“Non-fungible tokens”, better known as NFTs, have identified this market cycle as the equivalent of an initial currency offer. They continue to share the emotional “ideal” in space. As much as Bitcoins don’t like to talk about them, they are no doubt a major part of the market dynamics of this cycle, and I personally don’t think they’re going to go away anytime soon, if ever. There are a lot of things I want to unpack to argue why I think that’s the case. The first question with these lines is: What is art?
Philosophy of art
This question immediately brings up a whole host of other questions. In this day and age almost any industry can form. You have to look up to Mark Rothko to see it. Its pieces are literally just color and size. His work is widely acclaimed and sold for huge sums of money. Where is the dividing line between art or not? To one person Rathko is a masterpiece that they will pay their own money, to other people (like me) they will simply slap on a medium that a child can recreate. I will not pay a penny for one.
So where is the dividing line between what makes art and what doesn’t? Not one. This is a completely thematic line that differs depending on the eye of the beholder. There is no “line” as defined in the objective sense. In light of that, let’s consider my point of view, which is really what I can talk about in such a context. Art is something that moves me. Whether it’s emotional, or intellectual, or otherwise, it’s something that elicits a spontaneous response from me – the statue of David, for example. Every time I see a marble statue of such detail and scale, it amazes me. It makes me think of the skills, the patience, the time that went into creating something so vivid and accurate in detail; Or to put it another way, imagine that something like “proof-of-work” had to be created. Just think of the skills needed and the time it took to refine them, such as how to break a block of marble so accurately that the human shape can be replicated from the rest. You need to know exactly how to break the marble which will leave the original space of those shapes intact and then refine all the details. The probability that a single block can be thrown from a great distance, and how those decisions can be handled is different for each part of the marble. All these thoughts arouse in me a feeling of real wonder considering the person who has not only learned the theory behind these things, but how to practice them to the right degree. A colored line on a white background does not evoke any such fear in me. I could do it in a minute.
When discussing my attitude towards art in the context of NFT, I have never seen NFT that qualifies as “art” to me. Not a single NFT I’ve ever seen, even a rare one has moved me more than a quick laugh or a laugh. If I had to classify NFTs, I would call them collectible. To me they are not art in any sense of the word as I see or define it. Think more about a Pokemon card vs. Mona Lisa. Your favorite Pokemon doesn’t evoke some deep semi-spiritual feeling when you look at their cards, but it still has some emotional reactions to owning some low level. I would compare it to an obsession with getting something. When people collect Pokemon cards, or baseball cards, or coins, or anything, in the end it falls into the obsession / obligation of owning something more, in my opinion. I think these NFTs are actually much closer to the original than comparing them to industry in the classical sense.
Market dynamics and money laundering
As of 2020, the global industrial market value was about ৫০ 50 billion, with a total of ১ 311.4 million in industrial transactions conducted that year. This is a huge market. Most transactions involving industry occur very privately, with minimal paperwork or records, and in some cases completely anonymous. Hist Historically it has been a highly unregulated market. It has also raised money in auctions for money laundering through art gallery abuse and illicit activities (although its scale in the overall market is a matter of controversy).
A major aspect of facilitating such activities is what is called “free port”. These are typically regional warehouses, usually at or near airports, which are considered outside the borders of the host country for tax purposes, geographically located within them. This allows industry owners and sellers to store valuable artefacts in a tax haven and suspend tariffs until the industry is actually removed from the free port. It is very common to use it to permanently suspend such customs fees without ever removing the industry from Freeport, as it can be shipped from Freeport to Freeport internationally after the sale “without going into customs” for tax purposes.
Two examples of documented laundering come to mind at the two ends of the spectrum. The first involves Brazilian banker Edema Sid Ferreira, who was convicted in 2006 of money laundering and other crimes. He fled Brazil and smuggled Jean-Michel Baskiat’s picture “Hannibal” with him to the United States, claiming the value of the fraudulent customs document. The item shipped was only $ 100. It was valued, however, at 8 million. The painting was recovered by U.S. authorities and Ferreira was sent back to Brazilian custody, but his purpose was clearly to take advantage of the unregulated nature of the art market to cover the cost of his life after fleeing Brazil.
Another example of the more extreme aspects of the issue is the documented cases of ISIS (Islamic State of Iraq and Syria) acquiring ancient art from the region and smuggling it to the Western world to finance their activities. An example of an artwork possibly obtained from ISIS is the Gilgamesh Dream tablet purchased by the president of the Hobby Lobby for display at the Bible Museum in Washington DC (until September 22, 2021) after it was seized by the Immigration and Customs Enforcement (ICE) in Iraq.
Now the intensity of money laundering in the art market is a hotly-debated issue as mentioned earlier, but it is undeniable that such incidents occur regularly regardless of the scale associated with the overall market. This has led to a slow wave of governments around the world that have begun to bring industry sales and transfers to money laundering control schemes that have forced many other financial markets. The first example I know of is a bill passed in Mexico in 2012 to combat suspected money laundering by drug cartels. The bill brings industry to Mexico under anti-money laundering regulations, as well as other markets such as casinos, jewelry stores and punshops. Most of the art galleries operated inside the auction house have seen an average reduction of about 30%. The cartels could no longer smuggle money without using someone else’s auction, the bill had a significant impact on the market as the actual buyers refused to violate their privacy.
The EU and the United States have recently passed similar bills. In 2018, EU art dealers folded their money laundering regulations under the Fifth Money Laundering Directive, and in January 2021, the United States did the same with the Money Laundering Act of 2020. The U.S. Congress has until 2021 to clarify who qualifies as an “antiquities dealer” as defined in a bill that would fall under regulatory authority. So what’s the takeaway here? Money is smuggled into the art market, regardless of the controversial scale. To apply deductive reasoning, the same thing is probably happening in NFT space. It not only denies the real demand for things from real people for the purpose of appreciating “art”, but it should also not be ignored. The same regulatory creep over Bitcoin and the larger ecosystem has begun to occur, just as governments have clearly acknowledged by increasing control over industrial markets over the past five to ten years.
Emotional value vs. economic value curve
Going back to the philosophical side of things, I have one last thing to do and really try to think about what’s going on in the NFT space. When discussing the value of art, I think it is important to distinguish mental / intellectual value from economic value. To illustrate why, let’s go through three examples.
Consider Beethoven’s music: it is entirely in the public domain and it itself is economically worthless (ignoring live performances, recording sales, etc., anyone can and usually can’t do anything) yet it still maintains a deep sociality hundreds of years after creation. And cultural value. Now think about Metallica. They are a well-known and well-known band, and their industry still has a significant economic value. It’s nowhere near as deeply embedded as Beethoven, but it’s still undoubtedly culturally and emotionally valuable. Finally, consider some artists you have never heard of, who have never been popular or created art emotionally to someone whose art is worthless and landfill somewhere.
Industry can maintain a deep emotional value that can remain free of any economic value for generations. Collected things are different in my opinion, because the passion for music and the collected economic value are more strongly involved than in art like music. This is something that should be considered when thinking about NFT. How many marketers see their art as versus collectible?
This is a guest post from Shinobi. The opinions expressed are entirely their own and BTC, Inc. Bitcoin Magazine.