Photo-Illustration: Intelligencer; Photo: Getty Images

Priscilla has a few things that make it special. Purple lipstick, messy black hair, a mole the size of her pupils. It’s the kind of features that make it valuable as one of 10,000 non-fungible collectible tokens called CryptoPunks generated by tech art group Larva Labs. Last summer, the Institute for Contemporary Art Miami announced it would acquire the work as part of its permanent collection, saying NFT’s works are “truly representative of the cultural zeitgeist and will have significance history for generations to come.

But six months later, the work is in receivership. While other such CryptoPunks have traded millions of dollars on NFT exchanges, ICA Miami is waiting for professional appraisers to settle the dollar amount of the artwork, both in case it is destroyed, and so the donor, a trustee, receives tax relief.

The museum experience is representative of the collision of a hype machine that drove NFTs to over $40 billion with the stilted apparatus of insurance companies, tax professionals and museums that decided to the value of works of art for hundreds of years. Appraisers and insurance companies are only beginning to address the issue of what are NFTs really worth? Unlike traditional works of art, NFT securities are pegged to cryptocurrencies that fluctuate in price rapidly. The market has also been plagued by fraud and stolen works.

NFTs are not themselves art, but are a way to show that someone owns a digital work that can otherwise be reproduced, just like anyone can buy a poster of the mona-lisa which hangs in the Louvre. They were widely seen as a tech gimmick in the art world until last year when digital artist Beeple sold a collage of digital photographs for $69.3 million through Christie’s to the crypto investor. Vignesh Sundaresan. Since then, famous artists such as Damien Hirst have started selling paintings as NFT, giving buyers the choice of keeping the digital version, in which case the painting will be destroyed, or the analog version, which will result in the removal of the NFT. But it’s not about all the superstars in the art world either. Lesser-known artists can sell directly to their fans, then get a 10% discount on every NFT sale after that. “Instead of posting all my pictures on Instagram for free, without earning a living from being seen or noticed, NFTs guarantee you money for your stuff to be consumed,” host Oliv Roe told me.

And for professional art dealers, NFTs are a way to access young buyers who have missed them. “The reason we were trying to get excited about it is because for years we’ve been trying to get into this new generation,” an executive at a major art dealer told me. “If you live in a box with more windows than walls and can’t hang a picture, you can keep your NFT collection on a USB drive. That’s why the big players here have jumped on it, because that’s the only way they’ll catch the interest of people in their 20s and 30s – which is really sad and a massive admission of defeat.

For years, art markets have operated behind closed doors thanks to an intricate web of collectors, dealers, galleries and museums that protect art prices from all but a select group of professionals. Unlike something like the stock market, where the values ​​of companies changing hands are publicly released on an exchange, there are no such expectations of transparency. “The art world is very sexy for people because it’s secretive,” Esther Kim Varet, owner of Los Angeles and Seoul-based gallery Various Small Fires, said during a panel discussion at Art Basle. “There are a lot of hurdles and it feels exclusive once you walk in. And I’m afraid the more transparency there is in pricing… we’ll have to invent new ways to create that aura of exclusivity or privilege. Not that those things are things we should value, but that’s just kind of what the art world is built on.

What makes NFTs so new is that they are bought and sold through exchanges, so everyone can see the latest transaction. For example, one of the most popular NFT art collections are the Bored Apes, a group of 10,000 cartoons with randomly generated characteristics (sunglasses, hats) that help determine their value. As I write this, the cheapest is worth over a quarter of a million dollars, although they can trade for over $2 million, with those prices determined by trading data on exchanges like OpenSea. While no artist is immune to changing fashions and tastes, soaring publicly reported prices have had a dizzying effect on the art market.

When a museum accepts a work of art as a donation, it is much more complicated than cashing a check. In the United States, the IRS requires any institution to obtain an independent appraisal, which determines tax relief for the donor. For traditional works of art, appraisers typically appraise them once a year or less, often for insurance purposes, judging them against an established collection of similar works. With NFT art, there is much less to do – and this has spawned a new arms race for appraisers to find ways to clearly and soberly determine its value. “The insurance market for fine art is very deep,” said Caroline Taylor, founder of Appraisal Bureau, which values ​​NFT works of art, including Priscilla. “Retail replacement value is often much higher than fair market for good reason, and the industry can afford it. Whereas with NFTs, it’s in its infancy,” she said.

Taylor has developed a proprietary methodology for pricing NFTs, which she has only agreed to describe in general terms, which takes into account an average price of the blockchain an NFT is minted on, as well as the value of similar works, and how it might be used. Lloyd’s of London has started using this methodology to write insurance policies on NFT art, and because insurers need to determine how much they should pay if a volatile digital currency is lost or destroyed, its method automatically calculates the value on a daily basis.

The problem, however, is that not all of these sales can be considered genuine – and the difference between a real price and a fictional price can be huge. Crypto markets have been dogged by accusations of bogus trading to boost prices, and one CryptoPunk was allegedly inflated to over $500 million in a shady deal. Taylor said she was aware of these types of issues in the market and was taking unspecified protective measures against them.

Museums also need to worry about new ways to store NFTs, as hacking and scamming have become a growing problem, with a record $14 billion stolen last year. “People talk about NFTs all the time. People are interested in it, which means it’s an attractive target for threats,” said ICA Miami art director Alex Gartenfeld. a platform, even if it’s cryptocurrency, and tomorrow that cryptocurrency disappears, then a lot of value is lost.” Taylor’s company is also working with security firm Malca Amit to physically store NFTs securely Digital assets will be stored on disconnected hard drives in one of its vaults – their largest, in London, is the size of three tennis courts and also contains gold bars and diamonds — and owners won’t be able to sell their digital asset without picking it up in person, explained Charles Turner, an executive at the security firm.

Yet the biggest institutions are only moving so fast in their embrace of NFT art. Almost all of the floor space at Art Basel last December was given over to traditional media, and some of the art world’s most recognized authorities on appraisal want to wait before getting into works. cryptographic. “I’m super careful,” Roman Kräussl, a professor of art and finance at the University of Luxembourg and Stanford University’s Hoover Institution, told me at the Miami Art Fair. Kräussl typically uses a database of over 10 million auction prices dating back to 1970 – but says NFT works the way CryptoPunks, Bored Apes and Cool Cats have already become iconic. “I definitely need more historical data and a better understanding of failed keystroke transactions, the role of so-called whitelists, and a careful analysis of Discord servers and corresponding Twitter feeds,” Kräussl said. . “So if I were to start a review company for NFTs right now, I would tell you, give me a year or two, because I’m a German academic. I’m cautious. Better to be accurate than quick.

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