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BLOCKCHAIN COMES TO THE ART MARKETS - ArtMarketGuru

BLOCKCHAIN COMES TO THE ART MARKETS

The Ming dynasty Chinese saying “Water That Is Too Clear Has No Fish” applies to the modern day art market like few other aphorisms. The opacity and secrecy of the sector have mired artists, buyers, sellers, and middlemen in murky business dealings that have not changed since the Medici ruled Florence. Blockchain technology, however, promises to speed transactions, improve record-keeping, reduce transaction costs for buyers and create revenue streams for artists where none had been before.

What is Blockchain?

Blockchains are members-only networks on the internet. Each member of the network has an account that includes an encrypted digital ledger of transactions that is exactly the same as everyone else’s ledger in the network. The currency in the networks is called cryptocoin, which can be cashed out at any time.

Each time a participant wants to transact business with another participant, software built into the network ensures any requirements for the transaction to occur have been met, and funds are sufficient to transact business.

Algorithms in the network, like participants in a Scavenger Hunt, then race to find the encryption key that “unlocks” a transaction “block” in a ledger. Algorithms are small, pre-programmed bits of software with specified objectives.

The “winning” algorithm then records the validated transaction in the new block. Then, the software “chains” the new entry to other validated transactions in the Ledger (hence, the term block-chain). Afterward, the network replicates the updated ledger to all the members. The members then see the updated ledger and the latest cryptocoin balances of each member.

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The Blockchain Art Marketplace Is a Game Changer

Most artists who have attempted to make their entire living off their work have died in penury. Historically, artists only see payment for their work when they’ve sold it. Unlike most media (books, movies, music, etc.), artists do not maintain rights for the use of nor for any transactions involving their art.

The central feature of a Ledger in the Blockchain network enables an artist to see who has her art now and who had it in the past, and for how much it sold during each transaction. As long as the artist has set up a Blockchain “smart contract” at the first sale – citing the percentage she should receive for her work with each transaction – she will find herself remunerated in crypto-coinage for each transaction.

The Berlin-based startup Ascribe has developed blockchain technology to support attribution, licensing and payment for artists of digital art.

Blockchain also serves collectors by ensuring the provenance of art traded through the network is accurate. Verifying the origination and authenticity of a piece with each transaction can be incredibly frustrating and time consuming for all parties involved in a transaction. Blockchain networks, however, maintain all that information in online ledgers.

So, when a blockchain network like Artlery.com has verified that buyer funds are available, art can change hands in a matter of seconds, instead of days or weeks.

The blockchain startup Maecenas promises to bring greater innovation to the art market by offering investors the opportunity to purchase “parts” of a work of art.

Blockchain networks are not financial clearinghouses, though, like banks that perform international transfers of funds. Direct, participant-to-participant (peer-to-peer, in tech-speak) transactions on blockchains mean there are no transaction fees. Potentially, the only fees there may be are applied by the organization that “rents” slots to network participants.

Blockchains Streamline Service Provider Operations

Art insurers and logistics companies can see their reams of paperwork streamlined and compressed with the greater degree of record keeping and transparency blockchain technology offers.

Claims processing in the art market can be notoriously difficult due to the sector’s arcane approaches to administration of its paperwork. Imperfect methods of proof of ownership, authenticity, and provenance of works make filing claims problematic.

A July 17, 2017, Harvard Business Review article entitled, “Blockchain Could Make the Insurance Industry Much More Transparent” explains how the number of middlemen in the sector could be reduced. Trust between insurers and the insured may also increase through blockchain technology because of increased transparency into transactions.

Meanwhile, premiums may actually be reduced as the insurance sector finds greater efficiencies through the use of the new technology.

The logistics sector has similar challenges in the convolution of its value chain. The paperwork involved in moving cargo can involve half the cost of transport. Private and public organizations in the Netherlands have created a consortium to integrate logistics processing end-to-end through blockchain technology. The effort expects to reduce bureaucracy, fraud, and duplication of approvals through the project.

Fish in Blockchain Waters

Blockchain is by far no silver bullet in solving the inefficiencies and inequities of the art market. However, one thing that can be counted on is that as the gradual introduction of blockchain networks “clarify the water” of the sector, more “fish” will be able to find each other to build greater trust through their transactions and greater wealth that benefits all art lovers.