NFTs are modernizing auction houses.
Earlier this year, I wrote about NFTs — a cryptocurrency that was taking the world by storm, despite some confusion as to what these tokens actually were.
At that time, there were a lot of questions about whether NFTs were just a passing fad. Six months later, we may have our answer. In Q3, NFT sales topped $10.7 billion.
Christie’s and Sotheby’s combined have sold more than $165 million of NFTs in 2021 — accounting for roughly 5.5% of their total contemporary art sales. Not bad for a medium that has only existed for about a year. However, making these sales has required these storied auction houses to deviate from traditional ways of doing business.
For starters, auction houses often source NFTs directly from the crypto artists — cutting out the need for and cost of art dealers. This is in stark contrast to physical art, where primary sales are through galleries, with auction houses managing secondary sales.
In the traditional art world, collectors are vetted before they can participate in an auction — a safeguard aimed at stopping buyers from flipping purchases for a quick profit. This screening doesn’t exist for NFTs, which can be purchased and sold by anyone at any time.
Often, NFT collectors have made their fortunes through cryptocurrencies. To find these buyers, auction houses are having to adopt new digital strategies, removing some of the formality that previously made auctions inaccessible (or unappealing). For example, Christie’s recently used Twitter to register buyers for an auction.
There is also one clear deviation from traditional art that I found particularly commendable: NFTs benefit the artists, first and foremost. This is because NFT creators earn royalties on every sale, where other artists only profit off the primary sale of their work.
However, the system at large does bring up age old questions about what constitutes art. McDonald’s recently included an exclusive NFT with its rollout of the McRib. Debate is also ongoing about how someone can truly own an image that can be printed from any computer. Though I suppose that can be said of most masterpieces these days.
All that to say, while NFTs are changing centuries-old institutions, questions still remain about the longevity of the medium. But, that hasn’t stopped collectors or creators from diving in so far.
Danilo Diazgranados is an independent investor in the global food and wine, financial services, real estate, and the hospitality sectors.