A handful of events in the Blockchain ecosystem seem to enter our live in a growing pace. A beta platform for art investing and art decentralizing by the Maecenas. Earlier a breakthrough report titled “The Art market 2.0” by Oxfords research group ( Alan Turing institute with collaboration with DACS) was lunched to the the house of commons. This week The World Economic Forum has launched its “Global financial Monetary System in 2030' report declaring the importance of the blockchain in it, in mid-July an ART and Blockchain conference was held in London.
The greatest technological breakthrough of the coming decade
You must have already heard about the decentralized database (a public digital ledger/ registry) defined as the greatest technological breakthrough of the coming decade. This database, which is independent of central ownership by any entity, institution or intermediary, is linked in our minds with the financial — technological world and the virtual coin Bitcoin (traded through the blockchain). However, it is also connected to the world of art…
In August 2017, Forbes announced the blockchain as a platform that will be used as the Art world new business model and the “disruptive innovation” of the art economy across the globe. In early 2018, the same magazine announced this year as the year in which the blockchain technology will achieve a wide basis in a variety of economic fields around the world. The same statement was also heard in the financial forum at Davos in January 2018.
Consumers in all areas of life waste billions of dollars each year on the costs of services and handling by various intermediaries, one of the biggest of which being the bank. Those intermediaries act as trust entities, managing the information and the finances related to various transactions in our daily lives. The blockchain gives power and control back to the consumer. Whether related to medical records, information about online purchases, or the purchase of products in our local neighborhood supermarket, the blockchain will change the way we operate in the world, and some expect a change greater than that brought on by the Internet.
How the blockchain technology works
The blockchain is an Internet creation. The owner of the blockchain is a net of people managed from the personal computer in which an encrypted and digitally signed block is saved and activated by a smart algorithm. Each block is linked to the ones before and after it in a way that can’t be changed, cracked or forged. Because of this, the place of intermediaries becomes unnecessary for performing any action, and the cost for their services is saved.
A blockchain is a technical protocol allowing the performance of transactions between two parties in a reliable and safe way, without any brokerage by any third party. This kind of decentralized database is saved on a large number of computers synchronized with one another — as opposed to a database kept by one entity. The complex manner in which it is decentralized and secured allows it to operate without any central element responsible for handling or supervising the activity.
Why it’s impossible to forge or change information about the blockchain
A blockchain protocol saves the information about the transactions made through it, within “blocks” of information. Each block is a file with information about all transactions made within a certain time span. When this time span ends, the block becomes digitally locked and joins the chain of blocks locked before it. This is why it’s very hard, and in fact impossible, to forge or change information about the blockchain.
Business organizations and international institutions announced a couple of years ago that they’re inquiring into the use of blockchain for various purposes. Due to the threat to the traditional way of performing financial transactions, the banks were among the first entities to research into the use of this decentralized registry of blocks for the purpose of performing efficient, fast and secure transactions. Banks are considering the development of a closed internal blockchain inside the banking system, separate from the open public blockchain, in order to replace their information systems and streamline their work.
How the blockchain technology changes the rules in the art market
Well then, how will the blockchain technology become the “disruptive innovation” of the art world? The scope of the international world of art (art and antique sales) is estimated at over $60 billion per year. Blockchain nets are already changing the way in which artists create both traditional and digital art, the way they distribute and sell it, the way art is valued and priced, and the ways in which collectors and museums purchase or invest in it. This technology also changes the way in which art works are delivered around the world, and the ways they are stored, kept and exhibited.
The world of art, usually considered as somewhat conservative, has astounded many by its interest in the possibility of adopting the blockchain. Auction houses, collectors and professionals in the art word were some of the first elements to inquire into this technology, for several reasons providing a unique value to the activity taking place in the art world. The ability to perform international transactions using smart contracts and to keep it safe and unforgeable, the activity of the digital wallet, the use of digital coins and the preliminary examination of the purchaser’s financial capacity prior to the transaction, decentralized investment options (as opposed to purchase groups), crowdfunding of “new money” for a market of share-based art investments, authentication of the ownership of art pieces, and more.
