By now, NFTs are mainstream jargon so I’ll focus on why the generative art space is a constructive long-term investment. If you are looking for a primer on NFTs, I would start here, here, here, and for the video inclined, here.
What is generative art? This overview of generative art history provides a concise definition: "It is the practice of creating systems that then autonomously create art".
Modern generative art is generated by computer algorithms, but generative art existed well before the invention of the computer. Natural language rules or procedural steps without any technology is also capable of creating generative art. We'll focus on modern generative art, which grew with the arrival of computational power in the 1960s. Artists used computers the size of your living room to run algorithms that generated art. Today, a simple laptop will enable a curious generative artist.
A unique feature to generative art is that the artist does not have full control over the outputs. They’ve combined orderly code that executes repetitively, the serendipity of random chance, and the possibility of beautiful errors to generate the scariest type of art for any type of creator: one in which they cannot control the end result.
The generative artist is tweaking, adjusting, and cajoling an algorithm into satisfying outputs. Generative art started out as a way to create many outputs, from which, the artist would cherry pick the best. The recent wave of generative art has been dubbed “long form”, where an artist must build an algorithm good enough to generate 1,000 outputs that are aesthetically pleasing and unique while fitting under a unified project title. Tyler Hobbs of Fidenza fame wrote about the art form and why it’s so challenging (a fantastic read).
5 key themes behind on-chain generative art as an investment:
Selective pool of artists compared to other digital art
Transparent and reliable provenance
Digital art will create a larger market than the traditional art market
Limited storage requirements compared to traditional art
Native art form to the digital art medium
1. Constrained pool of artists
Generative art is naturally constrained to a self-selecting pool of artists, gated by skills and interest. The skillset is an unnatural cross between someone who is both design oriented and code competent. Finding a single good designer or a single good programmer is challenging on its own, let alone someone who is capable of doing both well. Not only do they have to write clean, efficient, and objective code, but they must march to the tune of their own drum to impress upon subjective senses and deliver mind-bending art. Mix all of that together and the population of generative artists creates a natural scarcity for the art form. As a result, the cornerstone projects in generative art stay relevant longer since it’s difficult to replicate the mix of skills required to create these masterpieces.
2. Transparent and reliable provenance
Provenance is defined as the validity of the artwork along with the transaction history. Provenance is so critical to the validity and trust of a particular piece of artwork, that it might be the most important thing, more so than the artwork itself. The criticality of provenance is highlighted in the must watch documentary on Netflix, Made You Look. It follows a major art scandal where expert art analysts and historians were duped by some Rothko fakes painted by a trained Chinese artist. Watching this made it click in my head: the digital world is so conducive to tracking transaction history that it’s easy to overlook the importance of such a simple feature. In the traditional art world, tracking provenance requires humans who are prone to mistakes. For on-chain generative art, this is stored directly on the blockchain, as the transaction occurs. There’s a single source of truth and a quick search will reveal whether a piece of digital art is fake, whether it passed through a set of famous owners, and what price was paid.
3. Digital art market will be larger than the traditional art market
If I had told you in 2010 that the traditional advertising business (TV, Newspapers, and Radio) would be eclipsed by their digital counterparts, you’d probably laugh at me. In a decade, online advertising has nearly doubled the size of offline advertising.
From Benedict Evan's 2021 presentation "The Great Unbundling"
If we look at early numbers for the offline and online art worlds, we see something similar: The traditional art market is roughly a $1.5T dollar asset class with $50B in transaction volume in 2020. In 2021, a year where NFTs exploded onto the scene, $20B in transactions exchanged hands. Not bad for a young industry.
When communities go online they create infinite permutations of audiences and advertisers, creating a world larger than what we could have imagined in the traditional offline world. NFTs connect and enable a larger population of collectors and creators in ways not possible through the traditional art world. Anybody with an internet connection can get involved and I'm a perfect example: If you had asked me 5 years ago if I’d ever become an art collector, I’d call you crazy. Yet here I am writing about the art industry.
4. Limited storage requirements compared to traditional art
Storing an expensive piece of art in the traditional world is not a trivial process. This makes sense. The store of value is a piece of art created decades or hundreds of years ago – it is a physical object and liable to water, fire, UV rays, or forgetful misplacement. Global freeports are dedicated to storing expensive goods of the ultra-rich, like a military grade Amazon warehouse for the most secretive and valuable items in the world. It’s impossible to place a dollar value on this cost, since it’s such a secretive industry, but an investment susceptible to accidental loss can only be collected safely by those able to pay the high costs associated with protecting the art. Compare this to the requirements for securely storing a valuable piece of digital art: high security storage can be performed without a 3rd party and just a few pieces of hardware available for less than $100 (multisig cold storage). The storage requirements of a digital good are infinitely smaller than a physical good, exponentially expanding the collector base and increasing demand for generative art and digital art.
5. Generative Art is Native to Digital Art
While the market growth of digital art is not specific to generative art, the tailwinds for the entire industry amplify the native art forms. Generative art is native to digital art. Modern generative art is created with an algorithm written with computer code. It is shared with the world through a digital medium: minted online, tracked on-chain, transacted with internet currency, and showcased with web tools. The moment digital art reliably maintained provenance was the moment a new medium of investable art was created. If you are to believe the digital world will grow into a vibrant ecosystem, then generative art is the beautiful centerpiece worth showcasing in an office (physical or online!).
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While these reasons drive my own investment thesis behind generative art, I recommend anybody looking into this to join the community, interact with artists, collectors, and read up on the history of the space.
Generative art will become an asset class larger than traditional art is today, but it doesn’t mean all generative art will hold value over time. Just like in the art world, there are periods where certain types of art are appreciated and fads come and go, while the best artists retain their value. Within generative art, one will still need to be able to pick projects that will hold value over a very long period of time. Even as a staunch believer in generative art as an investment, the best advice is to buy art that pleases the senses. The worst case is enjoying a beloved piece of art while supporting an artist on a cutting edge medium.