Part 3: Cryptocurrencies: Why Artists Should Know About This Digital Asset
Artists: Embracing Future Technologies Series - Part 3
Cryptocurrencies evoke polarising views, but they are an asset that potentially hold value in more ways than one, and are something that artists can benefit greatly from understanding about.
In this blog post, I will explore the benefits and use cases for cryptocurrencies for artists, the risks associated with cryptocurrencies, and how artists can get involved in this exciting new field. Whether you are an artist, collector, or investor, understanding cryptocurrencies and their potential impact on the art world is important in today's rapidly changing digital landscape.
Table of Contents
Definition of Cryptocurrencies
The Benefits of Cryptocurrencies for Artists
Risks of Cryptocurrencies for Artists
Definition of Cryptocurrencies
Cryptocurrencies are digital or virtual tokens that use cryptography to secure their transactions and to control the creation of new units.
Cryptocurrencies are decentralised, meaning that they are not controlled by any government, central bank or financial institution, and are based on a distributed ledger technology called a blockchain. Please see Part 2 of this blog series for more information about blockchain technology.
Transactions made with cryptocurrencies are recorded on the blockchain and are irreversible, making them secure and tamper-proof. Some of the most well-known cryptocurrencies include Bitcoin, Ethereum, and Solana, but there are thousands of different cryptocurrencies in circulation, each with their own unique features and use cases.
The concept of digital currencies can be traced back to the 1980s, with the emergence of electronic cash systems that aimed to provide a secure and decentralised means of payment. However, it wasn't until the late 2000s that cryptocurrencies as we know them today began to take shape.
In 2008, a person or group of people operating under the pseudonym "Satoshi Nakamoto" published a whitepaper titled "Bitcoin: A Peer-to-Peer Electronic Cash System" and in 2009, the first Bitcoin block was mined, marking the beginning of the Bitcoin network.
Since the introduction of Bitcoin, thousands of other cryptocurrencies have emerged, each with their own unique features. Ethereum, for example, introduced the concept of smart contracts, which enabled developers to build decentralised applications on top of the Ethereum blockchain.
The Benefits of Cryptocurrencies for Artists
As an artist, you may not think of cryptocurrencies as a tool that can benefit your work. However, cryptocurrencies offer several advantages that can help you get paid for your work and connect with your audience more effectively. Here are some of the benefits of cryptocurrencies for artists:
Direct payments from patrons - One of the main advantages of cryptocurrencies is that they enable artists to receive payments directly from their patrons, without the need for intermediaries like banks or payment processors. This means that artists can receive payments faster and with lower fees, which can help them earn more money for their work.
This is particularly important if you plan to sell or buy digital assets, such as NFTs, or utilise services within the Metaverse and Web 3.0 eco-systems. You will also find that some platforms only operate using their own currency such as Ethereum and Solana.
International accessibility - Cryptocurrencies are borderless and can be used to make payments to anyone, anywhere in the world. This means that artists can reach a global audience and receive payments from patrons around the world, without the need for complicated international payment systems and expensive exchange rates.
Protection from fraud - Cryptocurrencies use advanced encryption and security features to protect transactions from fraud and hacking. This means that artists can be confident that their payments are secure and that they will receive payment for their work without fear of chargebacks or other fraudulent activity.
Risks of Cryptocurrencies for Artists
While cryptocurrencies offer several benefits for artists, there are also some risks that should be considered. Here are some of the potential risks of using cryptocurrencies for artists:
Volatility - Cryptocurrencies are known for their price volatility, which can make it difficult for artists to accurately value their work and receive fair compensation. For example, if an artist sells an artwork for $1,000 worth of Bitcoin, but the value of Bitcoin drops by 50% the next day, the artist could end up losing a significant amount of money.
Security - Cryptocurrencies are stored on digital wallets, which can be vulnerable to hacking and theft. If an artist's digital wallet is compromised, they could lose some or all of their cryptocurrency holdings, including any payments they have received for their work. To mitigate these risks, artists should take steps to secure their digital wallets.
Lack of regulation - At the moment, Cryptocurrencies are not regulated by any central authority, which can make it difficult for artists to seek legal recourse if they are the victim of fraud or theft. In addition, the lack of regulation can make it difficult for artists to comply with tax laws and other legal requirements.
Limited acceptance - While cryptocurrencies are becoming more widely accepted, they are still not as widely used as traditional payment methods like credit cards or PayPal. This means that artists may have difficulty finding patrons who are willing or able to pay with cryptocurrency.
How Artists Can Get Involved in Cryptocurrencies
If you're an artist interested in getting involved in cryptocurrencies, there are several ways to get started. Here are some steps you can take to explore this exciting new space:
Create a digital wallet - To receive payments in cryptocurrency, you will need to create a digital wallet that supports the specific cryptocurrency you want to use. Popular wallets include MetaMask, Phantom and Coinbase Wallet. Be sure to carefully research and choose a wallet that is secure and reputable. I will explain more on digital wallets below.
Offer your work for sale in cryptocurrency - Once you have a digital wallet, you can start offering your work for sale in cryptocurrency. This can be done by listing your work on an NFT marketplace like OpenSea or Magic Eden, or by accepting cryptocurrency payments directly through your website or social media accounts.