The art business will no longer need appraisers and authentication experts
The provenance, the art piece’s I.D. and warranty, the documents testifying to the originality of the piece, the artist’s identity, its ownership history and the date of its creation. This information is highly valuable both to the seller and to the purchaser of the art piece. This information is vital in order to determine the artistic value of the piece, as well as its financial value.
The provenance documents have been riddled with forgery throughout art history, and this forgery comprises the main concern of the purchaser, the private collector, as well as the museum. The blockchain system, registering the art pieces once they’re transferred from the artist and with their permission to the gallery, to the purchaser or to the museum, will comprise an international database, providing a quality certificate for such art piece (regarding its originality) and will constitute an official and reliable reference document as to the history of such art piece.
This fact will save millions of dollars to the art industry currently wasted on claims and counter-claims, will increase trust while purchasing the works and will streamline financial activity. Use of the blockchain will also make appraisers and authentication experts unnecessary. Only a single one-time action will be required for documenting historical art pieces requiring a certificate of authenticity by experts in order to register them in the blockchain system and to prevent forgery and theft. An independent global registration system will objectively provide the information required and will greatly minimize the motivation for forgery, simply because the ownership registered in the system will be indisputable.
Using a digital wallet will make the art purchase process faster and more secure
The digital wallet guarantees that the owner’s capacity to pay for their art purchase will be examined before the execution of the transaction, in an easy, fast, and reliable way. The performance of this examination today requires long and cumbersome processes incurring serious losses for auction houses (mainly in China, but also elsewhere).
The seller’s ability to verify the wallet owner’s financial capacity, in a fast and easy manner, is unique and important to the globally-run art market. The time required for money transfers is also considerably shorter than that required for ways of payment currently used in the art world. Use of digital coins, then, makes the purchase of art easy, fast and safe for “heavy purchasers.”
Museums have also started using digital coin technology; the Contemporary Art Museum in Austria was the first to purchase pieces using Bitcoin. In London, the Cointemporary art gallery was recently opened as a digital art gallery providing a platform for authentication of every art piece sold through it. Similar authentication is also planned for traditional-tangible art pieces (paintings, sculptures, installations). This gallery is also planning to roll out a digital coin of its own (token).
The purchase process without injuring privacy
Anonymity and untraceability are central values in the art market, endeavoring to maintain the privacy of the purchasers and sellers of art pieces, mainly on the higher price levels of the art market. The blockchain provides an inherent solution for this need, since the identity of the owner of the digital wallet is confidential and protected.
The fact that, on the one hand, the system allows the protection of the confidentiality of the identity of the owner of any wallet, alongside a reliable examination of their capacity to fulfill their obligation to purchase, is incredibly important. Currently, an anonymous purchaser requires the assistance of a proxy (counsel, broker/dealer) in order to perform the purchase process without injuring their privacy.
The anonymity of blockchain actions has drawn a lot of criticism by enforcement authorities for fear of abuse by negative or law-breaking elements. Policy measures are taken within the European Union and the United States in order to prevent such abuse.
Simplified process of acquiring art objects on the world market
Legislation against money laundering in the art market was approved this month in the European Union; a similar bill is currently being brought to vote in the United States. The blockchain also brings new values into the world of art with regards to the process of the performance and tracking of the chain of supply and forwarding. A large portion of activity in the art market is done globally. An art piece owned by a German citizen, brought to sale at a London auction house, is in fact stored at a free port in Singapore and prior to the sale will be exhibited in China and the United States.
The need to cross oceans and different jurisdictions, whether in terms of import laws, tax laws and inter-continental forwarding systems, will now end using a transparent system allowing easy access to information regarding the piece’s storage conditions, ways of forwarding, and decentralized documentation of information assisting the purchaser, whether they are private collectors, museums, galleries or merchants, by receiving accurate information.
Decentralized investment in art is a new field created “ex nihilo”, only possible thanks to the blockchain. The tools for cooperative purchase and investment in art are far greater than those of “ad hoc purchase groups” or art investment funds, which are usually restricted clubs of investors.
