Reading:
The Relationship Between NFTs And Physical Assets
Image

The Relationship Between NFTs And Physical Assets

January 21, 2022

Pablo Picasso was, by all accounts, a rather prolific artist. Throughout his lifetime, no fewer than 50,000 pieces of art are attributed to the Spaniard. Paintings, sculptures, prints, even tapestries, Picasso accrued an impressive body of work.

Picasso passed away from natural causes at his home in France on April 8, 1973. He was 91, and died without a will.

The artist’s passing marked the beginning of a long and protracted legal dispute. Picasso had been married twice and fathered no fewer than four children with at least three women. (Picasso’s only legitimate child, Paulo, was born during the artist’s marriage to his first wife, Olga Koklova. Paulo died in an Indian hospital in 1975, at the age of 54.) It was well known that he had also maintained several mistresses, one of whom, Francoise Gilot, had lived with Picasso for decades. Besides his personal affairs, Picasso owned five homes, had a significant stock portfolio, and, by some accounts, he died with $4.5 million in cash and $1.3 million in gold in his possession.

Why had the artist not made a will, who knows. He died at the age of 91 and had suffered ill health for some time. He must have been aware that he didn’t have much time left. And he must have also been aware of the sizable assets and the rather messy situation that he’d leave behind if a will was not made.

Six years of legal wranglings ensued, with acrimonious disputes between siblings vying for a slice of Picasso’s wealth. In 1979, a court estimated that Picasso’s estate was worth $100-$250 million, which, when adjusted for inflation, would amount to between $530 million and $1.3 billion today.) Legal bills were astronomical, amounting to around $30m. (The 1979 ruling would not quite be the end of the saga. Picasso’s name jumped onto the legal stage once again in 1999, when French carmaker Citroen paid $20m for the rights to use the Picasso name on one of its vehicles, the Citroen Xsara Picasso. One of the artist’s grandchildren, Marina, attempted to block the sale because she disagreed with the commission paid to the consulting company that had brokered the deal. In a twist worthy of a prime time soap opera, another Picasso sibling, Claude -Marina’s uncle- owned that consulting firm. The deal went ahead.)

There is a point to be made with this narrative. Had Picasso passed away in modern times, the will issue could have been resolved much more promptly, and probably with negligible legal bills, by using tokenization.

This article explores the relationship between physical objects and non-fungible tokens (NFTs), and how this relationship enables equal distribution of value.

Dividing the indivisible

Guernica is one of Picasso’s most famous and widely recognized paintings. He painted it in 1937, in response to the same year’s bombing of the eponymous town in northern Spain by Nazi Germany’s Condor Legion. (The painting is now recognized as one of the most powerful anti-war symbols ever created.)

But the problem is, there’s only one Guernica. Original, anyway. The painting is a single work of art that cannot be divided into smaller parts. So in a situation like Picasso’s, when there’s no will detailing who gets what, how can an adjudication be made? In 1979, the courts made the decision. Had it happened today, Guernica could have been tokenized.

Tokenized digital art is a dime a dozen these days. Any mainstream NFT platform holds thousands (if not millions) of digitized pieces of ‘art,’ though the term is somewhat of a misnomer. What constitutes ‘art’ is, of course, subjective. Subjectiveness is perhaps one of art’s inherent traits, one that prompts many an animated discussion across online forums and coffee house tables alike.

Any economic system is regulated by the laws of supply and demand. For an item to accrue value, it must be scarce, and a high demand for this particular value must exist. This axiom does not currently hold in the digital art market. There currently is a massive over-supply of digital art pieces, but relatively low demand, as things stand today. Besides, a vast majority of digital art is, to be frank, not very good. In the wake of the Beeple sale, many people jumped onto the digital art bandwagon, hoping to replicate Beeple’s one-time jackpot.

So in today’s over-saturated digital art market, most pieces hold little to no value. For this trend to be reversed, demand would need to increase many magnitudes, and (good, worthy) digital art would require scarcity.

Physical art adheres to the dictates of supply and demand. As highlighted earlier, there’s only one original Guernica (or any other original painting, DaVinci’s Mona Lisa, Velazquez’s Las Meninas, etc.) And the demand certainly exists. But any of these items are physical paintings, ergo, indivisible. You couldn’t just cut Guernica up and distribute the pieces among the Picasso siblings. Instead, you could tokenize Guernica, and give the siblings an equal share of the painting.

How does tokenization of physical assets work

A quick reminder: tokenization is the process of converting assets (digital or otherwise) into tokens on a blockchain platform. These tokens store the value of the assets -which means they are tradable- and also retain the rights associated with the assets they represent.

Tokenizing physical assets, such as paintings, bottles of wine, jewelry, or even real estate is no insignificant thing. It opens up a whole new range of investment opportunities for people with limited financial resources, for example. And, as a side note, it would enable the speedy resolution of cases like Picasso’s. His legacy artwork could have been tokenized, and each sibling would have been given an equal share in the form of tokens. They could then trade these tokens, hold onto them, or sell them when further value is accrued. (Guernica has never been up for sale, but some valuations attach a price tag of around $200m. As of 2021, the painting remains the property of the Spanish Government, and it’s on permanent display at the Reina Sofia Museum in Madrid.)

The advantages of tokenization hardly end there. It facilitates liquidity, too. An artist might decide to tokenize a piece of art, sell a limited number of shares (tokens), while retaining control and ownership over it. Those who acquire these tokens might choose to sell them to someone else, or hold onto them. If the associated art piece appreciates, so will the tokens.

A similar theory applies to real estate. Large hotel chains could tokenize one or more of their properties and make them available to small investors. A hotel’s ‘digital twin’ would exist in the blockchain, and small investors could purchase part of the hotel -a room, or a set of rooms, for example- and trade these with others. We recently published a piece on this very subject.

Conclusion

Tokenization is sometimes referred to as the economy of everything. This is partly true. Virtually anything can be turned into a digital token, that can be traded, sold, or kept in the hopes that it will appreciate over time. But there are limitations, of course. One might not want to purchase a share in a loaf of bread, but investing in part ownership of a wheat field would be a more attractive proposition.

There are more fantastical tokenization enterprises. Plans are underway to gather enough financial backing to purchase and tokenize Little Whale Cay, an island in the Bahamas. And project Diana for example aims to tokenize the Moon, no less.

These pioneering projects might or might not succeed, only time will tell. But tokenization is a reality that cannot be ignored, as it opens up the world (and beyond, as it seems) for everyone’s benefit.


Related Stories

July 16, 2021

How NFTs Can Benefit From Digital Identities

Proving the origins of something can often be very difficult, especially in the anonymous digital space. Can digital identities combat this problem?

Europechain
October 17, 2021

Top 5 Most Interesting NFT Use Cases (Part 1)

NFTs have a wide range of use cases, with many interesting use cases being explored right now. In this article we discuss some of the most interesting ones!

Europechain
September 27, 2021

Enhancing Supply Chains Using NFTs

The global supply chain is crucial for the delivery of everything we use daily. Can NFTs tackle some of the tricky issues surrounding supply chains?

Arrow-up
0 Shares
Share via
Copy link
Powered by Social Snap