An NFT work was sold at Christie’s for over $60 million. What is the logic behind it all?

The following article is from Vogue Business

bySonia Xie

What is the hottest topic in the art world since 2021? It must be NFT (Non-Fungible Token). On February 25, auction giant Christie's New York auctioned a somewhat special work called "Everydays: The First 5000 Days". The auction started at $100, and the price climbed to $1 million within an hour. After more than 170 bids, the price of the work was once locked at more than 15 million. In the last ten minutes, there were suddenly many bids, and finally the work was sold at a shocking price of $60.25 million after 353 bids.

Beeple, The First 5000 Days, 2021.

In late February, Christie’s announced the auction of this work, which caused a stir in both the art and blockchain industries. The reason, to put it simply, is that an NFT work (or “crypto art”, which is usually called “nifties” in the blockchain circle) that was originally only circulated in the blockchain circle has appeared in the mainstream art market in a high-profile manner, and the authoritative auction house Christie’s accepted the digital currency Ethereum for the first time to pay for the principal of the work.

In fact, Christie's tried the blockchain field as early as 2018, cooperating with Artory, an independent digital registry founded by Nanne Dekking, to provide blockchain services for its auction process and sales works (but the buyer's information is not included in the scope of the chain). Last October, Christie's auctioned blockchain works for the first time, and a physical and NFT combination work called "Block 21" was sold for more than $130,000. However, auctioning purely digital encrypted works and accepting digital currency payments is the first attempt by auction houses and even the traditional art industry, so it has attracted the attention of a large number of practitioners and blockchain circles.

The Christie's auction incident continued to ferment in the blockchain circle. Shortly after the announcement, another NFT work by Beeple (original name Mike Winkelmann), the author of "Everydays: The First 5000 Days" - specifically, a 10-second video that you can watch for free or even download online - was sold on the crypto art online sales platform Nifty Gateway for a high price of US$6.6 million, setting Beeple's highest auction price record at the time. The person who sold the work was Miami collector Pablo Rodriguez-Fraile, who co-founded the crypto art gallery Gallery of Crypto Art and also joined Artsy's online gallery network. Last October, he just spent nearly $67,000 to buy the work. In just four months, the price of the work has more than doubled 100 times.

What does $6.6 million mean in the traditional art market? On March 1 this year, a precious Van Gogh manuscript auctioned at Christie's in New York was estimated at only $7 million, but it was finally sold for just over $10 million.

Imagine if you were given a budget of 10 million dollars, would you buy an authentic work of Van Gogh or a picture on the Internet? I believe that 99% of people would choose the former, not only because Van Gogh's works are real objects, but also because his status in art history guarantees that his works will increase in value in the future; but it is hard to say for a picture on the Internet, and besides, this picture can be viewed and downloaded by everyone, and the person who collects this picture actually only buys a unique ID mark, which proves that this thing is this thing and that this thing belongs to you (just like collecting Maurizio Cattelan's banana taped to the wall, you don't buy the tape and the banana itself, but a collection certificate and instructions on how to exhibit this work; or similar to collecting performance art, you buy the right to let the artist perform, not the videotape of the performance - if this is easier for you to understand).

It sounds ridiculous: I spent all that money just to prove that I actually own an image that anyone can copy and view? But this is indeed a key point in the NFT craze.

"One reason people collect NFT works is that this collection behavior can help them show their digital flex, but if traditional art collectors don't often live in the digital world, what can they show off online?" Elliot David Safra explained to me. He is the founder of the art information agency AndArt Agency. He participated in the organization of Christie's 2018 Art+Tech Summit, where the theme of discussion was blockchain technology. This cutting-edge annual forum aims to explore the application of cross-domain innovation in the art industry. Previously, institutions including Artsy, the world's largest online art sales platform, Deloitte, an international consulting company, the Serpentine Gallery in London, and the Financial Times of the United Kingdom have participated.

Safra believes that currently, the obstacles that prevent traditional art collectors from collecting NFT works include inconvenient payment methods and a lack of strong desire to collect NFT works. But I think the fundamental reason why traditional art collectors are discouraged is that NFT works generally lack artistic quality and there is a huge bubble in the current NFT work market.

Nifty Gateway, the NFT work sales platform mentioned above, is one of the most active platforms in the crypto art trading circle. In December last year, the platform's monthly transaction volume reached 6.67 million US dollars, while the transaction volume of the entire crypto art circle in November last year was "only" 2.6 million US dollars. This is naturally related to the economic background of global fiscal and monetary easing policies. In December last year, Bitcoin ushered in another bull market, and the price soared to 20,000 US dollars. I believe that many veterans of cryptocurrency trading have experienced the feeling of getting rich overnight. "In 2021, after the influx of mainstream American institutions, the price of Bitcoin exceeded 50,000 US dollars. The market value of the 'crypto world' of about 600 billion US dollars has undoubtedly created a group of new 'crypto world' elites." Wang Qinwen, head of the China region of the web3 Foundation, said.

The rapid expansion of assets has left many cryptocurrency players with nowhere to put their property, and the pandemic has undoubtedly promoted people's consumption on the Internet. Therefore, on platforms like Nifty Gateway, the secondary market price of an ordinary animated picture can rise from a few dollars to thousands of dollars in a very short period of time. Such a growth rate does not exist in the traditional art market. The vast majority of traditional collectors who do not have easy money cannot spend so much legal currency to buy an online animated picture. This also indirectly proves that the current speculation in the field of crypto art is far greater than the collection attribute.

