On Monday, Dec. 9th, The Agentic Group organized a discussion on Fine Art and the Blockchain: Provenance, Authentication and Value Creation. Rik Willard, Founder and Managing Director of Agentic Group, moderated a panel including Judith Pearson, President of ARIS Title Insurance Corporation, Jeffrey Smith, Founder of Tradable Rarities Exchange, Li Jun Xian, Partner at Emigrant Bank Fine Art Finance, and Jesse Grushack, a Blockchain Business Analyst at ConsenSys.
An Unregulated and Opaque Market
Last year, activity in the global fine art market reached a record breaking $15.2 billion in total auction turnover [1]. According to Pearson, “the art market is one of the largest unregulated markets in the world, accounting for one-third of the amount of crime just behind drugs and guns. Tens of millions of dollars are transferred with little or no documentation and transparency.” The current system obfuscates tracking a work’s provenance.
Greater Popular Investment in Art
Smith explained that the blockchain can enable an open marketplace of art whereby ownership could be democratized, unlocking public access to investment in a well-performing asset class historically accessible to only very high net-worth individuals. “These asset classes have performed splendidly in terms of risks and returns but have been inaccessible to the masses… imagine an unprecedented amount of capital flowing into art. What is possible is a Second Renaissance.”
Who Determines Value
As an immutable global public ledger, the blockchain can provide radically transparent access to value. Smith further underscored that for value in the art market, “when its becomes a collective agreement, a consensus, it becomes an efficient market.” Li explained how value is determined by experts: “one of core tenets of value is through comparative analysis — a lot of this is made by tastemakers.” Appraisals are very granular for these non-fungible, non-replaceable assets. Ultimately what these tastemakers do “is challenging to replicate from a technological point of view.” Later she explained that “art has its own goal posts… and the blockchain has to not dismantle those systems but rather understand where they can work where systematic interactions happen, rather than brute force them.”
Therefore in practice, a blockchain-based art market would be a challenge to integrate. Smith said it is best suited for creations being made today and going forward — new works of art as opposed to existing. And for this to work, Li said “it must allow access to information, must be repeat sale, unless a big enough market forms where all noise gets taken away and all data comes to a conclusion.”
Conflicts in Provenance
“Art needs to be authenticated. Once on the blockchain and authenticated, then it is useful” said Li, and Pearson concurred authentication is critical: “can you link that work to a confirmed expert who can verify it?” The auction market is private we must rely on whatever information available. For authenticating art itself, Grushack described technology that could track a piece throughout its lifecycle — a global database such as RFID chips in a canvas or special dyes, and the blockchain would provide immutable record of the art. Pearson mentioned the I2M Initiative, which is creating industry-wide standards for identifying faked, forged or stolen art. Pearson said this would offset risk. “In future if each work listed is authenticated with due diligence at the highest level as part of that underwriting process, then these properties would be insured and take part of loss. A certain amount of that risk would be neutralized among all of the investors.”
Moreover artworks with inconsistent claims, whether substantiated or not, can be rejected. Orphan paintings that many experts say is the work of a master or that have forensic evidence can still be rejected by art houses, unable to attain their true value. For Smith, the blockchain can “give people all the evidence so that they can decide for themselves” the value of a work, rather than verification by an elite group.
Motivation
During Q&A an audience member also highlighted that many incumbents benefit from the current asymmetries of the art market. “If the price can be speculated by everyone publicly, this can disintermediate the rent-seekers, and this is the power of the blockchain.
Summary by Jonathan Covey, Eva Shon and Andrew Keys, ConsenSys
[1] https://news.artnet.com/market/record-breaking-152-billion-worth-of-art-was-sold-in-2014-269625
