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Works of art as an investment tool
#Capital raising

Works of art as an investment tool

Investing in art has always been considered the prerogative of wealthy people. However, with the introduction of blockchain, this market has become available to many retail investors.

Art objects have always been popular as investment assets. They can rise in value just like stocks or any other asset. For example, Leonardo da Vinci’s Savior of the World is valued at $450 million in 2022, and Pablo Picasso’s Women of Algiers is valued at $180 million. However, it is worth noting that art is a specific asset that involves long-term investment. It is impossible to speculate on its value and get a quick profit in a couple of days. On the other hand, the use of blockchain and art tokenization make it possible to simplify the investment process and make it easier to make money on art objects. How? Read our new article.

Features of art as an investment

The art market works differently from other markets, and its rules are completely different too. For example, if stocks can fall in price due to negative indicators, the value of art masterpieces only grows and will always rise thanks to several factors:

  • Artwork is unique. Shares can be issued in thousands or even millions of units; art objects cannot be produced in large numbers. They can be one of a kind or have a very limited edition. Therefore, the cost of one painting can exceed hundreds of millions of dollars.
  • The original art object cannot be cloned. Money and shares are printed quite easily and quickly. However, the original masterpiece cannot be reproduced. One can only make a copy, the price of which will be much lower.
  • Works of art have an exceptional value. First of all, we are talking about cultural, anthropological, and historical importance. This is an essential factor influencing the price.
  • Global crises do not affect the value of art objects. They do not depend on the international market situation.
art tokenization

The value of art objects is gradually increasing, which can be an excellent point when considering art as an investment. However, there are also nuances concerning the selection of art objects. The price may depend on the authors’ reputation, the demand for art, etc. However, if you invest in the work of young and promising authors, the risk will accordingly be small. The price of such paintings is relatively low. Even if their value falls, the loss of capital will be imperceptible. However, the risk of losing funds still exists, and if the art object depreciates, it will be impossible to return the investment. At the same time, it is necessary to spend money on the maintenance and storage of an object of art, which also will not return.

How blockchain can change the art market

For a long time, the art market was inaccessible to many private investors. In particular, this is due to the high objects’ price and the need to attend exhibitions, auctions, etc. Events held by Sotheby’s, Christie’s, and others are not available to every investor, even if they have considerable capital. However, solutions are gradually emerging that simplify such investments. One of them is blockchain technology. Blockchain solves many of the problems associated with investing in art objects. For the purchase, the investor’s physical presence at the auction is not required because you can buy tokens from anywhere in the world.

In September 2018, Maecenas held the first auction to sell a painting via the blockchain. It was a painting by Andy Warhol called 14 Small Electric Chairs. This auction aroused great interest among investors, who were also people not previously interested in the art industry. The initial price at the auction was $1.7 million, but the price rose to $5.6 million during the auction.

Also, art objects can be tokenized on the blockchain. In other words, it is possible to convert an art object into digital tokens. There can be hundreds or even thousands of such art tokens. This step allows dividing the object into shares so that the threshold for investment is significantly reduced. At the same time, ownership of a share is quite easy to prove because all information about the owner is entered into the art blockchain. Distributed registry technology protects data and cannot be deleted or changed.

How does art tokenization work?

The first stage of art tokenization is the evaluation of an art object. An expert evaluates a painting, illustration, or other object and determines its value.

Next, you decide how many fractions you want to divide the asset into and how many tokens to issue, respectively.

After that, the art object is converted into a digital asset, and art tokens are issued on the art blockchain. The number of tokens that an investor can purchase is unlimited. It is possible to assemble an investment portfolio from various tokenized art objects.

If the owner wants to get rid of the tokens, they can exchange them for a cryptocurrency or a stablecoin. In this case, the seller loses ownership of the share in the art object and receives compensation for it. Ownership, accordingly, passes to the buyer. Such transactions can be carried out automatically using a smart contract. The smart contract guarantees that the seller will receive money for their share and the tokens will be transferred to the buyer in the appropriate amount. Otherwise, the transaction will not be executed.

An essential advantage of art tokenization is that the physical transfer of a painting, sculpture or other art object is unnecessary. The object may be in a vault or museum. The owner will not need to deal with maintenance or storage problems on their own. Professionals will do this, but you will have to pay for it. Each art token holder pays for these services proportionally if the asset is tokenized.

art as an investment

What is NFT, and why is everyone talking about it?

Another option for art tokenization is the issuance of non-fungible tokens, NFTs. Their principle is a bit different from what we described above. NFT is as unique a token, just like the art object to which it is pegged. In the case of NFT, the art object is not divided into parts; one object corresponds to one token. After creating such a digital asset, it cannot be replaced by another token as there is no equivalent token with identical information.

In fact, NFT is a digital certificate that confirms the ownership of a unique object. This investment method is more convenient than a physical purchase because these digital assets can be bought from anywhere in the world. Another critical advantage of NFTs is that such tokens are sold freely on popular platforms such as OpenSea and others. Any user can sell their piece of art, and anyone can become an investor. NFTs are now at the peak of popularity, so by buying and selling trending paintings, illustrations, and music tracks, you can earn a lot of money in a few weeks, unlike more traditional investments in classical art, which make sense in the long run.

Summary

Blockchain technology continues to develop actively, providing significant prospects for further growth and development of the asset tokenization market. Art tokenization significantly increases the liquidity of assets and allows retail investors to work with works of art more efficiently. Due to this, their value rises accordingly because millions of people worldwide who consider art as an investment can apply for their purchases. If you would like to learn more about tokenization and how it can be used in your business, please get in touch with our experts for a complimentary consultation.

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