(Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)
Digital artworks enabled with NFT technology and hosted on public blockchains, hereafter referred to as NFTs, beg the latest iteration of the question “what is art, and what is trash?” When the less affluent witness immense sums spent on squiggles on a canvas, or pixelated faces, they cry “what a waste”. When one affluent cohort witnesses another break ranks and support a new art form with their nouveaux riches, they wag their fingers at the upstarts and proclaim “they have no taste”. Because their idea of “taste” is underpinned by a hope that the new wealthy will continue to pump the art bags of the old wealthy, such that valuations continue rising.
A few days ago, I showed my boy a few Rare Pepes that caught my eye. I wanted to ape into the Pepe’s due to some rumours that Sotherby’s was going to auction some certified Rare Pepe JPEGs. He responded that I should buy a piece from some famous contemporary artists I knew nothing about. My response was “I don’t buy Boomer art”. I will support my own, and the digital community that is the source of my ability to spend crypto on JPEGs. The combination of that conversation, my trip to the US Open, and a recent dinner party fully convinced me that the NFT art form is going to be enormous.
Flipping JPEGs is profitable now for some, but if that is the only activity, at some point the speculating horde will move to better silicon-powered pastures. What narrative will convince the crypto wealthy to plow their disposable Sats and Wei into NFTs rather than Monets? Are crypto hodlers destined to pump the Boomer art bags, or will we two-step to our own beat?
The City Powers the Art
As an avid tennis fan since youth, I thoroughly enjoyed the experience of attending the most recent US Open. When you begin thinking deeply about any professional sport, you quickly realise it is a massive energy sink.
Arthur Ashe Stadium can hold almost 24,000 humans. How does one get to the stadium? Most people get into a motor vehicle that requires energy to operate. And for the pleasure of riding in your own motor chariot you get to gaze upon glorious Queens for hours. Others ride the subway, which also consumes energy.
The stadium consists of a concrete slab with lines on it where men and women hit green felt balls with a raquet. The viewing experience and the energy it costs to construct the venue is completely worthless from an energy perspective. However, what tennis and other professional sports provide is a sense of community that was destroyed when we moved from small villages as peasant / slave farmers into factories as atomised worker bees.
Baseball is America’s sport. In 1871, the first professional league was founded. What would the UK be without football? I’m sure depending on your opinion of the sport, you might answer quite a bit better, or completely worthless. But after choking on penalty kicks in the 2021 Euros, I’m sure there were many who wished England would stop pretending to play the sport. The Football League, the first of its kind, was founded in 1888.
By 1900, the percentage of citizens residing in cities with a population 5,000 or larger stood at 35.9% in the US, 67.4% in the UK, and 30.4% in Europe as a whole. Western Europe and America adopted and quickly improved upon the inventions of the first industrial revolution. Today, in most developed countries, over 80% of the population lives in cities of various sizes. https://deepblue.lib.umich.edu/bitstream/handle/2027.42/68656/10.1080_00420988620080351.pdf
To fully harness the new inventions that mechanised work required centralisation of material inputs, and the machines humans used to produce finished products. That meant unskilled labour, initially women, were needed not on the farm, but in the proto-factory. In order to entice such labour to abandon the agricultural lifestyle they knew, they paid up.
This obviously caused social strife between the politically powerful landed gentry and the upstart commercial urban merchants. The economic progress merchants espoused eventually won, but the path to victory was not linear. No powerful group likes to see their labour input disappear because the wages and social freedoms offered are better elsewhere. 1865, anyone?
Henry Ford is one of the fathers of the factory. He completely rethought how work was done, and how to organise it in order to improve efficiency. His first factory at Mack Avenue in Detroit ushered in the era of mass production.
Wages in the city manufacturing mass produced goods rose steadily. Even though working conditions could be brutal, it still paid better to move into the city. And that drove a rapid increase in population housed in concrete jungles across the world.
Urbanisation completely changes the ways in which humans form communities. Moving from a farm to cramped tenements in many industrial cities of the time, meant you were cut off from the people and institutions that previously provided your self worth. Now in the cold and heartless city, how can you form bonds with your fellow humans?
Well-paid factory work creates an abundance of leisure time that was not available on a farm. If you combine disposable income, time, and a deficit of human interaction due to the individual nature of work, it is not surprising that professional sports leagues and teams were created at the turn of the 20th century.
The team became your identity, and a common language shared amongst people in your city. You can form strong bonds with strangers and treat them with a level of respect previously reserved for your immediate family members and townsfolk because you love the Yankees. From a societal control perspective, professional sports help foster bonds that create a city-specific identity. People who feel like they belong are less willing to act up and challenge the underlying power structure.
Therefore, while completely worthless in terms of energy, professional team sports are extremely important as a social control mechanism. That is why cities will spend billions of dollars to erect new stadiums for their teams. Yes, the stadium will bring in tax revenue and employ locals, but at a deeper level it creates a strong attachment to the city – almost as if the city birthed you.
