Leaders in humanitarian aid, finance, technology, and more have embraced the distributed ledger known as blockchain to bring transparency to their operations. The art world is experimenting with it as well, seeing the technology as a way to revolutionize how art is bought and sold, thwart fraud and tax evasion, and reduce friction during the auction process.
There are at least four major areas where blockchain will disrupt the art market:
1. Driving digital art sales through digital scarcity
2. Democratizing fine art investment
3. Improving provenance and reducing art forgery
4. Creating a more ethical way of paying artists
How can one technology make such a huge impact across four seemingly different areas in the art market?
Blockchain and Digital Scarcity will Create a Massive Market for Digital Art and Crypto CollectiblesA big problem with producing and selling digital art is how easily it can be duplicated and pirated. Once something is copied and replicated for free, the value drops and the prospect of a market disappears. For things to be of value they need to have scarcity. Blockchain helps solve this for digital artists by introducing the idea of “digital scarcity”: issuing a limited number of copies and tying them back to unique blocks proving ownership.
Blockchain is a fairly new technology platform that runs across millions of devices and is open to anyone. The Harvard Business Review describes it as “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.” If you are not familiar with blockchain, you may be familiar with the cryptocurrency Bitcoin which runs on a blockchain paradigm. What you may not know is that in addition to currency, blockchain can be used for art and other intellectual property. With blockchain, trust is established through mass collaboration and clever code in place of a powerful centralized institutions serving as middlemen.
How Blockchain Technology Keeps Art Ownership Transparent1. An artist creates a new piece, or a collector or gallery makes a sale, and certifies it with a token on a blockchain.
2. When the artwork is purchased from the artist, the token transfers to the buyer.
3. Each time the piece is resold, the token transfers with it.
4. The token transactions are stored publicly on a distributed ledger that anyone can edit or access, so buyers and sellers can easily track the entire history of ownership. If the token doesn’t originate with the artist’s crypto wallet, or with a well-known gallery or investor, its provenance could be called into question.
Blockchain Democratizes Fine Art InvestmentIf you fancy yourself a “serious” collector of blue-chip art, perhaps you are thinking the blockchain is only about $20.00 digital drawings and cartoon cats and punks. Think again.
In 2019, the company DIP will be launching the first open blockchain platform that democratizes access to fine art. Now people who have always dreamed of owning famous paintings can buy shares in a Picasso, Warhol, Monet, etc. On the flipside, galleries, museums, and collectors can offer up works from their collection for bid on DIP to raise money for the purchase of future works (while leaving their collection intact). This may sound like a regular art fund, but remember that blockchain cuts out the middleman, greatly reducing the transaction costs. The transaction cost with blockchain is so low that DIP can theoretically let you invest as little as fractions of a penny using cryptocurrency without taking the hit of transaction fees.
Great for the gallery, but what about the investors? The investors also benefit from the magic of blockchain. Because fees and the cost of transactions goes dramatically down with blockchain, and cryptocurrency can be infinitely divided, DIP can transform artworks valued at tens of millions of dollars into tiny digital units that can be easily bought and sold in real time: essentially a stock market for art, but with far less friction or fees.
Blockchain Reduces Art Forgery with Improved Authentication, Verification, and ProvenancePerhaps the most obvious use of blockchain (and closest to my heart) is to fight art forgery through the establishment of better authentication and provenance. Since at its core the blockchain is a distributed ledger, it can provide an unalterable record of provenance starting with authentication and ending with the current owner of an artwork.
DIP certifies and verifies artworks and collectibles using the Bitcoin blockchain. They are fighting art forgery by providing an “airtight” authentication methodology that allows for real time verification of artworks using distributed ledger and image-recognition technology. Their initial target market is authentication for living, working artists. In the long run, they plan on moving toward authenticating older works by working with artists’ estates eventually having the provenance for every artwork in their blockchain. Beyond fighting forgery and theft, blockchain has the potential to protect and support artists by introducing new methods of monetizing their work.
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