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There have been numerous credulous stories in the art press promoting the idea that the blockchain technology behind Bitcoin will be easily adapted to the art market. The result will increase transparency and reduce some of the problems with art transactions.

That view—which is convenient for the companies promoting their concepts—is somewhat naive. The problem has been how to illustrate the spurious comparisons being made. On the one hand, you have what bitcoin hopes to achieve: let electronic cash function as cash.

On the other hand, you have what the art world is fantasizing about: creating an armature of information surrounding works of art that is authoritative, detailed and secure. Let’s call it “artcoin.”

These two ambitions are not actually compatible. And there’s finally a good example that is familiar to us all but reveals the weaknesses of the bitcoin model for the art market. Let’s break that down.

One of the primary problems with building “artcoin” is that there’s a fundamental disconnect between the two functions. Bitcoin’s advantage is that it takes something electronic and allows it to act like a physical object.

Electronic cash is managed by a series of intermediaries who are your proxies in the world. Your bank, your credit company or any electronic cash conduit essentially vouches for you. They charge a fee to assume the risk that you might not be honest or solvent or reliable.

Cash is anonymous, it vouches for itself and requires no other entity (save the government that issued the cash) to guarantee its worth. Because of that it is anonymous. If you find a $100 note on the street, you can spend whether you know who dropped there or not. If your bank gets wired money or you receive a check or a credit card payment, the intermediaries know your identity. It can get traced back.

The art world wants something very different. It wants to take a physical object, a work of art, and allow it to trade like an electronic object. That means buyers and sellers want a work of art to carry all of its relevant and past information with it at all times. “Artcoin” doesn’t fulfill that goal.

One main reason for that is that the record keeping for works of art doesn’t already exist in a way that will allow those records to be adapted with blockchain technology. This is not a small issue or task. Gathering, collating and digitizing that information is an enormous, improbable and likely impossible task.

Let’s set that aside. Even if that information was already structured, there are two further impediments toward using the block chain to create transparency in the art market. Too many of the “artcoin” stories fantasize that the block chain will ensure authenticity of the work and reveal to buyers who the previous owners of the work were (thus preventing money-laundering, etc.)

In the first case, the “artcoin” and the work of art exist in parallel. They cannot be inextricably linked just yet. One supposes you could take the digitized documentation around a work of art so that it could be easily and anonymously transferred from owner to owner with the confidence that it has not been duplicated or altered. This would be “titlecoin.” One would still have to connect “titlecoin” to the physical object in a reliable way. Otherwise, the two can be separated. You end up owning the painting but haven’t got the documentation (a problem more easily solved by putting the paperwork in a glasine envelope behind the stretchers.)

‘Titlecoin” might give you confidence in the art work’s authenticity but it does nothing about transparency. In fact, the blockchain’s selling point is its ability to preserve anonymity. Remember the $100 bill. When you pick that up on the street you don’t know nor care whether it was a drug dealer or a kindly older gentleman who dropped it. So the “titlecoin” does nothing about the art market’s dark money vulnerability.

This isn’t to say the blockchain is useless. It’s just a caution that it doesn’t provide the solution so many are hoping for. It may be possible to build a system of artists’ royalties on top of the “titlecoin” or “artcoin” someday but first one needs a functioning blockchain system for art.

A good analogy for art is real estate. Finally, an Australian news site has tackled the issue of bitcoin as it relates to the property market which allows us to look at “artcoin” in a way we can recognize.

Notice the existing registry is a prerequisite to creating the blockchain ecosystem. Now ask yourself which art world registry would launch this new “artcoin” ecosystem:

If blockchain were applied to the property market in Australia, every property would be encoded with a unique identifier. Property IDs already exist in most land registry systems, so these would need to be migrated to a blockchain.

Next, the blockchain ecosystem then needs to have defined who the people behind the transaction are, those stakeholders that include the owner, lender, and government.

Transactions of property are conducted via “smart contracts” – digital rules in the blockchain that process the agreement and any specified conditions. Buying and selling could still take place via agents, or the smart contract can be advanced to incorporate the sale rules and make this decision automatically. The blockchain for each property grows as transactions are added to the ledger.

 

Just one last point to follow the last sentence here. Transactions are added to the ledger but not the information of who the owner was. The blockchain ledger lets you know that there is no duplicate of the title but not who previously held it.

How the blockchain will transform housing markets (The Conversation)