The rise of professional sports followed the economic changes in what it meant to work in a centrally-located factory. When we then think about what work means in an internet-enabled digital economy, it is not strange that e-sports is THE dominant leisure sporting activity globally. According to Newzoo, Comscore, and IFPI, Gaming generated $145.7 billion of revenue in 2019. For comparison, movie box office receipts and music combined only totaled $72.7 billion in the same year. The desire for a digital community created the base conditions for the rapid increase of gamers worldwide.
The rise of cities created excess funds and interest in the Arts. Cities were very happy to spend money to create the very best museums because a vibrant high culture scene added to the city’s prestige. The gulf cities of Dubai, Abu Dhabi, and Doha were nothing-burgers 100 years ago before the boom in hydrocarbon energy extraction. These gleaming metropolises lack hundreds of years of “culture” so they spend exorbitant amounts of money to host sporting events and build art galleries.
A city in which the only attraction is low tax does not create a loyal citizenry. However, rich and poor alike willingly pay crushing taxes in New York, London, Paris, Tokyo etc. because of #culture. Sports, theatre, live music, exquisite epicurean experiences etc. are all possible in these cities, and for the privileged to indulge in these activities, denizens pay serious taxes.
They also provided acceptable ways to spend leisure time. In our economic cities of the metaverse, the NFT artform and digital museums housing them will fill the same role. Community and attachment to various e-cities will form around NFTs. This community will confer real value upon the art form at a macro level, which then allows for specific artists’ works to command stupendous sums of crypto.
A manufacturing business model drove the population gains of cities. As old communal bonds perished, a new community emerged around activities that can only profitably exist in a dense urban environment. Professional sports is one such example. And using this as a mental model, it is extremely obvious that the metaverses will create substrate for the NFT art form to explode in value because of the communities it enables.
The NFT Salon
I recently attended a small dinner at a delicious Filipino restaurant. My fellow diners were crypto nerds and VCs. The conversation of course traversed into the area of NFTs, and one particular NFT punter eloquently talked his book for a few minutes.
Previous to catching the Bitcoin and Ethereum bug, this person was an art dealer and spent some time as a specialist at one of the premier auction houses. He is very bullish on NFTs, and has bags. The question to him was how to find “value” amongst the NFT cesspool.
His central thesis was that a coterie of digital artists, who by nature of them being the first practicing the art form and possessing some amount of skill, would create the NFT canon. Then NFT taste makers would be able to bamboozle the traditional auction houses and boomer museums to sell and collect these works. While I disagree with the premise that NFTs require validation from the meatspace art intelligentsia, his argument was persuasive and illustrated the power of the salon.
When intelligent individuals with the appropriate pedigree for the conversation at hand can elucidate a thoughtful argument as to why a particular piece of matter or bits is “Art” then it shall be so. Because the erudite patrons give intellectual cover for busy rich people to part ways with their Sats and Wei and feel like they aren’t suckers for doing so.
The process is reflexive. Human psychology dictates that if you own a particular asset of possible dubious value, you will look for confirmatory bias. Why would you purchase an expensive JPEG, only to publicly pooh pooh it to your peers? Nonsense– you will inevitably stand up and proudly proclaim that your 0x address contains works of the future digital art great masters. As more people get skin in the game, the chorus of positive vibes towards the NFT art form creates its own self-fulfilling prophecy. That is why the concept of a “salon” of like minded individuals critiquing “art” can make or break an aspiring matter contortionist.
As these conversations happen globally on- and offline, the number of smug, confident bagholders grows. That in turn leads to a hodl culture coalescing around a few superstar digital NFT artists. As with everything, the community will decide who creates high and low “art” in the digital space. But now, I am confident that the NFT art form as a whole will survive, because there are too many individuals holding expensive JPEGs who don’t want to believe they purchased digital trash. And given many of these individuals are respected for their past accomplishments, the sheer fact that they participate in the NFT ecosystem lends all the credibility the art form needs to persist.
Boomer Art
Meatspace art has existed for thousands of years. Regardless of how the metaverse develops, there will always be an appreciation for certain works of physical art. However, the vast majority of expensive art is only expensive because a certain age cohort converted their excess fiat currency into what they believed were generally accepted, aesthetically pleasing forms of stuff.
As Boomers begin to divest their assets either through gifting to their youngins or outright selling to fund a lavish retirement, many of the works that were considered bulletproof will look like an Amiri t-shirt. That is Boomer art. A slick talking, beautifully coiffed and dressed gallerist convinced said Boomers their purchase was “art” and it would hold value. But if the younger generations form cities in cyberspace, their concept of community will not intellectually allow them to spend their Sats and Wei on pieces of physical matter that have no connection to the metaverse.
While the NFT art form is beautiful, some individual manifestations of this art form will be ugly, crass, and devoid of creativity. Don’t let the vulgarity distract from the promise of a communal creation of belonging predicated on ownership of and experiences with NFT art. A similar sentiment would lead you to determine that grunting while hitting a green felt ball over a net is completely devoid of any usefulness.
