Blockchain in the Art World
Blockchain technology has facilitated the tokenization of premium-priced assets, including rare and expensive pieces of art. But while the benefits associated with selling portions of an object are plentiful, the concept is not without legal and logistical pitfalls.
Following the opening of the renowned art fair, Miami Basel, to blockchain in 2018, Miami Art Week 2019 featured several blockchain-related events. For many collectors, galleries and art dealers, however, the use of blockchain and technology in the art world remains a foreign concept.
At its most fundamental level, blockchain is a public digital ledger. This ledger is decentralized – i.e., not controlled by any one individual or group – allegedly making it more secure and reliable. Blockchain is most widely known for its use in transfers of Bitcoin and other cryptocurrencies. Galleries are now experimenting with sales in cryptocurrencies, such as in June of 2018, when Dadiani Fine Art offered for sale works by famed artist Andy Warhol in cryptocurrency, offering only “tokens” of certain works. In other words, portions or percentages of a given object were sold, the ownership rights therefore being an investment rather than a physical piece to hang on the owner’s wall.
Beyond its use as a currency, blockchain has the potential to help combat the stolen art and antiquity trade, by tracking domestic and transnational sales of art, and to end authenticity, or “provenance,” issues that plague the art world. In fact, several other industries have already successfully experimented with blockchain as a means of tracking the supply chain of certain products such as Italian wine, olive oil, tuna and conflict minerals (used to influence and finance conflict) by recording the movement of each good through its supply chain. Instead of a supply chain, stolen antiquities could be flagged on a blockchain and, if that object is offered for sale, that object would ideally become unmarketable no matter where the object is located. In addition, blockchain can be used to document provenance as works are moved from one collection to another. In order for the transaction to be recorded and to help ensure the blockchain is tamper resistant, a consensus by a network of peers must agree that the transaction is valid. Several companies have already begun to use blockchain to facilitate provenance research and artwork tracking through an online database and, in some cases, by partnering with auction houses.
For the foreseeable future, collectors should be cautious about uploading their entire collection to such databases or relying exclusively on the information on those platforms. Like any other digital medium, blockchain – and therefore the information recorded on blockchain – is subject to hacking. The information recorded by blockchain, which requires the unlikely cooperation of the art world where anonymity is valued, is also only as good as the information originally provided. The potential for abuse is obvious. The majority of the companies hosting these websites have user agreements with fine print disclaiming the accuracy or thoroughness of any of the information available on the websites. Further, while Congress has introduced 21 bills to address blockchain policy that may be considered this year, presently there is little to no regulation of blockchain and its users.
Some companies are providing “certificates” for “verified” artwork. These certificates raise a host of additional issues. For example, other research groups unrelated to blockchain have provided certificates for artwork that were meant to show that a search indicated the piece of artwork was not stolen, but there have been incidents where those certificates proved worthless and those works were indeed stolen. Moreover, to the extent that specific art galleries, companies or agents are hired to perform the verification process, provenance research could be monopolized by a select group with a significant financial interest in the art market.
While collectors should be cautious, the benefits of this technology should not be dismissed. As the use of blockchain continues to develop, collectors and other interested constituents are encouraged to stay informed on the progress of the use of this technology in the art world.