Over the weekend, two publications with expertise in markets, economics and enterprises published short items on the use of the potential use of the blockchain to improve art market transactions. Unfortunately, neither item seems have gotten past the most superficial understanding of blockchains—let alone the relationship between the art market and blockchains that we’ve previously dubbed Art-coin.
Many see art as the last unregulated market; crypto-currencies such as bitcoin, which permanently record transactions on an open-source database called a blockchain, could resolve concerns about access, transparency and authentication.
Of course, the art market is far from unregulated. The issue with the art market is that it is regulated locally where the transactions take place but not globally where the art often travels. Art transactions are regulated through the global banking system. And much of what observers call ‘regulation’ in the art market is really wishing for standards of authentication and scholarship that are also local, not global.
The Financial Times goes a step further. Not only does it repeat the misguided comparison of the blockchain to a database—particularly curious when the item links to an FT explainer on the blockchain that explicitly says, “The blockchain is a protocol and does not have the ability to identify parties”—the FT gets lost inside its own mostly-right-but-possibly-for-the-wrong-reasons analysis of the problem.
The potential for the quirky art market seems embryonic at best, despite a thirst for more reliable information. Data are only as good as the person who enters them — plus, according to the Tefaf report, 20 per cent of 673 dealers have no intention even of moving online, so sophisticated fintech solutions seem a long way off.
In short, the idea of the blockchain—when properly understood—is right for the art market. The problems lie first in the blockchain proving itself as a technology. Lots of smart persons are working on this at the moment in a wide-array of domains. Second, with a proven blockchain, there remains a substantial implementation problem in the art market which the FT points to but doesn’t seem to fully understand.
More to the point of the Economist’s observation is that describing the blockchain as a kind of open-source database isn’t really accurate and the use of the database metaphor suggests a kind of transparency that the art market isn’t really looking for, no matter what the chatter around the art market says. (AMMpro subscribers can read our discussion of the relevant issues below.)
If a reliable distributed ledger existed for art works (and the ledger could be reliably linked to physical objects) the result would be more confidence in the authenticity of the object and, potentially, that the work is unencumbered by alternative claims. That would create more confidence in the works that are being bought and sold but not more transparency.
In fact, the great appeal of the blockchain is that it provides anonymity. Bitcoin was created to allow electronic transactions that didn’t rely on an all-seeing, all-knowing institution. In other words, Bitcoin’s name is a metaphor for creating a digital object that behaves like a physical object. A coin carries its own authenticity (in the weight of precious metal) and having been minted in a form that is hard to duplicate. You don’t know where a gold coin was before you had it. You don’t care.
Bitcoin was meant to give that same freedom to digital transactions. The art world, too, craves authority that can preserve anonymity. The appeal of the blockchain to the art world is exactly that it is not a database. For a number of reasons, art gains value from anonymity. Art buyers, for the most part, prefer to preserve their anonymity too. Cracking the blockchain would allow the buyer and seller of the work to remain anonymous without using an intermediary like an auction house, private dealer, gallery or, even, a lawyer.
Are there a lot of private transactions out there? It’s hard to say but anecdotal evidence suggests, yes. Could those transactions be facilitated by having an Artcoin-like protocol available? Yes, very much so. But that protocol isn’t going to be a vanguard case of the applying the blockchain to markets and assets. That’s mostly because of the state of the technology but also because the hidden nature of these transactions make it difficult for a product to emerge.
Could blockchain help to block art market fraud? (Financial Times)