Cryptoeuphoria and Art Market #2

Having told about the essence of cryptocurrencies, the main of which (in terms of capitalization in the hands of the holders) is bitcoin, let us move on to what a blockchain is. For the first time this word was recorded in the White Paper (technological charter, or investment press release) of Satoshi Nakamoto when Bitcoin was launched in 2008. If Bitcoin is the circulatory system of the body, then blockchain is the right cerebral hemisphere responsible for memory. In short, it was a system of digital recording of any information: transactions, the essence of the transaction, information about its parties,etc. Like cryptocurrency, blockchain began to be developed several decades before the emerging of bitcoin, in parallel with the development of computer technology, but late in 2000s, their paths crossed and merged.

The idea of ​​blockchain goes back to the Middle Ages, when the main monastic orders had an extensive system of monasteries. Naturally, financial transactions were carried out between them, first and foremost loans. Each monastery had a ledger: who borrowed, how much, on what conditions, and for how long. To exclude fraud, the following was invented: when a monastery received money, records of the debtor were entered into all ledgers at the same time. And, in the event of a dispute or the deletion of a page in one of them, other monasteries could restore justice and anathematize the cunning man. Naturally, such a practice envisaged a lot of time and energy consumption: it was necessary first to go around and enter data throughout Europe, then go through the path again — for comparison, and then summon everyone to the enclave to pronounce a verdict. Those who wanted to blot out the mentioning of the debt from the ledgers had to follow the same path, deleting the pages in all of them. Was it hard? Yes. Did it work? Yes, once used.

The availability of the Internet would have made things easier for monks. Blockchain is thatsame ledger copied and distributed among all network participants. Unlike monasteries, the number of copy owners is unknown and it is impossible to get around all of them. The new information entered into the blockchain is instantly copied in all "ledgers", and as soon as changes are made in the old information in one place — the rest of the users automatically send a signal about the inconsistency, and the forgery is detected. The flesh of bitcoin, the blockchain is also decentralized and open: everyone can see the information there. We have described the perfect picture, how it was made by the invisible authors of the project and picked up by the crypto-anarchic community. It is high time to return to art.

The Art Newspaper from London was the first art publication, which released a detailed article on blockchain in art in September, 2016. It read about several startups that adopted new technology to build provenance databases and other non-profit initiatives. In other words, everything was done so that the official market formed an initially disdainful attitude to the issue, due to the increased risk of denouncement. It was important that the blockchain appeared in the article as an independent unit, and cryptocurrencies were not even mentioned. The following was equally important: the capitalization of cryptocurrencies in the hands of the people was only US$11 (eleven) billion, as of the publication date of the article. Why do we pay so much attention to this? Because the article was removed from the archives after a year and a half, revised and posted again in January, 2018. At that time, the capitalization of cryptoassets reached US$431 billion. I am certain you have understood: there was a place for bitcoin in the updated material.

The non-profit publication Artists Re: Thinking the Blockchain, a 300-page miscellanea of articles, where very intelligible technical explanations were interspersed with pictures of extensive pieces of art created by artists as illustrations, was just as imperceptible to the majority in March, 2017. In spirit and content, the publication resembled Soviet scientific works resembling Cybernetics at the Service of Arts Council or Artists Comprehend Airship Building. At least we had not long to wait.

The blockchain boom started in June, 2017, when the capitalization of crypto-assets of holders soared to US$111 billion. The natural desire of the sober-minded people was to take that money away — to take it legally, acting within the legal framework of the crypto world, in other words – with regard to the absence of any restrictions in the physical world. Let us rearrange the phrase for better understanding: over 100 billion dollars in cryptocurrency appeared overnight in the hands of persons aged 16-40. Most of them got the money unexpectedly: bitcoins were mainly bought in the early 2010s and lay dead digital weight. And the holders themselves were mostly IT adherents, prone to gambling in stocks, venture investments and speculation, realizing that their happiness was volatile and short-lived, and therefore striving to quickly put assets into new baskets. "Why not to help the good guys with this matter!" — thought many outright swindlers.

And that was when it all started to go. The model for attracting crypto assets was in a form of crowdsourcing, called ICO (Initial Coin Offering) — similar to IPO (Initial Public Offering, issuing and placing shares at an exchange), only in cryptocurrency. The ICO market founded back in 2013 and slowly developing in the seasons of 2014-2016 doubled at once. Literally everything from mineral deposits to images of Hollywood movie stars began to be tokenized (i.e. cryptanalogues of physical stocks were issued), placed and offered for sale for cryptocurrency. Art was located somewhere between them in terms of attractiveness.

The tale lasted until June 26, 2017. A day earlier, the SEC (Security Exchange Commission of the USA) published an official notice that the tokens issued in the crypto world were equated to securities in the physical world. A day later, an official confirmation of that was made — the alleged founder of the DAO crypto exchange was fished out from Greece with a long hand and dragged along to the dock. The crypto world shuddered, lawyers increased the prices, but all together they slowed down the ICO processes.

This event had a very good impact on the market for art blockchain projects, instantly separating the wheat from the chaff. Some of the evident scams did not come out to collect investments, others — those who used art only as a banner — changed their banners to more down-to-earth and inconspicuous to the keen American eye. And blockchain enthusiasts, who initially had not intended to use cryptocurrency, moved on.

Let us make a digression. If the first blockchain projects were launched in 2014–2015, why was it worth expecting for the emergence of a new class of investors to implement blockchain projects in art, and not attract institutional money? The obvious answer — that the crypto community is tech-savvy and will instantly pick up the idea — is wrong. And the truth will be most surprising: the fact is that the art sector, or the art market, is absolutely unattractive from the point of view of an institutional investor. Isn’t it a surprise? Let us face the facts: about US$60 billion in annual turnover, which most of us are proud of, is a scanty amount in comparison with the agricultural sector or retail. US$60 billion is the annual revenue of dentists in New York and Los Angeles taken together. And that is not the end. An average check of the art market is US$4.5 thousand, the number of collectors with collections worth over US$10 million is just over 10 thousand. To please them, the managerial staff of art-related companies increases annually by an average of 18 thousand employees. And the number of galleries and art dealers is close to 150 thousand.
Let us sum it up: fifteen dealers are circling around one serious collector, and two new graduates of Christie’s Education a year send collectors offers to use some services — from the assessment of the collection to the curatorship. At the same time, the best outcome for any art startup is still selling it to some Sotheby’s-type strategist five years after its foundation. Having seen all this, the institutional (counting, therefore successful) investor will run away from the art market. And he/she will be right to some extent.

Another thing is that this is not what attracts in the art market at all. It is a beautiful add-on for successful people, allowing them to build or align their core business through high-profile open purchases. It is the top link in the social pyramid, the entrance to a closed club, where opportunities grow according to the money-to-money principle. Finally, the art market is an oligopolistic structure in which the first 3-5 players in each area are guaranteed financial success. There is only one reservation: the total age of these players (companies) is over 1000 years. Therefore, only those will be investing in startups of the art market (do not confuse with investing into the pieces of art themselves!), who want to have social benefits or expects to remove competitors, making them part of a group of companies.

The continuation of the material will deal with the typology of art blockchain projects.