Posted: September 27, 2018 -
Sébastien Genco joined Deloitte Luxembourg in 2006, working on projects related to Technology, Strategy and Enterprise Applications for the banking and insurance industries. As a technology enthusiast, Sébastien is also leading D.Lab, a team that explores new technologies and finds ways to apply them to relevant industries. In recent years, D.Lab has developed several POCs using blockchain technology, one being ArtTracktive, with the aim to offer answers surrounding traceability within the art market.
Sébastien Genco spoke at Christie’s Art + Tech Summit, addressing ‘Why the Art World Wasn’t Ready for blockchain’. He discussed the potential as well as the concerns regarding blockchain and the art market
WATCH : ‘Why the Art World Wasn’t Ready for blockchain’
The art market has become increasingly financialized in recent years and is viewed as a valuable asset class in its own right. When did Deloitte begin its involvement with the art industry and what developments have you seen?
Deloitte’s involvement began approximately 10 years ago with the first edition of the Art & Finance conference. Initially planned as a one-time dealing in the concept of “Art as an Asset”, it proved to be a great success, subsequently we decided to renew the experience. Indeed, with a strong focus on wealth management, the Luxembourgish market already has the infrastructure to support the concept of “Art as an Asset” and therefore to seize the opportunity to explore this path further. Today, Deloitte’s Art & Finance initiative is composed of an annual conference (to be held on 26 October in Luxembourg this year), a market report published every 18 months, and a large portfolio of services.
In terms of development, like many other industries before, we observed a shift toward the globalization and digitization of the art market. This move is accelerating and is now facing several challenges such as traceability or trust.
Talk us through ArtTracktive and what problems it aims to solve?
ArtTracktive is a Proof of Concept showing how blockchain technology can solve key challenges faced by the art industry, namely the traceability of information, the trust of counterparties, and the transparency of transactions.
Today the traceability of artwork is mostly paper-based, non-consistent, and time costly. Actually, buying or borrowing a piece of art is a complex process involving numerous and various actors who do not know or trust each other (e.g. the artist who created the art piece, a buyer or borrower, a certification agency, a shipping company, customs, the gallery where the art piece is exposed, etc.).
ArtTracktive provides a shared ledger, the blockchain, registering all events related to the journey of the artwork. Parties interact with this ledger through a web application in order to record their actions: from the introduction of the artwork by the artist, its certification, the notice of sell/lend, its shipping, the customs clearing, etc. Parties can also consult this shared ledger and establish whether the artwork is certified, who certified it, where it is located, and more.
How exactly does the technology trace the journey of a piece of art?
The underlying concept is simple: we use the immutable and open aspects of blockchain to bring trust and transparency. To explain how this is possible, let me enter into some technical details by describing two main concepts of a blockchain: the smart contract and the consensus mechanism. A smart contract can be seen as the digital representation of a contract between two or more parties. It takes the form of computer codes that execute automatically when all preconditions are met. The execution of a smart contract results in the creation of a transaction, which then needs to be validated – this is called the consensus mechanism. Unlike classical contracts, the validation is not done by a single third-party, it is completed by all participants within the blockchain network, all of whom need to agree together or find a consensus. The consensus is reached when the majority of participants have accepted the transaction by applying cryptography mechanisms to control that it respects the terms of the smart contracts.
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What are the challenges of linking a work of art to the blockchain today?
Actually, blockchain technology is only part of the solution. Several challenges remain, such as linking the real world (i.e. the work of art) to the digital world (i.e. the blockchain). Here the main question is how to make sure that the work of art referenced within the blockchain is the one that the artist has engaged to sell? Moving from the artist’s workshop to the buyer’s house, the piece of art will transit through many intermediaries, with a high risk of fraud or damage. Several solutions are foreseen to solve this challenge. One of them consists of adding a tiny chip within the artwork. This chip would contain identification data and would not be removable except by breaking the artwork itself. However, this solution might not be applicable in all cases, for example it is difficult to add a chip into an old and fragile painting without damaging it. This challenge is commanding a lot of focus at the moment.
How do you hope ArtTracktive will progress in the coming years?
We developed ArtTracktive approximately two years ago, and it was one of the very first concrete implementations of the blockchain technology. It quickly received a warm welcome from technology enthusiasts, but it only recently popped up on the radar of art experts. Now that the interest is growing, we have more and more contacts to implement ArtTractive as a market solution for a specific segment, in particular for the luxury goods industry, which suffers from increasing fraud and forgery. We expect to find partners with who we will transform ArtTracktive into a live product and deploy it at a large scale.
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Are there any blockchain based companies that you are watching with particular interest at the moment?
The blockchain ecosystem is vast and growing quickly with new startups appearing every day. In particular, there has been a rush in early 2018 thanks to Initial Coin Offering, a funding process based on cryptocurrencies, even if there is a clear slow down since a few months. We have contacts with many companies that allow us to keep a global view of how the market evolves. Similarly to the internet rush in the 90s, not everything is relevant, but when we find a company with an interesting concept, we see how we can collaborate through our innovation labs. We recently had an interesting exchange with companies providing solutions to the challenge of linking a physical work of art with its digital representation within the blockchain.
The blockchain industry is continuously growing across a wide range of sectors, however, the art industry is shown as growing by only five percent. Why do you think there is a slower progression?
With experience working for other industries, I do not see the art sector at the forefront when it comes to embracing new technology. Regarding blockchain, there are multiple reasons, the main being the misunderstanding and lack of confidence in the technology. Another reason might also be found in the fact that the art industry is a complex network with many actors. When you read that blockchain will remove intermediaries, I understand that some might be reluctant to adopt it.
Why do you think people still find it hard to trust blockchain? Do you think this can be overcome?
Blockchain is supposed to bring trust through the technology. However, it is hard to trust something that is not entirely understood or fully regulated more than in a classic human-based process. Still today, many people do not differentiate between cryptocurrencies, such as Bitcoin, and the underlying technology: blockchain. Cryptocurrencies have had bad press over the last months: accusation of market manipulation, numerous fraud, lack of regulation, among other things. Even if only part of the cryptocurrency market is concerned, it is enough to affect its reputation, and consequently the one of blockchain technology. However, things are changing. Decision makers are increasingly educated about blockchain, as are the public, even if the objective is not that everyone understands in details how the technology works. What will also be important is the demonstration of the technology’s usefulness and relevancy for solving concrete challenges.
READ MORE: SPECULATION AND PREVIOUS INITIATIVES INSSUING SHARES IN ART
Recent reports have shown an increase in millennials purchasing art. Do you think this can be attributed to the surge in new online platforms and technologies like blockchain improving transparency?
This is likely to be one of the reasons. Millennials are technology enthusiasts, keen to test new applications. They are also curious about art, and therefore key customers for online platforms that use innovative ways to attract them.
Despite the title of your talk at the Christie’s Art + Tech Summit you do acknowledge the potential blockchain has to offer to the art industry. Do you think blockchain could be the answer like it has been for other industries?
I strongly believe so. It is however important to keep in mind that blockchain is not something you can plug with the preconception that it will magically solve all your issues. Similarly to the internet, what will make it a success is the creation of usable applications solving concrete problems.
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