Illustration: Megan Robinson/Axios
How can a physical artwork become an NFT? One new company has just spent $12.9 million on a Banksy in an attempt to try out a new way of converting the real into the virtual.
Why it matters: The art market globally sees volume of about $60 billion per year, almost all of which is trade in physical objects. Art-world insiders including former Christie's c0-chair Loïc Gouzer are on the lookout for ways to monetize physical paintings without necessarily giving up physical ownership of them.
Driving the news: Gouzer said he spent $12.9 million at Sotheby's in May to buy a Banksy painting estimated at $3 million to $5 million. He's now showing the work at Art Basel Miami Beach under the aegis of Particle, a company that intends to turn the work into 10,000 NFTs "within the overarching structure of collective ownership."
Reality check: The NFT owners will not have significant collective ownership of the physical painting. That would require Particle to register as a securities issuer.
- Particle claims that it "has chosen to legally destroy" the work by donating it to a non-profit called the Particle Foundation, which pledged never to sell the work. There is no legal destruction, however.
Yes, but: As Particle managing director Harold Eytan told Axios, "NFTs are changing the way that people perceive ownership." Value drivers in the NFT world aren't based in contract law, they're based in community and consensus. So long as enough people believe that they're going to own a piece of a Banksy, they can trade on that belief.
Between the lines: The crypto revolution is built on the way in which Satoshi Nakamoto managed to create a cryptographic way of ensuring that a given token could never be spent twice.
- That intuition has found its way into the NFT world, where, says Eytan, "value can’t exist in two places." If he wants to create digital value, he needs a credible claim — ideally short of outright destruction — that the physical painting has lost a similar amount of value.
- The community aspect of the NFT will also come from the foundation, which will exhibit works and try to build a level of enthusiasm around its collection that can compete with, say, bored apes.
The big picture: Gouzer told Axios that the value of the NFTs will bear some relation to the amount he paid for the artwork, but that many other factors will also come into play, including the strength of the community and the way in which the funds are being put to use.
- Particle intends to sell the NFTs for a price that will allow it to recoup the cost of the painting; after that, profits will come from resale royalties whenever the NFTs change hands.
Be smart: Museums could do something similar with their permanent collections, says Gouzer, who expects that the amount raised would only partially depend on the financial value of the works in question.
- "If MoMA wanted to build a new wing with the proceeds" of such a sale, he says, the crypto community "might ascribe less value" to its NFTs than they would to a collection closer to their hearts.
The bottom line: Gouzer very visibly overpaid for the Banksy, relative to its estimate, in a move that only serves to increase the work's status as a meme. Whether that will be enough to generate more than $13 million of demand for derivative NFTs, however, remains to be seen.