Blockchain-Art: Definition and Understanding of a Growing Relationship
By Marie Chatel
While at a dinner, in the office, reading the news or binge-watching TV, there’s little chance you haven’t heard about this new hype: blockchain. But despite being part of our everyday vocabulary, the technology is still hard to pinpoint, not to mention its many applications to the art industry, a system which is known to be complicated in itself. If you’ve wanted to dust off from all the sayings and partial knowledge, here’s a chance to understand the technology and what lies at the core of its relationship to art.
The first thing to acknowledge is that blockchain does not equal cryptocurrency. It is instead the technology that virtual money relies on to keep track of transactions, and is thus not about what we trade but how we trade. The confusion initiates from the launch of Bitcoin in 2007 as it was the first concrete application of a blockchain. Blockchain sees many fields of application besides finance, with a spectrum ranging from agriculture, health, and public administration to — of course — art.
Blockchain works like bookkeeping but with a computer, creating de facto a digital database. In what is called a “smart contract,” people define a protocol which is held within the blockchain with many sorts of data, including but not limited to the record of transactions. Each time an action or transaction takes place, miners approve of it and create a block adding to a chain of other blocks (literally like breeding a necklace). This process results in a “block”-“chain,” a name to interpret literally. Another good memo of the concept is blockchain’s alternative name, DLT or Distributed Ledger Technology.
Ledger: got it! Technology: obviously. But what about “distributed”? The word refers to the system’s central second characteristic: its structure. There is no central body but a whole network of entities responsible for keeping the information. Once a block adds to the chain, it is fed to millions of computers simultaneously. Although a hacker could access data from one of the many recipients and modify data at this specific location, this type of corruption would only remain local and would leave an un-erasable trail behind, making it utterly inefficient when it comes to modifying the overall encrypted code. This way the blockchain’s fragmented nature ensures that data cannot be deleted, revised or tampered, providing with a secure technology for transferring digital information. This idea of transparency furthers with the provision of private or public access to blockchain information (reading only), but this verification process is limited to coders with strong IT abilities, so the tracking of transactions works much like a third party for now.
Two criteria advance a global use of blockchain and its transforming of our entire economic system: liquidity and transparency. For this article, we will focus on general applications to the art market only.
Liquidity and the democratization of financial products
Blockchain allows for the commodifications of goods through what is called “distributed ownership.” Much like owning shares of a company, one could hold portions of an artwork. With works evaluated in millions and a steady worth, masterpieces present a safe investment which explains investors incentive to purchase in this commodity. Until the introduction of the blockchain, high prices meant these money placements addressed a certain elite only. Distributing fractions of ownership allows for fairer prices, accessibility, and more liquidity through the trades of financial titles.
Conspicuously, this approach not only democratizes the access to financial products but it also offers the opportunity to build portfolios of artworks which — much like funds — helps to manage risks and volatility — something especially valuable with regards to contemporary art (see Deloitte’s Art & Finance Report). It is also important to note that a growing part of the population shows interest for brokers platforms and crowdfunding with more concerns for managing their wealth with one or different “purposes” (e.g., savings, social, environmental) in mind. This principle of “financialization” must thus be understood as a wide-ranging phenomenon.
Transparency, authenticity, and provenance
Another field of application is for digital art registries. In 2014, Geneva’s Fine Art Experts Institute (FAEI) reported that over 50% of the artworks they examined were either forged or misattributed — a telling fact knowing the importance of the city’s free port. Verifying an artwork’s authenticity and provenance has been one of the most challenging issues of the art market, as well as price speculation due to the number of intermediaries on the secondary market. Blockchain disputes the market’s opacity and fraudulent behaviors, as all transactions are recorded and secured through cryptography.
Although the system’s transparency could reinforce buyers’ trust and the resulting number of purchases, good verification is essential. Once data enters the blockchain, it cannot be erased. However, attributions are often questioned — Leonardo Da Vinci’s Salvador Mundi makes the case, works that are looted change owners a posteriori, and the provenance of a piece is intricate to determine, especially with non-living artists. In such cases, relying on experts for vetting stands as a necessary but partial solution, but the problem of linking artifacts to blockchain-secured information is real. For now, the technology as we know it might be better suited to the primary market, or to living artists at least.
This article will be followed by a later publication describing DANAE’s approach to the blockchain.
