The Bitcoin bubble appears to have popped finally but blockchain cryptography technology is just getting started. A 2017 article in the Harvard Business Review (January-February 2017) describes it thus: “The technology at the heart of bitcoin and other virtual currencies, blockchain is an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.” These words contain oceans.
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*this article originally appeared in Ran Dian 6, Spring 2018
Art has never been a real commodity like say, gold, wool, coffee or frozen orange juice. The art market is vastly bigger than it was 20 or 50 years ago but 2017’s The Art Market Report, issued by The European Fine Art Fair (TEFAF), estimated that it’s total size was about USD 40 billion. Compare that with the market for coffee, which is over USD 100 billion. But size isn’t everything. The art market has at least three big problems: transparency convertibility and stability.
The art market is anything but transparent. The closest we get to transparency is auctions but because any one artist has a limited supply of available works, even this can be manipulated. For instance, if you already own two Modiglianis and have the resources, up to a point, it actually makes sense to bid up the price on a third (of course, this is just wild speculation—I’m sure it never happens). Convertibility is a problem because, unless we are talking Warhol, most artworks by one artist are different (size, quality, style, medium), let alone differences between artists and artworks generally. Finally, given the problems of transparency and convertibility, and add in the whim of fashion, the art market is not particularly stable. A painting sold privately for USD 20 million in 2016 may suddenly prove less valuable when it comes to auction in 2018.
Blockchain will not solve all these problems but it may have an extraordinary impact on transparency. Blockchain technology is currently being adapted to identifying art works. There are numerous ways to do this but put simply, a high-resolution scan of an artwork can be encrypted within a dedicated blockchain, effectively creating a digital fingerprint. When the blockchain is then linked to transaction and location data, suddenly the basis upon which an individual art work is valued and tracked becomes much more transparent and therefore stable. Of course, this doesn’t account for potential alternative blockchains, though no doubt a standard system will emerge through market competition and trial and error. And it doesn’t account for works outside the system, though again, as a standard protocol and system emerges, more people will be encouraged to join it.
In many ways greater transparency will help the art market to become more liquid and encourage more people—artist, collectors, and galleries—to participate. What it means for young emerging artists and the galleries who support them, is much less clear. But it is happening, so start adapting now.
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