The unexpected Renaissance of digital art is changing auction houses

When an NFT by digital artist Beeple sold for $69,400,000 in February 2021, it made headlines around the world – and the art world sit up and take notice.

Now, barely more than a year since the sale, almost every major auction house is holding its own NFT sales. One such is Bonhams, which achieved its breakthrough moment in November 2021 with the sale of the NFT associated with a digital trading card of the footballer Cristiano Ronaldo for $400,312.

Nima Sagharchi, the Head of Digital Art at Bonhams, admits that the sudden breakthrough of NFTs into the fine art “top tier” caught many auction houses unawares, including his own. “The idea that NFTs would go from a relatively obscure, interesting corner of the art market to giving us one of the most valuable living artists in history was, I think, a surprise even for people in the NFT world,” he says.

Adapting to the NFT market

Faced with this situation, Bonhams found itself needing to overcome two main challenges in order to adapt rapidly, Nima says.

The first was curatorial. “There are so many platforms out there, like OpenSea and SuperRare, that are representing artists and really have their finger on the pulse,” he says. “So we were wary that we’d end up looking like a grandparent trying to fire up a computer if we didn’t approach this in the right way. Therefore we made a decision that almost everything we do regarding NFTs would be in partnership with an existing platform. That way, we’re not trying to rain on their parade, but rather co-operate with them.”

The second challenge they faced was logistical, says Nima. “NFTs are bought and sold on a blockchain, and that’s basically a completely seamless and borderless process that involves no KYC [“know your customer” – the process by which businesses verify the identity of their clients] and no necessary connection to any outside banking infrastructure. So, for us, it was hugely challenging to fit the square peg of a bricks-and-mortar auction house that works with bank transfers and credit cards into the round hole of this world where everyone is transacting completely freely.”

The solution that Bonhams found was to accept cryptocurrency payments – using Ethereum (ETH), a blockchain currency – having created their own NFT ‘wallet’, while also running their own KYC checks. At the same time, the auctioneers will also accept payment for NFTs using traditional currency, such as sterling, dollars and euros – known as ‘fiat’ currency.

This “best of both worlds” approach, argues Nima, means that traditional auction houses have been able to position themselves as a gateway to NFTs for collectors who are wary of taking a first step into the market, or simply don’t have the technological know-how to be able to set up their own crypto wallet, where an NFT would usually be paid for and stored.

“NFTs and the crypto world are tightly welded together, but they don't necessarily have to be,” he says. “If you love a piece of digital art, and you don't have a crypto wallet for whatever reason, you shouldn’t be prohibited from buying it. When it comes to cryptocurrency, there isn’t that much support beyond the FAQs and chatbots. However, with us, we can meet you face-to-face and hold your hand through the process. We’ll also provide a digital storage solution until you find a secure way to take delivery of your NFT.”

Democratising the art market

Another major transformation being caused by the rise in the popularity of NFTs is the way the traditional barriers within the art market are being broken down.

“NFTs are allowing the art world to explore a new medium,” says Benjamin Kandler, Project Lead for Digital Art at auction house Phillips. “The culture behind digital art and the speed at which it can be created also allows collectors to feel more engaged with artists.”

There is less of a division in the NFT market with primary and secondary sales as each collector is empowered to collect and trade as they see fit, with low barriers to entry.

He adds that NFTs are leading to more control for both artists and collectors as the boundaries between the primary and secondary art markets begin to blur. “NFTs are almost exclusively released by the artists themselves,” he says. “There is less of a division in the NFT market with primary and secondary sales as each collector is empowered to collect and trade as they see fit, with low barriers to entry.”

Amber Vittoria, a New York City-based digital artist, believes that NFTs are giving collectors the opportunity to buy from – and engage with – a much broader range of artists than would previously have been the case. “Breaking into the fine art world is difficult, as it has a lot of barriers. But NFTs are starting to lift them,” she says.

This “democratisation” means that, as well as making fine art more accessible for collectors, a whole generation of digital artists can now find a market and make a living, she adds. “Most artists have always seen digital work as fine art, but it’d be tough to sell an original because it’s digital. However, because an NFT is minted on the blockchain, it allows digital artists to sell an original of a piece and support themselves financially in this way.”

She also welcomes the fact that traditional auction houses are starting to embrace NFTs. “A lot of times when you see things up for auction, it’s either artists that are very well established or artists that have passed away,” she says. “But it’s really great to see artists who are currently very much in their early or mid-career now get that recognition from auction houses who are starting to take notice.

“I'm excited to see where it goes in the next five or ten years,” she adds. “It will be very different than it is now – hopefully even better!”

Read the first article in this series, ‘What are NFTs and how do they work in the art world?’.

The views expressed above are those of the author and do not represent the opinion of Cazenove Capital. This article is intended to be for information purposes only and should not be relied on as investment advice.