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The Utility of Blockchain for the Fine Art Industry

An original Picasso painting typically sells for millions of dollars. Can’t afford one? Find out how blockchain is changing that.

Gemini-Category Cryptocurrencies 3 (2)

Summary

Fine art has been traded and speculated upon since the early medieval period — far longer than stocks or bonds — and is considered a legitimate, investable asset that falls within the broad category of “alternatives” in legacy financial services. Valued at approximately $65 billion globally, the fine art industry was an early adopter of blockchain technology to address issues of transparency, provenance, and transactions. With the onset of non-fungible tokens (NFTs) and cryptoart, we are witnessing widespread adoption of decentralized tech throughout the legacy art world, while disruptive new art formats and communities are also emerging.

High Art Embraces Blockchain Fine Art 

Although the first blockchain technology to reach the mainstream was Bitcoin, which launched in 2009, it wasn’t until the development of Ethereum-based smart contracts and decentralized applications (dApps) in 2015 that blockchain found further utility beyond that of a currency. While the breakthrough growth of dApps and digital assets that has taken place since then is evident in sectors ranging from finance to supply chain, an area of particular interest from even the earliest phases of blockchain has been the art world.

In fact, just three years after the launch of Ethereum, two of the world’s leading auction houses —  Christie’s and Sotheby’s — leaped into blockchain headfirst. These venerable institutions — founded in 1766 and 1744 respectively — are frequented by the world’s wealthiest art investors, and are renowned for their blue-chip collections of fine art, antiques, and jewelry from every era in history and all parts of the globe. What makes their early adoption of blockchain remarkable is that Christie's and Sotheby’s have long borne a reputation for staid conservatism. Far from conservative, however, theirs was a prescient move and a solid endorsement for the technology.

The First Fine Art Registered on Blockchain

Prior to implementation of blockchain technology, registering, reselling, and transferring ownership of artworks was an entirely paper process. Every museum in the world, all of the auction houses, art galleries, and archives conducted provenance manually, and each used different procedures. This made for lengthy, expensive, and error-prone processes, which the auction houses were keen to move to blockchain.

In 2018, Christie’s New York became the first auction house to register a sale on a blockchain platform with its $318-million sale of the Barney A. Ebsworth collection. One of most coveted collections of 20th century American art in the world, it featured work by landmark American artists Edward Hopper and Georgia O’Keeffe, among others. The live auction took place in person, online, and over the phone — but all of its transactions were recorded entirely via blockchain.

Christie’s tech partner in the sale was Artory, a blockchain-powered fine art registry, which managed the registration process for each of the collection’s more than 85 artworks. Blockchain art provenance technology was utilized by Artory and Christie’s to digitally establish the chain of custody and authenticity of works sold, while creating an immutable record of the transaction through blockchain-based verifiable cryptography.

The benefits of registering art on blockchain are multifarious. Blockchain technology as offered by various platforms and iterations can be used to ensure privacy or anonymity between buyers, sellers, the public, and other industry actors. Blockchain art markets can also create transparency and fairness in the bidding and transfer phases, and the ability to audit transactions publicly. Additionally, the immutable nature of blockchains — the publicly held data that they store cannot be altered by any party — can be used to resolve disputes about ownership or damages.

The utility of blockchain extends through the art world far beyond the auction process, and includes:

  • Significantly diminishing forgeries that have always plagued the industry

  • Trading forms of digital art that previously were too hard to exchange

  • Driving digital art sales through verifiable digital scarcity

  • Democratizing access to fine art investment

Now, there are upward of 50 blockchain-specific applications for the art world specifically, and auction houses around the globe are racing to incorporate blockchain into their processes. Further, a whole new sector of digital art has sprung up in the form of non-fungible tokens (NFTs), which are unique, verifiable, and transferable digital tokens that are art themselves, or otherwise represent portions of a piece of physical art.

The Tokenization of Art and NFT Marketplaces

The first piece of fine art ever to be tokenized with blockchain technology was an Andy Warhol painting titled “14 Small Electric Chairs,” valued at $5.6 million. In 2018, a crypto-art-friendly gallery in the UK and its tech partner, Maecenas, auctioned 31% of the Warhol painting, raising $1.7 million in the sale. The blockchain art auction was run entirely on Ethereum using smart contract technology. Buyers were able to purchase fractions of the Warhol painting with either bitcoin (BTC), ether (ETH), or ART coins.

The process of selling a fraction of a coveted work of art is made possible by tokenization. Via tokenization, highly sensitive data contained in a digital file is transformed on the Ethereum blockchain into thousands of unique digital tokens by adding a unique identifier and indelible signature to the data file. This process creates a NFT, which retains all essential data regarding provenance, ownership rights, and access to a specific work. Essentially, this process fragments a painting’s ownership. Buyers can purchase “shares” of a painting as they would purchase shares of a business by buying its stock.

Since the Warhol sale in 2018, NFT art sales and NFT marketplaces have exploded in popularity. Now, some of the most notable artists in the world across the arts, music, and entertainment sectors are creating NFTs and utilizing blockchain technology for a wide and emerging variety of purposes.

Fine art as investment has typically been reserved for an elite few for hundreds, perhaps thousands of years. Blockchain and NFTs are rapidly changing this paradigm to democratize access to one of the most exclusive industries in the world.

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