For people who don’t People are so familiar with the art market that most people generally expect to buy physical art paintings from galleries, auction houses (like Sotheby’s or Christie’s), or directly from the artist. Typically, when there is a painting, a single buyer becomes the owner. While collective ownership is possible, and corporate and fund ownership can fit into this, most art owners are individual collectors.
When non-fungible token (NFT) art came onto the scene a few years ago, it introduced the digital art market. NFTs aren’t actually the art itself, but rather digital certificates of ownership. Typically, NFT artists sell them through a marketplace (like Opensea, Rarible, and a multitude of other digital marketplaces) and, like gallery sales, they get paid a pro rata share by the marketplace, which takes its own cut of the sales.
Typically, for an NFT to be expensive, it must be a single, unique piece that the buyer can own. Ownership of the NFT digital artwork is transferred to whoever holds the NFT in their digital wallet. In some cases, the NFT artist may create a collection or issue the same NFT artwork not in a single, unique piece, but in multiple copies.
It is important to note that the more copies of a digital NFT artwork there are, the less valuable it is. So, if you want to buy a digital NFT of Banksy, the more expensive the one and only NFT of that particular artwork will be.
Recently, there has also been a trend toward allowing Real World Asset (RWA) crypto tokens to represent ownership of actual physical artworks. These can be actual, non-digital paintings or sketches that exist in the real world. Typically, the way it works is that the artist (or owners of the actual physical artwork) sells the artwork to a legal entity that issues these RWA tokens. Once ownership is transferred, the entity can then issue these RWA tokens to buyers. Typically, unless ownership of the painting (or sketch) is subsequently transferred to a new buyer, the artwork remains on display or in storage with the legal entity.
While a single buyer can purchase all the tokens to become the new sole owner of the artwork, these RWA tokens allow for fractional ownership of the artwork.
Fractional ownership? Think of it this way. When you buy a painting from a gallery, auction, or from the artist, you become the sole new owner. But what if you get together with a group of friends or a community of enthusiasts and you all want to own the artwork as a group?
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Technically it is possible, but on the sales contract or title deed there would be multiple owners listed. Every time one of that group wanted to opt out you would have to amend or replace that title deed. This would involve lawyers and other professionals who would charge fees.
These RWA tokens allow for fractional ownership of a physical artwork. There can be as many as one depending on how the legal entity issues the tokens. If they issue 1,000 RWA tokens for a piece of artwork, then technically, unless they have a rule that you have to buy a minimum of 10 tokens, for example, you could have 1,000 different owners.
One example among many is this sketch by Pablo Picasso that was previously owned by a private collector and is now being sold in fractions using a PABLO token on the Solana blockchain. In the future, this system could become popular as a means of exchanging artworks.
The nice thing about this is that if you change your mind as a fractional owner, you can simply sell the fractional RWA token on a decentralized exchange (DeFi) and let other buyers take over. The art market then becomes very liquid because there are many buyers and sellers.
Digital art using NFTs is here to stay. But another newcomer on the scene that promises to reinvent the art market are these RWA tokens that represent actual physical works of art.
These are certainly exciting times ahead!
This article does not provide financial advice. The author has no investment in any of the items mentioned in this article.
