealth, and location.
- Authenticity & Provenance: In the traditional approach, verifying the authenticity and provenance can take up to 7 months, despite the risk of eventually encountering forgeries or disputed origins.
- Conservation & Restoration: Maintaining and preserving artworks, especially older or fragile pieces, can require specialized conservation efforts. As a result, both future and current holders of artworks have to consider additional expenses when engaging in traditional art collecting.
- Art Market Transparency: Some art transactions lack transparency and may lead to poor financial decisions or even involvement in fraudulent activities.
- Art Market Regulation: Nowadays, various governmental and non-governmental entities strictly regulate the art market. Navigating this diverse range of legal frameworks may be challenging and consume time and funds.
Shift to Art NFT Acquisitions
As a reflection on the negative of its predecessor, the NFT era introduced a transformative shift in art collecting. NFTs and blockchain technology brought digital ownership, provenance verification, and fractional ownership to the art market. Collectors could now access a global art market through online platforms, democratizing art collecting and making it more inclusive, while galleries and their affiliated artists could directly interact with them, fostering collaboration and engagement.
While traditional auction houses couldn’t find their role in the digital realm, new intermediaries like NFT marketplaces and specialized facilitators have established their solid presence. Together, they divided the role of auction houses in two, concentrating their efforts on specific services to their area.
- NFT marketplaces have provided galleries, artists, and collectors with convenient platforms to directly showcase, promote, and monetize their collections on a global scale. Compared to auction houses in the traditional approach, NFT artworks could be accessed, verified, and traded on these platforms from anywhere, anytime.
- Specialized facilitators also have provided platforms but are directed predominantly at art institutions rather than collectors. For example, one such organization, Digital Basel, assists galleries with showcasing their works, promoting them among the audience of art connoisseurs, creating art NFTs, and facilitating deals with collectors. Ultimately, they provide almost all services that auction houses do, but transparently, inclusively, and efficiently.
Digital Basel is one of many organizations that replaced auction houses, enhanced their roles as intermediaries, and provided more convenient, accessible, and transparent spaces for acquiring digital artworks.
As the result of the combined efforts of both intermediaries and NFT technology itself, the new era of art collecting brought a range of significant advantages and even negated several negative aspects present in the traditional approach. Among those advantages, the most valuable are:
- Fractional Ownership: galleries can fractionize their NFTs, enabling collectors to own a portion of the artwork rather than a whole asset. As a result, they still will be able to receive revenue while making high-value art accessible to a broader audience.
- High Liquidity: NFTs enable fast and direct transactions from anywhere in the world, eliminating the need for intermediaries and existing solely in the digital realm.
- Diverse Utility: While in the traditional approach, artworks serve just as a valuable asset, in the NFT era, galleries have broader options in utilizing their tokens. These digital assets can take the role of keys to exclusive events or give access to additional content and still be able to be as sold.
- Direct Creator-Collector Interaction: Unlike intermediaries in traditional art collecting, NFT platforms allow galleries to engage collectors directly. Thus, both parties can clearly state their terms and foster meaningful relationships.
- Decentralized & Transparent Market: By operating on blockchain, the NFT technology reduces the risk of fraud and promotes trust among participants, as they can track and verify each transaction.
- Real-Time Provenance: NFTs maintain real-time provenance and provide collectors with historical records of a particular artwork, from its creation to the most recent purchase.
- Lower Entry Barrier: The NFT market requires less initial capital from both collectors and art institutions to participate in art collecting than in the traditional approach. Moreover, organizations can partner with specialized facilitators that assist them in overcoming the learning curve and technical difficulties.
As it’s evident, in spite of the traditional approach being still present on the scene, art collecting has undergone significant changes in the last few years. The rise of the NFT era has challenged the status quo and provided both art institutions and collectors with new opportunities to create new revenue streams and promote their works across the digital landscape. However, there are still many things to take into consideration if you want to make the most of their benefits.
Ultimately, we encourage both art institutions and collectors to learn more about art NFTs and what place they can take in your art collecting experience.