Although there are many similar sales platforms, Nifty Gateway is the largest one because of its simple transaction method (supporting credit card payment) and its ability to hype up cross-circles. Recently, it has been rumored that the platform is actively contacting various big-name contemporary artists including Damien Hirst and David Hockney to collaborate with the platform to create and sell encrypted art works. César Piette, an artist represented by Almine Rech Gallery, has announced that he will sell NFT works on the platform. Not long ago, the works of Grimes, Elon Musk's girlfriend, sold a total of $5.8 million on this platform.

With money coming so easily, it is completely understandable that artists are eager to make money. Another important feature of crypto art is that it allows artists to profit from every resale of their works. In the traditional art market, artists usually only get a share of the first sale of their works, and all profits from each subsequent resale of the work belong to the seller. In the field of crypto art, artists can hold "shares" of their works through customized smart contracts, and part of the premium generated by each future transaction will be distributed to the artist in proportion.

This is not just a matter of dividing money, but a fundamental challenge to the power relations in the art market. Traditional art trading is a rather conservative industry, with strict hierarchy, highly opaque information, and a slow pace of accepting new things. Any attempt to challenge its existing structure will be questioned for a long time. For example, until now, there are still countless gallery owners who are extremely averse to online sales, although online and offline are not mutually exclusive. Crypto art directly challenges the agency relationship between galleries and artists. If artists can easily make huge profits by selling NFT works, do they still need galleries as their dealers? Of course, as a practitioner in the traditional art market (but embracing the democratization of art), I can use a long article of ten thousand words to prove the irreplaceability of galleries, but there is no doubt that NFT is shaking the strict structure of the traditional art market that has lasted for hundreds of years.

At present, the mentality of the traditional art industry towards NFT can be described by a fashionable word: FOMO, that is, fear of missing out. No one wants to miss any major trend that may be beneficial to them, but most artists are still unclear about the gameplay of crypto art, and due to various concerns (such as the relationship with galleries and collectors), they usually choose to try NFT in a low-key manner by putting individual works on the chain. At present, most crypto art creators are completely outside the mainstream art industry. The blockchain circle and the art circle are like two parallel worlds, and their respective creators have almost no overlap. For example, for the traditional art market, Beeple, who has nearly 2 million followers on Instagram, may not be called a real artist, although Safra still has a favorable attitude towards him: "Beeple has been creating every day for the past 13 years. If this is not a proof of a person's persistence in his craft (note that he uses the word "craft" instead of "art"), I don't know what is."

Objectively speaking, Beeple's spirit may be commendable, but it is still difficult to judge his pictures from an artistic perspective. Most crypto art creators are often not represented by galleries and are not bound by the framework of the traditional art market. In other words, anyone can easily make a profit in this rapidly expanding market. Artists in the traditional market are still waiting and watching. The low-threshold crypto art creation field is flooded with low-quality works, which in turn makes serious art collectors stay away from crypto art - the poor quality of the works corresponds to their bizarre prices. If this is not a bubble, what is it?

Of course, I am still optimistic that more and more real artists will join the NFT trend. At present, the most suitable people to try out crypto art are street artists such as Banksy who are outside the art market system and are very good at using the market, or successful artists such as Damien Hirst and Daniel Arsham (the former recently announced that he will accept buyers to purchase some of his works with Bitcoin and Ethereum) who are good at controlling their own markets. Of course, the art industry should also try to popularize and apply NFT in the transaction of artist versions of works with an open mind.

Back to Christie's ongoing crypto art auction, this event is actually not very related to art itself. For the auction house, this is a good opportunity for marketing, making money and acquiring customers, which can be said to kill three birds with one stone. Needless to say, the marketing is very important. This auction has attracted a lot of attention both inside and outside the industry. The acceptance of Ethereum as a payment method is obviously aimed at players in the cryptocurrency circle - many people hold huge digital currency assets and are not inclined to convert digital currencies into legal currency for investment or consumption due to tax and other reasons - as Wang Qinwen said, these upstarts "have a sense of identity for the art of crypto culture and are the target customers of this auction; data also proves that 85% of the buyers who bid for Beeple's works are new customers of Christie's"; only players in the cryptocurrency circle can raise the price of this auction item so high, and Christie's will also receive a considerable amount of buyer's commission, and for this part of the money, the auction house only accepts payment in legal currency (the auction house later stated that for this work, buyers can pay in full with Ethereum).

The speed at which technology penetrates the art market may be something that none of us could have foreseen. Two years ago, I asked Christie’s Asia executives whether they would consider accepting cryptocurrency as a payment method in the future. The answer I got at the time was a clear “absolutely impossible”; and today in 2021, Christie’s New York accepts cryptocurrency as a payment method in such a high-profile manner. The future is indeed coming a little fast. According to Wang Qinwen, the auction of Beeple’s works was a suggestion made by an auction house intern to Noah Davis, an expert in post-war and contemporary art at Christie’s New York, and “Christie’s New York also accepted this proposal very openly.” As a representative of the traditional art market, Christie’s openness is still limited. Noah Davis told Artsy that “there is no plan in the visible future” as to whether it will continue to accept cryptocurrency payments in the future.

What will the crypto art field look like in the next five years? There is no doubt that the integration between traditional art and crypto will accelerate. As more professional artists enter the market, more serious collectors will follow. Perhaps we will see crypto technology become a trading tool in the traditional art market, and the sale of NFT works will become a normal branch of the mainstream art market. However, there is no market that will always rise. The bubble of crypto art will eventually burst, and when the wave recedes, only those who truly believe in it will support this market.