Smart contracts used for the decentralized sale process, are a computer protocol digitally enabling, authenticating and enforcing the negotiation and execution of the terms of the contract. This is, in fact, a group of commands and conditions written in code and working on the blockchain technology. This allows the transfer of finances, stocks or any other property and the performance of protected and reliable transactions in a transparent and decentralized way, without intermediaries, in a way that allows the purchaser and the seller to track the transaction they performed. These tools create an (almost) intermediary-free global stock exchange for trading and investment in art “stocks.” Art enthusiasts (not just rick collectors) would be able to purchase art pieces together for the purpose of investment.
Now you can own a part of a masterpiece
“New money” is also one of the unique values of this system. In times when museum, private and public budget sources are becoming scarcer, this system will allow art funds and museums to raise “new funds” with the help of the public through crowd funding, while maintaining the ownership of the art piece with the museum.
A museum offering the public to purchase a share of an art piece (and maintaining an ownership of 51% of the piece) allows the investors of the piece not just the status and reputation involved in the ownership of a first-class art piece, but also the option to receive revenue for their share, the liquidity of the asset, and the ability to diversify the traditional investment portfolio beyond currently known fields of investment. The museum could invest the “new money” raised from the pubic in order to issue “shares” of the art piece, to purchase new pieces and to implement its vision as a public cultural institution.
New way to get a renewable pay to the artist
A new financial model for supporting artists is derived from the unique option of automatic tracking of the changing ownership of the piece. Use of the blockchain tools allows a renewable return model for the artist who created the piece.
Currently, the laws regarding renewable payment to the artist who created the art piece change from one country to another (droit de suite in Europe / first-sale doctrine in US) . The blockchain allows a definition of payment to the artist while selling the piece to new owners (the sale event usually involves a significant rise in the value of the art piece). Currently, the only beneficiary of the rise in the value of any art piece is its current owner (the seller).
The artist who created the piece receives no compensation in respect of the rise in the value of the art piece they created, and in most cases also sold, for a meager original price. The ability to transfer some of the rising value of the art piece provides a moral and just way for the “distribution of wealth” and support of the continuation of the artist’s work (through the private funds of the eligible purchaser) for the purpose of creating art to the benefit of the pubic and culture under a system known from the world of music as copyrights.
In the context of a global art market, selling over $60 billion worth of pieces each year and constantly developing into new markets, both geographically (the far east) and in terms of new world markets, such as online sales, the blockchain is breaking new paths.
Researchers estimate that there are currently between 5–10 million users of digital coins, and this seems to be just the beginning. Financial models estimate that the blockchain will lead to savings in the operation of commerce in the art world at a scope estimated at about five percent (disposable income potential of about $3 billion per year) and will, as mentioned, break new paths never seen within it before.
Start-up companies around the world are taking up the challenge and developing new tools in hopes of being the platforms where future activity in the art world will be conducted. Government and international culture institutions, private and public funds, museums and investment companies are preparing to inspect their activity in these fields. The future seems like the “break of a new day.”
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Dr. Milly Perry serve as an expert and consultant for innovation, blockchain, and R&D. Former research director at The Open University of Israel and CEO of its TTO Company. Her first Ph.D. is in Information Science, specializing in KM in Higher Education and Technology Transfer and Innovation, second PhD research in Art and Culture Sciences. Served as a board member at EARMA (European Association for Research Administration), an active expert at the EC ERC-PoC.
She is engaged in projects at the Blockchain experts groups in the WEF World Economic Forum, ISO Blockchain Governance experts group and other international organizations as European Blockchain Association and Blockchain Alliance Europe.
Dr. Perry is an established consultant in Blockchain strategy to corporates, startups and investors in the fields of 4th Industrial Revolution Technologies. Dr. Perry is the founder of DAO4DAOs Institute and BUG Blockchain University Global and ABC - Art, Blockchain and Community.
Dr. Perry is the author of a dynamic, digital open e-book: “Blockchain - Turning Ego system to Ecosystem”.