Art Tokenization

September 30, 2021

It all started in 2018 when a startup introduced a whole new concept that revolutionized the art industry. Tokenization of art, involving blockchains and cryptocurrencies is the process of digitizing rights to an asset into a digital token on a blockchain. It is to enable efficient ownership transfer that can potentially decrease friction in transactions. With fine art being such a conservative industry, it should be digitally transformed in order to sustain growth.

Paintings, sculptures and other such artefacts were sold through the conventional method. It has always been an archaic industry right up till then. Auctions were only for a limited few and it required the bidders physical presence. The skyhigh prices also made the pieces harder to sell. What tokenization did was to flip the entire industry on its head. One of the biggest advantages of tokenization is to make markets much more liquid. It makes buying and selling much more seamless and in an illiquid art industry, this could be a very interesting advantage to leverage on.

Artists and art owners could simply use NFTs to fragment the ownership of the artwork on the blockchain. This is done by converting the physical painting into thousands of digital tokens, where each represents owning a fraction of the actual painting itself. In a way, it is similar to purchasing shares which represents partial ownership in a traditional business.

There are several steps to be taken before tokenization starts:

  1. The piece of art is appraised by an accredited curator to set its value.
  2. The artwork will then be converted into digital tokens. Easiest way to justify the number of tokens minted, is to mint each token at nominal $1 to represent the full value of the artwork.
  3. The token could then be sold to potential buyers. Once the sale is completed, the tokens will then be transferred from the artist to the new owners, either in full or based on the number of tokens they have purchased.
  4. Buyers are able to purchase tokens of numerous artworks to have fractional ownership of each.
  5. These tokens will then be available for trade.

The blockchain is an immutable and transparent technology. All of its features, benefits and advantages are also available to the minted tokens. This could remedy many of the issues plaguing the traditional art industry.

Fractionalizing the ownership of the artwork goes beyond multiple ownership. It means the democratization of the art industry, and that the opening of a sector to a newer and larger network. This way, independent and up-and-coming artists can leverage on this technology  to list and promote their artwork instead of displaying them in the traditional and expensive galleries. This also allows them to own the entire artwork and lower the running cost by not having to pay third-parties or agents.

The global art industry was valued at $63.7 billion in 2018 and experts predict that this sector will experience exponential growth in the coming years. The blockchain has the potential to play a major part in art tokenization. It could be a revolutionary move to lower the barriers to entry for potential investors and new artists alike.

Source: Medium, TokenD, Scalac