By Elizabeth Howcroft

LONDON, (Reuters) – James Christie, who sold Rembrandt and Rubens masterpieces to Catherine the Great 240 years back, didn’t know that his auction house would offer virtual apes for a crypto-company at over $1,000,000.

Samuel Baker, Sotheby’s founder, would not have imagined that he could sell a copy the original source code of the internet as a non-fungible token (NFT) for more than $5 million. Baker had auctioned hundreds of rare books and sold them for around $1,000 each in 1744.

The times are changing.

Cassandra Hatton is Sotheby’s global head of science & popular culture. She stated, “Everybody wants to buy an NFT.” My inbox is just completely clogged.

Sotheby’s had sold $65million of NFTs by 2021. Christie’s was the arch-rival and sold more than $100million of the crypto asset. The new kind of cryptocurrency asset uses blockchain to identify who owns digital objects such as photos and videos. However, they are freely viewable, copied, and shared just like any other file online.

According to Art Market Research data, these sales figures represent about 5.5% in contemporary art sales at the top auction houses around the globe. This is a big leap considering NFTs only exploded in the past year.

Many buyers hail from a new class of wealthy clientele, people who have made their fortunes using cryptocurrencies. According to Reuters, these art specialists are involved in NFT sale at auction houses. Nearly 70% of buyers in a Sotheby’s NFT online sale that brought in $17.1million in June were newcomers.

Kosta Kantchev bought the NFTs, which are crude cartoon apes that were sold at Christie’s London for $1.3 million ($982,500).

Christie sold the cartoons from the Bored Ape Yacht Club set at the first NFT sale of Europe. The auction was the largest ever held in person since the beginning of the pandemic.

Kantchev was seen with art collectors, bidding on artworks by Jean-Michel Basquiat (a sign of times changing), and rubbing elbows with Kantchev.

Antoni Trenchev is the co-founder of Nexo, along with Kantchev. He said that their purchase was not for aesthetic reasons but to bet on the future growth of NFTs. This has been fueled by the rise in the “metaverse”, an online community where almost anything, including avatars, clothes, land, and buildings, can be purchased or sold.

The explosive growth of NFTs sales has included digital art, but that’s just one component of their rapid expansion. They reached $10 Billion in the 3rd Quarter of 2018, eight times more than the prior three months.

Trenchev spoke of Nexo’s potential sale of financial products that are based on NFTs.

These are not the only people betting on the metaverse. Facebook (NASDAQ:) – a company worth almost $1 trillion that has rebranded as Meta on the calculation that increasingly-immersive virtual environments and experiences are the future.

TRADITION UPDATE

We will have to wait and see if Mark Zuckerberg is right. NFTs are still bringing auction houses, many times older than Silicon Valley, into the new age.

Auction houses have turned to social media in an effort to attract new buyers.

Noah Davis is the head of digital art at Christie’s. He said potential NFT buyers appreciated his willingness to abandon the formalities usually involved in attracting collectors. Additionally, he mentioned that he recently negotiated an agreement over Discord messaging platform and registered buyers via Twitter for an auction (NYSE:).

“That’s the place it happens. That’s how client services are done,” he said to Reuters. He also noted that this was a much faster process than traditional methods.

In another big digital shift, auction houses are often sourcing NFTs directly from the crypto artists – in many cases, little-known, pseudonymous figures.

Gallery owners are the primary sellers in physical art markets, while auction houses focus more on secondary sales.

The biggest surprise to me is the desire of artists to collaborate directly with auction houses. Rebekah bowling, Phillips’ senior specialist for 20th century art and contemporary at Phillips, another international auction house, said, “We have always been in secondary markets.”

Bowling said that “the traditional structure is being upended.” He uses Twitter and Clubhouse as a way to connect with artists.

WHY CRYPTO’S RISKY

However, these newcomers into an unregulated metaverse face a new risk, especially around cryptocurrency, which crypto-rich purchasers often use to buy NFTs.

Auction houses can face legal risks in terms of know your customer (KYC) and anti-money-laundering (AML) requirements, said Max Dilendorf, a cryptocurrency lawyer and partner at Dilendorf Law Firm in New York.

He said that these products can be considered securities. A gallery should do due diligence before buying an artist or product. Additionally, he stated that it was “a well-known fact” that money laundering through cryptocurrencies is a possibility.

Sotheby’s declined to comment on their KYC and AML procedures. Christie’s stated that its KYC/AML standards for NFT sales are the same as physical art, but declined to provide more details. Phillips claimed that the company checked to ensure buyers had enough funds for their crypto wallet.

NFTs may not be the best way to prove ownership, but they can cause problems.

A June Sotheby’s NFT sale saw a buyer pay $1.5 million for what was marketed by Kevin McCoy as “Quantum” (NASDAQ:). However, a claimant claimed to have an earlier version of the NFT. This claimant, both the claimant and the buyer, told Reuters. According to them, the delay in the transaction due to a dispute regarding which NFT was truly the first was due to blockchain records showing that the purchase wasn’t completed until several weeks following the sale.

Separately observers also noticed flaws in the video code that was included after a Sotheby’s auction for an NFT representing World Wide Web Source Code, which sold for $5.4 Million.

Sotheby’s declined to comment on the sale.

Pablo Rodriguez Farile, an Miami-based collector who has bought both NFTs and art from the physical world, stated that the adoption of digital technology by auction houses was very beneficial.

He stated that he believes they are normalizing the ecosystem and that they will soon find the right way.

“But, the curation challenge is major,” he said. He was referring specifically to auction houses as galleries that handle primary sales.

Christie’s is selling a Beeple NFT, the same artist who sold a NFT for $69 million in March at Christie’s. This was the first sale by a major auction house of an artifact that is not actually physically present.

His work will now be available in both physical and NFT form. Christie’s, at least in part, still finds appeal to the real world.

($1 = 0.7414 pounds)