Cryptoart is a scam: here’s why
Edit: skip to the end to see a more concise argument
The subject of cryptoart has recently come up again amongst my group of friends and I wanted to write out my thoughts on it.
Disclaimer: I’m just an idiot with opinions. I am not an expert. I’ve been involved with crypto related sphere for about a decade. I’m an artist, both traditional and digital. I’ve had some parts of this thesis rolling around in my head for awhile and figured that I might as well make it a post.
Here’s a way to think about things. Value is how good something is. Price is what you pay for it. A mother’s love is “priceless” because it has value but you can’t pay your mom to love you.
Art is valuable. It enriches the human experience. It expresses the human experience. It binds nations and cultures. It teaches us about the world and ourselves.
In a post scarcity market, everything is priceless. It can be valuable but that doesn’t mean it has a price. The price of a thing is determined by supply and demand. With infinite supply, demand is effectively 0.
There are millions of poems written everyday. There are millions and millions more written in the past. Every year we accrue more poems. Most of them are crap, but a few are good.
Digital technology makes the delivery and retention of these poems essentially 0.
If you want a poem you don’t need to pay for a poem. You can read the entire collected works of Yeats online for free. You can even get very good contemporary authors. I love the work of Mary Oliver but you can get most of her work online with just a google search.
What limits the availability of supply?
Let’s say there is a bit of forest with banana plants. I want 5 bananas, and you want 5 bananas. There are 11 bananas in the grove. If I asked you to pay me 5 dollars for the one left over banana in the orchard, would you? Of course not. You wanted 5 bananas and you have 5 bananas. Conversely I would not pay you for that extra banana either. That banana has value but no marketable price.
If there are 9 bananas, and you want 5 and I want 5 then one of us is going to have to go without something. This is material necessity. Maybe I have to go without that 5th banana. Maybe I can trade you an apple for that banana, and I go without my apple. I could avoid paying the price for that banana by stealing it from you.
If you are bigger and stronger than me I probably won’t steal it from you. Price really only becomes a thing once you have a “market” and you only really have a market once we can be sure that property rights are being enforced.
Art therefore has a price in so far as it has material necessity, and some type of privatization enforced.
If there are 9 bananas in the orchard and I want 5 and you want 5 then the only way you can sell me an banana is if I know that if I try and steal your banana the State will throw me in jail.
You can only sell a poem in so far as you can be sure that there is a State that will protect your intellectual property rights.
What is the “Art Market”? Well for the market of “Art” there is material necessity enforced by the fact that there is only 1 physical Starry Night painting and that if you try to steal it you will be thrown in jail.
Why do some people pay a lot of money for “Art”? Some very rich people are collectors. They value the “original” as a unique specific piece. The price of the piece is enforced through the material scarcity of the original. (note it could also be argued that the “original status” of physical works of art counts as a Veblen good.)
Most people don’t consume art this way. Most people just want a pretty picture to hang on their wall, or put on their phone case, or save as a desktop background. Most people are fine with a print or a reproduction.
If I wanted to sell you a painting of Mickey Mouse or print an image of Aladdin on a phone case, I could get thrown in jail alongside the guy who steals my banana, because the State protects Disney’s intellectual property rights. The price is determined by that material necessity and the enforcement of property rights. Without those two things, there is no price.
What is the rest of the “Art Market” then? The rest of the “Art Market” is investing in a commodity that is resistant to inflation and generally has looser taxation.
Art therefore in the Art Market is a store of price. It’s a medium of exchange.
What gives a medium of exchange it’s price? Price is determined by supply and demand. Fiat currency is a medium of exchange which derives it’s price from the demand from the State that we pay our taxes in that currency and the material necessity imposed on us by it’s enforcement. You can’t pay your taxes in bananas and apples. You have to pay your taxes in cold hard cash. If you won’t pay your taxes in cash then the State will throw you in jail alongside that weirdo who prints bootleg Mickey Mouse phone cases.
People often say cryptocurrency doesn’t have any value. I’m not going to get into the weeds on cryptocurrency but in my view it has value as a medium of exchange in so far as it allows you to:
- avoid paying taxes
- buy illegal stuff
The Art Market, like crypto, allows you to avoid paying taxes. Their utility is therefore a mirror of fiat’s utility. Art/Crypto allows you to make exchanges without getting thrown in jail like that guy who doesn’t pay his taxes.
Crypto art is an attempt to define “original status” for digital art, which lacks the “original” scarcity enforced by material necessity on physical art. Original status is only useful in so far as its being used as an untaxed inflation resistant store of price. Therefore, someone like Beeple can sell his work via Sotheby’s to rich investors because those investors are able to avoid paying taxes and can resist inflation.
Everyone else though? Probably not. Investors are not willing to buy art “for art’s sake”. They don’t care about it’s value as an aesthete. They care about it’s price. And price and value are not connected.
Cue Mastercard’s slogan.
Most people aren’t even willing to pay for original physical art which have some basic material necessity limiting their distribution/consumption. The supply of talented artists producing work exceeds the demand for those artworks.
You can buy a hand painted oil paint reproduction of Monet, 6 foot by 5 foot, for like 1k, from China. That wouldn’t even cover the cost of labor and materials for a painter in America. And it doesn’t have to be Monet. Outside of the enforcement of IP laws by the State, it could be anything.
Humans are naturally creative. It’s in our nature to make things, and to pursue excellence in that making of things.
The premise of capitalism is that demand for scarce resources drives up price, which incentivizes the production of supply. This is the profit motive. And say what you will for or against the profit motive, but it’s clear that people will keep producing supply even if there is no demand. At some point we have to recognize that the profit motive isn’t the only motive.
People will write, develop, play, print, paint, and sing whether you pay them to or not.
Most of what people make will be crap, but this doesn’t matter.
+ if it’s trivially easy to preserve a poem indefinitely,
+ if it’s costless to distribute that poem globally,
= even if only 1 in 10k poems are good then at some point the supply of poems will exceed the demand for poetry.
We have repeatedly hit this point in various ways over the last century as technology has progressed in it’s ability to eliminate the material necessities limiting supply. This is why the last century has been driven by the progressions of mass media. In the last 30 years those progressions have ramped up more and more as the production and consumption of work has become more and more digital.
Cryptoart does not solve this basic problem of supply exceeding demand, any more than hedge fund managers paying millions for original Warhols.
It costs money to mint a piece of cryptoart, and unless you’re a big name like Beeple, it’s flushing money down the toilet.
Art is de facto post scarcity. Most artists, even many good artists struggle to make anything approaching a living wage. This is not good. Art has value. Art is priceless. These privatization schemes will not solve that disconnect.
addendum
Addendum
Talking about this more with friends, I think some of the main features of this article have crystalized. Here’s the long and short of it:
My position is that the Art Market is a scam. We de facto operate in a post scarcity context for crafted objects and the price of the market is merely a reflection of it’s utility as a means of avoiding taxes and resisting inflation.
IP law already exists and there are plenty of legal instruments (copyright and contracts) already in place to define private ownership of intangible ideas.
These legal instruments, in the modern age are unable to protect IP, and sprinkling the magic fairy pixie dust of blockchain contracts does nothing to actually solve these problems.
Cryptoart has no meaningful novel utility over our current broken IP laws, and therefore the degree to which a cryptoart market has utility is the same as the Art Market which, as said before is itself a scam.
So cryptoart is a scam trying to hide another scam, and that is all it is.
Aside from a very small minority of artists who are famous or extremely lucky, the cost of minting cryptoart will never pay itself back, and so artists should be warned to not be swindled by this.
