Christie’s to auction its first blockchain-backed digital-only artwork

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Since May 2007, US-based digital artist Mike Winkelmann (who goes by the name Beeple) has posted a new artwork online every day. He posted the 5,000th one in January, and has now packaged them into an enormous digital collage titled Everydays: The First 5000 Days, which will be auctioned online by Christie’s on February 25.

The work will be sold in purely digital form, as a 21,069 × 21,069-pixel JPEG file and a “non-fungible token” or NFT. NFTs use blockchain technology to give the successful bidder unquestioned ownership of the work.

Read more:
Blockchain is useful for a lot more than just Bitcoin

NFT artworks are becoming a serious business. Last year, Beeple made US$3.5 million on an NFT auction.

But the entry of a global blue-chip auction house like Christie’s into this domain may mark a new stage for blockchain technology, as a widespread tool for both maintenance and transformation of digital art markets.

Not as new as it seems

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The digital work Ever Blossoming Life – Gold by teamLab.

Christie’s claims the sale of Everydays is the first time a major auction house has offered a purely digital artwork. Christie’s has sold digital works before, including videos (such as Ryan Trecartin’s A Family Finds Entertainment in 2013) and software-based installations (such as teamLab’s Ever Blossoming Life – Gold in 2018).

But these were accompanied by physical trappings, such as certificates of authenticity or fancy hard drives to house the digital files. This time, however, it’s simply the image file and an accompanying NFT.

What are NFTs?

NFTs support claims to an artwork’s value. While the JPEG file of Everydays may be copied, the collector’s blockchain-based record of ownership will allow them to display the work (and to resell it) on a number of online platforms.

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Here’s a copy of Everydays: The First 5000 Days. Without an NFT, it’s not worth much.

Christie’s has teamed up with one such platform, Makersplace, for the deal. Makersplace uses an open standard smart contract for its NFTs, which means the work can be sold in many other places in the the increasingly complex NFT ecosystem.

NFTs are useful in the digital art market because they enable claims to authenticity and scarcity, despite the ease with which digital works can ordinarily be copied. Artists and galleries have tried to create scarcity via limited-edition works and to assure authenticity with certificates, but NFTs seek to automate this process.

NFTs record ownership on a blockchain, which is a decentralised alternative to a central database. Built through cryptography and peer-to-peer networks, blockchains are resistant to tampering and hacking, which makes them useful for storing important records. Vince Tabora from US tech website Hacker Noon has written an accessible explainer of how blockchain is different from older ways of storing and organising data.

Why blockchain?

Ever since blockchains were described in the white paper published by pseudonymous Bitcoin inventor Satoshi Nakamoto in 2008, the idea of a “trustless” way to keep secure public records has evolved into a so-called “confidence machine”, fuelling a considerable amount of hype. Simultaneously, voices have emerged to encourage more nuanced and critical engagement with blockchain’s possibilities and limitations.MoneyLab Reader 2: Overcoming the Hype and There is No Such Thing as Blockchain Art are two key publications exploring these tensions across varied cultural domains.

Carnegie Mellon Researchers have described potential use-cases for the art industry, including securing artwork provenance (see Verisart) or enabling secure forms of fractional ownership (see Maecenas).

And Christie’s is no stranger to new technology. The company has hosted regular Art+Tech Summits since 2018 (the inaugural topic being blockchain).

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The algorithmically generated Portrait of Edmond Belamy by French collective Obvious was sold by Christie’s in 2018 for US$432,500.

In 2018, Christie’s proudly announced it was “the first auction house to offer a work of art created by an algorithm”, with the sale of the AI-generated painting Portrait of Edmond Belamy for more than 40 times its estimate.

So by selling Everydays as “the first purely digital work” to be offered by a major auction house, Christie’s is reinforcing its self-described “position at the forefront of innovation in the art world”.

Virtual trading cards and CryptoKitties

At the same time, Christie’s upcoming auction is only the tip of the NFT-collecting iceberg. Industry publication Coindesk estimates the total value of the NFT market to be US$250 million. Platforms such as Opensea, Nifty Gateway and SuperRare host a rapidly expanding range of digital collectibles to buy and sell by a growing community of collectors.

