The drivers behind the push for blockchain
Blockchain is the solution to the art market’s key issues – lack of transparency, regulation and traceability.
This was the overarching message of the Art & Tech Summit, I attended on 17 July 2018. It presented a desire for the art market to have real transactional transparency and validate authenticity. That’s a view that we share at OMNIA Asset Solutions. The summit articulated the capability for an artwork to hold a digital ledger of metadata, through blockchain technology, to certify provenance and trace ownership. A solution to the markets inefficiencies.
Over the past 18 months numerous articles have circulated about the hype of blockchain and cryptocurrency, with headlines ranging from ‘Can blockchain clean up the art market?,’ to ‘Can blockchain eliminate the myth of the starving artist?’ The Art & Tech Summit brought market pioneers and leaders within the field of blockchain and the art market together. There they shared their thoughts on whether the art market is shifting towards a growing consensus that the current trading model is failing and if blockchain is the solution.
WHAT IS BLOCKCHAIN TECHNOLOGY AND HOW CAN IT BE APPLIED TO THE ART MARKET?
Just in case there are any queries over blockchain technology, otherwise known as distributed ledger technologies (DLT), it is a concept driving organisations and individuals to figure out a digital future. Blockchain records and validates digital transactions with permanence on a secure database. And is widely perceived as an emerging technology which has the promise to deliver the most significant impact. The question is how this can be applied, more specifically for physical objects, and embraced by the art market?
During the course of the day highly regarded speakers echoed arguments presented in ‘The Art Market 2.0’ report, produced by the University of Oxford, The Alan Turning Institute and DACS, a not-for-profit visual artists rights management organisation. It’s a report presenting how the UK could set the standard for the adoption of digital art technologies. It outlines how the infrastructure, offered by blockchain, could enable a new trading standard and support further development of software for example, for the purposes of authentication, provenance tracking and tax collection in relation to art transactions.
The fact blockchain technology is still very much in development, a sentiment shared by many speakers and the audience in attendance, is important to think about when weighing up the limiting factors highlighted at the summit. Aton Ruddenklau, of KPMG, held the position of blockchain being part of the solution, but not the solution. Meaning the application of blockchain requires partner technologies to combat the processing issue of authenticity verification. Verisart recently faced criticism for failing to prevent incorrect data bring recorded on their platform and was an example of a member of the public’s demonstration of the technologies limitations. The ‘Mona Lisa’ was logged on Verisart’s platform by Leonardo Da Vinci, an obvious fraudulent act, highlighting the weaknesses of blockchain and the public’s lack of confidence.
What course of action can be taken? The entry cannot be undone and a genuine question is, what legal precedent could Versiart take? Legislation is in development and there is no unified governance on blockchain to date. Financial services, privacy regulators and data regulators are unified with concern for the adoption of blockchain technologies and are looking at the global implications. Five key issues were identified in the tech talk ‘Blockchain – Legal Fact and Fiction,’ presented by Jonathon Kewley of Clifford Chance, data privacy, cyber security, artificial intelligence, shadow infrastructure and anti-trust. The fact the concept of blockchain is not GRPD compliant, for all transactions are permanently recorded, was a factor I hadn’t yet pieced together to taken into consideration. Kewely’s departing message, “Tech + Law = BFF,” was a cautionary warning very much heard and acknowledged by the room.
Left to right. Jason Bailey, of Artnome, Nanne Dekking, of Artory, Jess Houlgrave, of Codex Protocol, and Ram Nadella, of Paddle 8.
The promise of blockchain was likened to the Internet, in that it enables development of numerous products on which to be built. Private versus public and centralised versus decentralised platforms, were and are some of the key debates for blockchain platforms. The panelists platforms demonstrated the diversification in approach to blockchain, with some operating on the Ethereum blockchain and other’s having built their own. At its core the blockchain concept is for a distributed decentralised peer-to-peer data-network without a central authority. It is the second component of the core principle, for unalterable tracible records of transactions, where we see shifts in adoption of the technology.
Fundamental challenges for blockchain, of verifying authenticity and how to engage collectors who embrace anonymity, were discussed by Jason Bailey, of Artnome, Nanne Dekking, of Artory, Jess Houlgrave, of Codex Protocol, and Ram Nadella, of Paddle 8. It was observed that the format of many sales involves various intermediaries and offshore vehicles operating anonymously. Whilst online sales platforms, such as Paddle 8 and Artsy, introduced E-commerce to the market, the transactions remained anonymised. The online market altered the traditional notion of physical engagement with the artist, dealer or work, moving the market towards virtual engagement but the transaction model remained old-school. A crucial question for art tech developers is how to alter perceptions centred on anonymised transactions? The key take-away for me, of the panel discussion, was how companies were thinking about how to use it by the adoption of certain parts of blockchain.
BLOCKCHAIN POTENTIAL IN THE ART MARKET – IS IT THE ANSWER?
The art market is plagued by fraud, forgeries, illicit business and tax evasion on an international scale, key arguments in demonstrating the need for a radically new model for standardised trade. For proponents of the technology, blockchain is seen as having the potential to introduce smart contracts changing method of sale, record of provenance and transparency of ownership, to solve problems surrounding authentication of art and its opaque money trail. Opponents take the position that a publicly distributed ledger, an immutable and censorship-resistant database of ownership goes against the entrenched trading model which shrouds transactions in much valued anonymity. Do I think blockchain is the answer? I think it is too soon to tell.
For the art finance market, I do embrace the idea of blockchain, but acknowledge that the product has not yet proven itself. Until there are ironclad solutions to verification of authenticity and a consensus of market backing, for me, only then will it hold value. What I did find promising at the Art & Tech summit was the enthusiasm of tech start-ups working through solutions for verification purposes to solve the acknowledged limitations of blockchain as perceived today.
Amelia Hunton, MD of OMNIA Assets Solutions, at Art & Tech Summit 2018