The Importance Of Tokenization For The Development Of The Art Investment Market

Abstract :

With the financial markets facing high volatility, crises and declining confidence in recent years, alternative forms of wealth creation have been attracting more interest. The art market is the largest segment of the alternative investment market. One of the reasons for investing in this class of assets is the ability to diversify investment portfolio and to ensure protection against inflation. However, there is a number of factors such as low liquidity, having to invest substantial amounts and the lack of international exchange standards which hamper investments to be carried out the art market. Technological development may play a significant part in a number of aspects involved in the functioning of the art investment market. Today, devising new models of investments based on innovative technological solutions is becoming one of the priorities for this market. Drawing on the blockchain technology, tokenization, as a new investment model, allows for the issuing of digital tokens backed by fixed assets in the form of art works. A digital token certifies that a percentage share of the work of art (fractional ownership) has been purchased while enabling one to trade the token on the cryptocurrency exchanges. The advantage for the owner lies in acquiring capital and, depending on how high the percentage is, in taking physical possession of the artwork.

As its primary goal, the paper attempts to find the answer to the question whether the process of tokenization can play a part in the development of the art market. The indirect goal is to identify the factors constraining investment in this asset class For these two objectives the following theses were put forward: (i) there are numerous factors on the art investment market which hinder its growth; (ii) by removing significant barriers, tokenization of artworks can contribute to the development of the art investment market.