Attend crypto and NFT events - Attending events and conferences focused on cryptocurrencies and NFTs can be a great way to connect with other artists and industry professionals, learn about new developments in the space, and promote your work to potential buyers. There are several events such as Token2049, which is held in both Singapore and London and NFT.NYC held in New York.
Collaborate with crypto-savvy creatives - Collaborating with other artists and creatives who are knowledgeable about cryptocurrencies and NFTs can be a great way to learn more about the space and reach a wider audience. Consider joining online communities and forums focused on crypto and NFTs, or attending local meetups and events.
What are Crypto Exchanges?
Cryptocurrency exchanges are online platforms where users can buy, sell, and trade cryptocurrencies with other users.
These exchanges typically allow users to exchange fiat (traditional) currencies, such as, USD, GBP, EUR, or JPY for cryptocurrencies, such as Bitcoin, Ethereum or Solana and vice versa.
Here are some examples of popular cryptocurrency exchanges:
Binance: Binance is one of the largest and most popular cryptocurrency exchanges in the world. It offers a wide range of trading pairs and supports a variety of cryptocurrencies.
Coinbase: Coinbase is a popular cryptocurrency exchange that allows users to buy and sell cryptocurrencies with fiat currency. It offers a user-friendly interface and supports a variety of cryptocurrencies.
What are Digital Wallets?
If you start buying and selling art within Web 3.0, you will need a digital wallet to enable the transactions as cryptocurrencies are often stored, sent, and received using digital wallets.
Digital wallets are software-based platforms that allow users to manage and store their digital assets, such as cryptocurrencies, on their mobile devices or computers.
When it comes to cryptocurrencies, digital wallets play a crucial role in the process. They store the private and public keys that allow users to access and control their cryptocurrency holdings. These keys are essential for signing and verifying transactions on the blockchain.
Some digital wallets, such as Coinbase or Binance, specialise in cryptocurrency trading and offer additional features such as margin trading, lending, or staking.
What are Hot and Cold Digital Wallets?
Hot and cold wallets are two types of digital wallets used for storing, managing, and using cryptocurrencies. The main difference between them is how they store the private keys that are used to access and control the cryptocurrency holdings.
Hot Wallets
A hot wallet is a type of digital wallet that is connected to the internet and stores private keys online. This type of wallet is often used for everyday transactions, such as buying goods or services with cryptocurrency. Examples of hot wallets include mobile wallets, desktop wallets, and web wallets.
Hot wallets are convenient to use as they allow for quick and easy access to cryptocurrency holdings.
Hot wallets, however, are also more vulnerable to security risks such as hacking, malware, and phishing attacks. As a result, users should take extra precautions to secure their hot wallets, such as using strong passwords, enabling two-factor authentication, and keeping their software up-to-date.
There are several popular hot wallets available for storing and managing cryptocurrencies. Here are some examples:
Coinbase Wallet: Coinbase is one of the most well-known cryptocurrency exchanges, and it offers a hot wallet that allows users to securely store, manage, and exchange their cryptocurrencies. Coinbase Wallet is available for both iOS and Android devices and offers features such as multi-coin support, easy-to-use interface, and biometric authentication (e.g. Face ID).
MetaMask is a digital wallet that allows users to interact with Ethereum-based decentralised applications (dApps). The wallet is available as a browser extension for Chrome and Safari browsers, as well as a mobile app for iOS and Android devices.
Cold Wallets
A cold wallet is a type of digital wallet that stores private keys offline, typically on a hardware device such as a USB drive. This makes it less vulnerable to online security risks, as the private keys are not connected to the internet.
Cold wallets are often used for long-term storage of cryptocurrency, such as holding large amounts of funds that are not needed for immediate use.
While cold wallets offer greater security than hot wallets, they can be less convenient to use. Transactions may require physical interaction with the device or paper wallet, and users may need to transfer cryptocurrency to a hot wallet in order to use it for transactions.
There are a number of different cold wallets available for storing and managing cryptocurrencies, but the following two are the best options for beginners.
Ledger Nano S: The Ledger Nano S is a hardware wallet that supports a wide range of cryptocurrencies, including Bitcoin, Ethereum, Solana and Cardona. It is a small USB device that stores private keys offline and requires a user to physically connect the device to a computer to make transactions.
Trezor Model T: The Trezor Model T is a hardware wallet that supports over 1,000 cryptocurrencies and offers advanced security features such as a touchscreen display, passphrase protection, and multi-factor authentication. It is also a small USB device that stores private keys offline and requires physical interaction to sign and verify transactions.
If you are interested in using a digital wallet for cryptocurrencies, it is important to choose a reputable and secure platform. Look for a wallet that offers strong encryption, two-factor authentication, and other security features. It is also important to research the fees associated with using the wallet and ensure that it supports the cryptocurrencies you want to use.
My Final Thoughts on Cryptocurrencies
As an artist and a digital specialist, I can see that cryptocurrencies have an important role in the current and future art industry as they facilitate access to new marketplaces.
While there are certainly risks and challenges associated with cryptocurrencies, the benefits and new opportunities are too significant to ignore.
As the crypto landscape continues to evolve and mature, I believe that we will see even more exciting developments and innovations that will make it easier and more accessible for artists to get involved.
Thank you for taking the time to read this blog post, I hope that it has provided you with valuable insights into cryptocurrencies and I hope you can begin to see how it could benefit artists.
There is much more to learn about new technologies, the following blog posts have further helpful information to expand your knowledge:
