The New Way to Trade Art – An Insight into NFT Marketplaces
2021 is a year in which a JPEG – a digital image – sold for 69 million dollars, in the midst of a global pandemic and at a time when the digitisation efforts of politicians and companies have never been more evident. In his study, our research professor examined the art market in the digital age and what role NFTs play in it.
This JPEG that was sold is not just “a” digital image. It is “the” image, even if it is digital and copyable. People argue that you can, however, take a “screenshot” of any digital image. After that, it belongs to them. However, to continue the traditional art analogy, one would “own” the Mona Lisa if one made a high-resolution print and hung it on the wall.
Hype and gold rush sentiment
There may be a way to solve the problem of owning non-physical assets: Non-fungible Tokens (NFTs). These tokens are supposed to represent ownership of digital assets and prove their authenticity through consensus among millions of users within a blockchain network. In late 2020, NFTs received a lot of attention through various spectacular sales and became one of the most exciting topics in digital in 2021 as interest in blockchain technologies increased and the hype was amplified by internet personalities and celebrities engaging with the topic. NFTs could be game changers in the creative industries, for artists themselves and for industries outside the creative sector, such as authentication services. It is important to find out whether this technology will last or whether the hype around NFTs is just based on a gold rush. NFTs offer a wide variety of potential use cases and can be applied in different areas due to their technological advantages. Moreover, NFTs represent a new way of investing by being able to acquire digital art for value creation, resale or speculation. As this industry is still very young, it still lacks basic research on its participants and the large number of existing marketplaces. Our research question is tailored to the complementaries of the new ecosystems: art creators. We wanted to explore what features of NFT marketplaces are important to NFT art creators and what features lead these individuals to choose a particular marketplace in which to sell their work.
Survey on the NFT art market
Our study takes an exploratory and qualitative approach based on nine interviews with established and emerging NFT artists* to explore their experiences of NFT art marketplaces and the NFT space in general. Although the findings of this study include general information about NFTs and other related aspects, the focus of this study is to understand which factors are essential for art creators and whether NFT art marketplaces in combination are subject to the same principles and effects as other digital platforms. NFT marketplaces are structured as intermediaries that seek to create value by enabling users to conduct transactions. We have attempted to gain some initial insights into these newly established marketplaces and found that many of the traditional phenomena of digital platforms clearly come into play. Firstly, artists want marketplaces to already have a high volume of sales and preferably also individual high-value sales, indicating the classic chicken-and-egg problem and strong direct and indirect network effects.
On the role of platforms
Secondly, participants* preferred a curative and exclusive environment for their art, even if the initial barriers to entry are often difficult to overcome and a strong gatekeeping mechanism might prevent valuable contributions from entering. This idea is closely related to the literature on platform control. As barriers to entry are sometimes high, creators are also turning to a multi-homing strategy, offering their art on multiple, more open platforms with very little control. However, the legitimacy of the platform seems to be crucial for serious artists: When discussing the collaboration between platform and artists*, the most critical aspect was that the platform focuses on the welfare of the artists* and ensures that the provider side of the platform is satisfied. In fact, all artists mentioned exclusivity as an essential part of their relationship with NFT art platforms. This was not only related to the art sold, but more importantly to the image of the NFT art platform, its curation process and governance structure.
Between fast-paced and new experimental
Several artists described the NFT art space as fast-moving and argued that the long-term vision in this space is still very unclear. Future prospects beyond one or two years are impossible, as new platforms, technologies and ideas emerge every month, as one participant described: “[…] the interesting thing about this is that two years is like twenty”. Overall, the artists’ motivations ranged from social to monetary to technological. The category with the most mentions during the interviews was “money & earnings”. It includes the goal of finding new sources of income in order to regain financial or creative freedom. Of course understandably, in 2020/21, due to the COVID 19 pandemic, exhibitions, galleries, events and other sources of income for digital artists were very limited. In addition, the social aspects, i.e. belonging to a community and the recognition one receives as an artist, were to be emphasised. Finally, the technological aspect was important, especially the experimental interest in technology and the possibility to have unique digital goods, which is groundbreaking for digital artists who have to solve the problem of distributing their goods in a digital society. The focus was on the network effects, the lack of middlemen and the low publication costs in contrast to the fees some of these artists are used to in the traditional art sector. Another critical aspect of platform selection is that artists were invited and courted before the official launch date of each platform to insure a certain exclusivity.