Beyond art, digital collectibles include virtual trading cards, artefacts and attire for virtual gaming worlds. They also underpin games such as CryptoKitties, in which NFTs serve to secure the “unique genome” of each kitty in the game. These examples reflect the uptake of NFTs across different digital subcultures, providing collectors with claims to uniqueness that were previously considered impossible in the online realm.

Blockchain for artists

Artists and other creative practitioners may also benefit from blockchain-backed systems.

Researchers at RMIT published a paper on how blockchain infrastructures could help Australia’s creative economy in 2019. They note how blockchains could support artists in trading, creating contracts, getting their work discovered, sharing resources – and making money to support their livelihoods.

Artists themselves are also searching for new ways to use blockchain and other “distributed ledger” technologies. Over the past decade, Furtherfield in London has worked with artists to explore the possibilities and limitations, partnering most recently with Goethe Institute and Serpentine Galleries for The DAOWO Sessions: Artworld Prototypes. Other notable projects include Artists Re: Thinking the Blockchain, which showcases how artists have a stake in this technological shift, and DisCo Coop, Trojan DAO and Black Swan DAO, which examine how new tools for organisation can challenge the value systems of the traditional art market, rather than further solidify them.

Blockchain futures

This reexamination of art in light of blockchain has also been happening in Australia. In 2019, Baden Pailthorpe and I worked with the Bitfwd community to curate a project called Blocumenta, which brought together local artists, designers and hackers to examine how blockchain could affect the arts, culture and heritage in the Asia-Pacific.

More recently, Nancy Mauro-Flude and I co-curated an event called Economythologies – MoneyLab#X, which was co-presented by several universities, galleries and arts organisations. We presented a program of talks, performances and artworks that considered how blockchain’s uprooting of legacy economic systems and narratives opens space to imagine different ways to value, design and organise our creative and cultural practices.

At this stage it’s hard to say exactly what blockchain will mean for art. For now, perhaps we should let Beeple have the last word:

bruh, i just learned wtf an NFT is like two weeks ago, not gonna act like i have a ton of intelligent shit to say here. this crypto space seems super interesting though and i see a ton of potential to do some weird shit nobody has done yet…

Read more:
Friday essay: The Australian art market has flatlined. What can be done to revive it?

Economythologies – MoneyLab#X was co-presented by Centre for Creative and Cultural Research (University of Canberra), Institute for Culture and Society (Western Sydney University), School of Art and Design (Australian National University), Holistic Computing Aesthetics Network and Cultural Value Impact Network (RMIT University), Ainslie+Gorman Art Centre and Bett Gallery , with the support of the Institute of Network Cultures and Despoinas Media Coven.

The Blocumenta Blockathon was co-presented with bitfwd ventures and community, with the generous support of the University of Canberra, ACT Government, the Australian National University, DAOStack and Sigma Prime.

Tags: #Christies #auction #blockchainbacked #digitalonly #artwork

Written by Denise Thwaites, Assistant Professor in Digital Arts and Humanities , University of Canberra

This article by Denise Thwaites, Assistant Professor in Digital Arts and Humanities , University of Canberra, originally published on The Conversation is licensed under Creative Commons 4.0 International(CC BY-ND 4.0).

why a wave of huge companies like Tesla rushing to invest could derail the stock market

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After Tesla announced it has invested US$1.5 billion in bitcoin and expects to start accepting the cryptocurrency as a payment for its electric vehicles in the near future, the bitcoin price went soaring. It went from around US$39,400 to an all-time high of over US$48,000 in less than 24 hours.

The price is now up by over 50% in the first six weeks of 2021. Led by Elon Musk, Tesla’s investment is obviously in profit already: depending on the exact day of the purchase, it is likely to be worth over US$2 billion, pointing to a paper profit of over US$500 million. To put that in context, when the electric car-maker made its first ever annual net profit in 2020, it was just over US$700 million.

The bitcoin price

Bitcoin price graph


Tesla’s move into bitcoin comes on the back of a wave of institutional money invested in the world’s leading cryptocurrency in recent months, plus numerous other companies putting it into their treasury reserves. With the world’s sixth most valuable company also saying it might buy and hold other digital assets “from time to time or long term”,
it must be tempting for other major companies to do likewise. Since the Tesla announcement, Twitter finance director Ned Segal has already signalled that his company is considering such a move, while a research note from the Royal Bank of Canada has made a case for why it would benefit Apple.

The prospect of a bluechip invasion into bitcoin has caused much excitement among cryptocurrency investors. But if Tesla does trigger such a goldrush, there will also be some unsettling consequences.

Volatility spillover

Tesla justified this material change in the way it manages its treasury reserves by stating that investing in bitcoin will “provide us with more flexibility to further diversify and maximise returns on our cash”. Corporate treasurers have always used the money markets to invest surplus cash to eke out small yields, and it is harder than it used to be in the current long-term low interest rate environment.

All the same, this is very different to standard money management. Bitcoin is a highly volatile asset that you would not typically associate with the cash reserves on the balance sheet of a listed company worth close to a trillion US dollars. As recently as March 2020, the price dipped below US$4,000. Even in 2021, the price fell more than 30% before its most recent surge.

Tesls logo in front of a bitcoin
Fomo-ing at the mouth?
24K Production

Tesla has put almost 8% of its reserves into the cryptocurrency. If Apple, Microsoft, Facebook, Twitter and Google were to do the same, this would translate into almost another US$7 billion investment. This is less than 1% of the total current worth of the bitcoin market, but the signal that it would send to other companies and retail investors would likely trigger a bull run that would make the current market look comparably stable. Some crypto analysts are already predicting that the price will rise to US$100,000 or even US$200,000 before 2021 is out.

Such a rise would drive up the value of the bitcoin on corporate balance sheets to multiples of what it was at the time of investment. Tesla’s 8% allocation may already have gone up to 12% of the value of its reserves, for instance. And if it follows through on a potential plan to keep any bitcoins it receives for electric cars instead of converting them into dollars, that percentage could rise all the faster.

The problem is the potential effect on company share prices. Tesla’s share price rose 2% on the news of the bitcoin investment, though it has since fallen by 5%. But a longer term example is Canadian tech company Microstrategy. Its share price has ballooned tenfold in value in the past year on the back of a heavy investment into bitcoin, but is also down by almost a quarter in the days since the Tesla announcement.

Writ large, this could make stock markets far choppier in future – and vulnerable to a nosedive when the bitcoin bull market ends. It would be easy to imagine that this could prompt a wider wave of selling as investors sought to cover their loss-making positions, which could be very dangerous for financial stability.

What the regulators will do

Global regulators will no doubt be concerned about a potential volatility spillover from digital asset prices into traditional capital markets. They may not permit what could quickly amount to effective proxy approval by the back door for companies holding large proportions of a volatile asset on their balance sheets.

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Gary Gensler, new head of the SEC.

We have already seen the likes of European Central Bank president Christine Lagarde and new US Treasury secretary Janet Yellen calling for more bitcoin regulation in recent weeks.

The view from US regulator the SEC will be extremely important, and it is difficult to predict the response of newly appointed head Gary Gensler, who is himself a crypto expert. We may see anything from a wait-and-see approach through to a ban on listed companies holding any bitcoin-like assets.

But I would expect that if the price of bitcoin continues towards US$100,000, there may be a regulatory restriction on the reserve percentage that listed companies can hold in digital assets. This would be similar to the US rule that companies cannot buy back more than 25% of the average daily volume of their own stock. Such a rule would force companies to sell bitcoin if a price increase meant their holdings broke the maximum level, creating a form of sell pressure that the crypto market has not seen before.

For now, however, bitcoin continues to look like a “buy” asset on the back of the Tesla announcement. The crypto community will be watching to see whether other major companies follow suit, and whether Tesla has the conviction to stay invested when its next quarterly announcement comes around. But if this trend continues, make no mistake that a reckoning will be coming over the prospect of the heady volatility of the crypto market going mainstream. Watch this space.

Tags: #wave #huge #companies #Tesla #rushing #invest #derail #stock #market

Written by Gavin Brown, Associate Professor in Financial Technology, University of Liverpool

This article by Gavin Brown, Associate Professor in Financial Technology, University of Liverpool, originally published on The Conversation is licensed under Creative Commons 4.0 International(CC BY-ND 4.0).