Does digital art benefit museums? Four reasons why they are not cashing NFTs yet

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Brian Mittendorf, Ohio State University and Sean Stein Smith, Lehman College, CUNY


The jaw-dropping US $ 69 million sale price on March 11, 2021 for a non-fungible token created by digital artist Beeple sent shockwaves through the art world. Further multi-million dollar sales of these digital assets that exist on a blockchain and are maintained on networked computers quickly followed.

At the same time, art museums have faced large financial deficits accelerated by a drop in visitors and donations induced by the COVID-19 pandemic. Many have considered taking drastic measures, such as selling valuable works of art, to fill the budget gaps.

Can DTV generate the revenue that many museums desperately need? Some issue their own tokens, including the British Museum and the Academy Museum of Motion Pictures. The Institute of Contemporary Art in Miami accepted a first NFT from a donor. There’s even an entire museum NFT called the Museum of Digital Life.

Yet more than six months after this disruption in the art world began, museums have generally engaged very little with NFTs. As researchers examining both the finances of nonprofits and the growth of NFTs, cryptoassets, and other related blockchain applications, we see four main reasons museums have failed. to turn the craze for NFTs into a financial windfall.

1. NFTs are complicated
The people who run museums have expertise spanning art, education and conservation. NFTs are an entirely different field that is quite detached from art and has more in common with cryptocurrency than typical works of art like paintings and sculptures.

What sets NTFs apart from cryptocurrencies like bitcoin and ethereum, which are designed to be interchangeable, is that each NFT represents a unique asset. It is difficult to determine how TVNs should be treated, owned and valued, and the ability to quickly strike TVNs up for auction is not something that can come naturally to museum staff. Additionally, NFTs are typically bought and sold with cryptocurrencies, and few organizations – including museums – regularly transact using them.

Along with any missing financial know-how and a culture that seeks to minimize risk, there are legal complexities and insurance complications. It is therefore understandable why museums have not rushed into the DTV market.

2. The monetary increase could be missing
The link between ownership of a work of art and an NFT associated with that work can be confusing. While it may appear to be the opposite, TVN is an asset distinct from art itself. Owners of art retain ownership even after NFTs derived from that art are minted and sold.

This separation can mean that the art owner does not have the special ability to turn an affiliate NFT into a big win. Just as the value of a painting has little to do with the value of the painting, canvas, and frame, the financial value of an NFT is subjective. It depends on what others are willing to pay.

The creators of the underlying art, such as musicians and artists who retain control over their work, can – and do dominate – the NFTs connected to them. However, once art is held in a museum collection, the value of NFTs is less clear.

Just as a copy of a book autographed by the author can be more valuable than a book without this signature, an artist’s NFT struck of a work of folk art can attract the interest of collectors. On the other hand, a book signed by the publisher or an NFT struck by a museum is necessarily less attractive to collectors. An NFT created by an artist and owned by a museum might generate more interest.

In other words, even if a museum has some valuable artwork, that doesn’t mean that NFT minting is a guaranteed source of income.

3. The NFT market values ​​artists, not institutions
One of the underlying reasons that the art-related DTV market has flourished is that buyers view buying and owning an DTV as a way to interact with the artist and financially support.

More generally, the philosophy is one of decentralization, and NFT buyers are less likely to be excited about a middleman joining the fray.

An example of the ethos built around supporting artists is the prevalence of smart contracts that guarantee artist royalties that will flow whenever an NFT linked to one of their works is sold.

In fact, the monetization often touted as the primary benefit for museums looking to enter the NFT market may not be as straightforward as it initially seems.

First, museums need to consider whether monetizing their existing collections would in any way interfere with public access to the collections – potentially violating their missions and regulations. Second, they must have protocols in place to ensure that the proceeds from collection-related sales are properly reinvested. And there is a risk that this process will inadvertently lead to items in the collection being treated as financial instruments if income is generated from them rather than serving only as objects on display to the public.

Going forward, it remains to be seen whether NFTs will financially benefit traditional museums, rather than creating new opportunities for virtual museums.

4. Volatility and uncertainty make NFTs risky
While the high prices they can reach are eye-catching, there are countless cases of NFT that quickly become worthless.

And, as with cryptocurrencies, there is a lot of volatility. The value of several NFTs suffered massive and dramatic losses, including those issued by Grimes, A $ AP Rocky and John Cena.

Relying on NFTs to raise funds can be risky, and museum boards may determine that it is inappropriate for their charity to own them. This means that museums may be forced to quickly liquidate any NFT they strike or receive – even though that sale will make the NFT less valuable to the institution.

In addition, there is still a great deal of uncertainty as to what NDTs can contribute to the main purposes of an art museum. They are neither of a physical nature nor of works of art. Even the digital artwork that can be displayed is distinct from any NFT that is derived from it.

Admittedly, NFTs are still new. Banks and other traditional financial institutions initially stood on the fringes of cryptocurrency, but slowly assumed a larger role in these markets. It is certainly possible that something similar will happen with traditional institutions in the art world as the NFT market matures.

(This AP article is reposted from The Conversation)


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