The Promise Of Distributed Ledger Technology In The Art Market

R. Srikumar is Senior Vice President, Head Portfolio Group at Mphasis.

From recording auction sales to enabling fractional ownership of renowned pieces of art, distributed ledger technology (DLT) has been making steady inroads into the art market. But what can an advanced technology usually deployed in the financial services space have to do with the rarefied world of art?

A great deal. Although largely private, the art industry, too, is undergoing churn. Fueled by technological advancements, art auctioneers and connoisseurs are finding ever-greater use for DLT amid growing customer demand for effortless access to exhibitions and auctions and reliable and safe purchase experiences, along with the need to track provenance.

This does not mean the phenomenon doesn’t have its fair share of detractors. From artists and writers to academics and public intellectuals, the adoption of advanced tech in the exclusive, rarefied world of art is being met by criticism that focuses on what such a move essentially does to its meaning and relevance.

Art, according to these critics, is meant to be above and beyond the merely transactional nature of financial exchanges and business value. Yet, there is no denying the reality of the challenges the art world is facing, from the unreliability of an artwork’s provenance to the resulting problem surrounding art’s value.

As an ex-CIO of a derivative exchange and as someone involved for years in both financial services and technology, I have been personally invested in following the development of blockchain. One of its defining features is its ability to reduce the role of a centralized trusted party, the premise for many of our institutions. We are also pioneers in applying blockchain technology to industries such as supply chain financing.

Additionally, in being a bit of a dabbler in art myself, the confluence of these two is fascinating to me.

Let us now take a look at a few examples to see how blockchain is addressing some of the art industry’s immediate challenges while providing an easier, safer, more democratic experience of owning and enjoying art.

Owning Bite-Sized Pieces Of Great Art

Consider, for example, the incredulous “fractional” sale of Andy Warhol’s 14 Small Electric Chairs (1980) in early 2018. Maecenas, a blockchain empowered art investment platform, partnered with a London art gallery, Dadiani Fine Art, to provide fractional “stakes” in Warhol’s 1980 work. About 31.5% of the work was put up for sale in cryptocurrencies resulting in a total dollar value share of $5.6 million.

Apart from signaling the successful coming together of art and technology, the Warhol sale has introduced tokenization and blockchain in the art space. This enables easier and more democratic access to artwork, greater diversification in investment, lower transaction costs and better liquidity.

Tracking Provenance Through Smart Tech

Another significant event, which took place in 2018, was the $323 million sale by Christie’s of the Barney A. Ebsworth Collection—a modern American art collection. Through its partnership with an art-focused blockchain company, Artory, all sales were recorded for the first time entirely on blockchain. This has ensured end-to-end tracking of the artwork’s provenance—as owners can register their artwork on blockchain to demonstrate ownership—while also facilitating future re-sales.

Blockchain registries such as these are helping to improve both buyer and seller confidence by providing continuous and anonymous tracking of transaction histories, ownership as well as archival material. It is a win-win in today’s art market characterized by opacity, cost-consciousness and customer risk-aversion.

In so far as any artwork’s value is defined by its history and previous ownership, blockchain provides a ready platform that can vet, memorialize and protect transaction data, thus boosting confidence in an artwork’s past ownership and authenticity.

Democratizing A Rarefied Field With Technology

Another area in which DLT-based blockchain technologies play a leading role in the art industry is democratizing access to and authenticity of art, including art created and stored digitally. Digital artists are using blockchain to authenticate artworks that would have otherwise been easily reproducible, and some have even been using blockchain as a medium itself. This includes the creation of bitcoin graffiti artwork and pieces of art like The Last Bitcoin Supper by French artist Youl, which sold for nearly $3,000 in 2014.

Blockchain lends itself to the digital art space particularly well because it enables digital art collectors to correctly assess an artwork’s provable scarcity—namely, determining the number of copies of a particular work, available for sale. This both helps to determine a digital artwork’s value and ensures buyers pay a fair price. The technology can also establish that a digital artwork has a relatively small number of valid copies, and therefore continues to remain scarce or, in other words, valuable.

But more than anything else, in being a system that runs 24/7, blockchain ensures that records created through it are next to impossible to erase. Compared to the error-prone record-keeping practices followed by a majority of art auction houses, blockchain provides security and stability. Future technologies built on DLT promise to address many challenges facing the art world by fostering authenticity, transparency, and egalitarianism amongst both auction houses and art enthusiasts.

But before any of these trends can reach fruition, there are a few stumbling blocks that will need to be overcome. While blockchain lends itself quite naturally to digital art, there is still a long way to go for it to establish a clear way in which it can handle physical art, such as murals and carvings. In addition, there are concerns with regard to the technology itself. Users have to go through a long-drawn process to acquire a digital wallet and proceed to negotiate with what is often a lot of jargon before they can make a digital purchase—not to mention purist concerns about what purchasing art that exists only digitally implies.

Yet, as with many things new, DLT is undoubtedly promising. It will be up to all the various stakeholders in the art world to address common concerns and make owning even fractions of great work a seamless experience in the near future.


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Anita Shire

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