Blockchain

It is a decade since the conceptual invention of ‘block chain’ technology, which envisaged the creation of a permanent and continuous digital list of records (blocks) of transactions linked (chained) using encoded cryptography to prevent modification of data. Implemented as ‘blockchain technology’, according to the Harvard Business Review it is ‘an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way’.

Blockchain’s security as a distributed ledger system lies in its decentralised management: it is a peer-to-peer digital network that validates by consensus existing and new blocks of data, thereby preventing alteration. In recent years blockchain technology has been developed beyond application to cryptocurrencies, and has been applied to create secure recordings of events for purposes such as personal medical data, identity management, food traceability and voting. The Economist recently opined that blockchain technology ‘lets people who do not know or trust each other build a dependable ledger. This has implications far beyond the crypto currency.’

An obvious possibility for the use of blockchain technology is the documention of unassailable records of provenance of ownership, which raises key question as to whether there are wider and more profound applications of blockchain technology in the art world. This question was the subject of a year-long research project jointly conducted by Oxford University’s Internet Institute and The Alan Turing Institute (the UK’s body for data science and artificial intelligence research). Funded by the Design and Artists Copyright Society (DACS), the resulting independent research report was launched at an event held in the House of Commons on 22 May 2018. The Art Market 2.0: Blockchain and Financialisaton in Visual Arts is based on a wide range of interviews with experts in art and finance and blockchain technology, as well as artists, patrons and academics.

The aim of this research was to offer artists, practitioners, lawmakers, business people and patrons ‘a better understanding of both the present state of the art market and how it could be changed and shaped by blockchain technologies, as well as how the future of blockchain will be shaped by art’. And the report explains and describes ‘the benefits of introducing digital ledger technologies to the UK art market, with the proposed potential for a soaring increase in art market liquidity and value’.

The advantages of this unique and valuable research report are, that ‘while issues of trust and governance are apparent in art markets worldwide, the application of digital ledger technologies would allow for verified transaction records and ownership, transparent and fair prices, easier royalty collection, and confirm art pieces’ provenance and authenticity. Easing the ability to sell quickly and increasing the liquidity is key to unlocking the art market and a distributed ledger-powered art trading platform could provide it. The application of a transparent, accountable and fair art trading system such as a digital ledger would benefit all parties – artists, buyers and sellers’. Clearly this can benefit first/primary art sales transactions, as well as resales in the secondary market.

The report’s evidence and arguments are persuasive and impressive. Matt Hancock, secretary of state at the DCMS said at the launch: ‘We want to unleash the creative power of technology and bring every cultural organisation into the digital age. This report is an important first step to helping the arts market plan for the future and harness the exciting potential of blockchain. As blockchain technology develops, we will work closely with the sector to explore how it can best be used across arts, music and our creative industries.’ Hopefully this positive commitment is long-term and will be sustained in practice by subsequent office-holders in future.

Gilane Tawadros, CEO of DACS, was understandably proud of the research and its outcomes: ‘This report makes clear the opportunities and risks facing artists in an increasingly digital world. Transparency, fairness and good governance are essential to ensuring a thriving and equitable marketplace for both artists, collectors and art market professionals. Our work with the Oxford Internet Institute and The Alan Turing Institute is an important step in understanding how technology can potentially support the aspirations of artists and consolidate the UK’s unique position in the art world.’

The report’s key findings balance a range of new possibilities with considered caveats. For example: blockchain is ‘as important as the internet itself’ and is as seminal an innovation as the internet was in 1993. And blockchain’s application to the art ecosystem is one of the least-discussed topics – for which there is great potential because the art business world is ‘currently plagued by fraud, illicit business, and tax evasion, all products of a fragmented physical market that is hard to follow’.

The research shows that blockchain may not (as some wishfully think) be a magic bullet that ‘in one shot … could ensure the veracity of an art piece, make the price and parties to a sale transparent, and allow oversight to monitor the flow of art assets in and out of different tax jurisdictions’. By its very nature, blockchain technology requires peer-to-peer management by consensus: in other words, it needs all parties to art transactions to agree to data recording – and the key actors in the art business are traditionally resistant to self-regulation, preferring to keep their business transactions confidential and opaque. The report raises this question: ‘the level of transparency provided by blockchain is what artists and regulators want, but will buyers, sellers, and the agents who represent them block such a development?’

A striking finding is that artists interviewed expressed a mixture of hope and fear in equal balance about the prospect of blockchain operating in the art ecosystem. Most artists hoped that adoption of blockchain would help them to ‘better monitor what their art is worth and collect money which is due to them’. Moreover, they hoped blockchain would allow young artists ‘to make a more sustainable living by giving them a better platform through which to sell their art’. The report views such hopes ‘as nothing less than utopian given the art world’s opacity and domination by a thin upper crust to whom the vast bulk of rewards flow’.

A competing artists’ view ‘is as dystopian as the first is utopian’, namely that ‘blockchain will come to be applied to the art market by a single entity which will come to extract even more severe economic rents from artists, leaving them disenfranchised’. Artists envisage such an entity as being ‘a large social media company, which is presumed to have developed a prominent art-focused blockchain to monitor, sell, and track physical and digital artworks’. Such a nightmare scenario could perhaps become a reality if artists continue their uniquely insular and isolated practice aims and objectives, which inhibit their collectively agreeing ‘on what their [united] interests are’.

The report also demonstrates opportunities, incentives, winners, and potential losers from reorganising the world of visual arts around distributed ledgers. It also explains persuasively not only how blockchain technology could transform the art market, but also how ‘art has the potential to transform blockchain’.
This research is a unique and game-changing contribution to understanding the ‘intersection of digital ledger technologies and art’. It deserves serious consideration and is worth a read: https://www.oii.ox.ac.uk/publications/blockchain-arts.pdf

© Henry Lydiate 2018

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This article is from the Artlaw Archive of Henry Lydiate's columns published in Art Monthly since 1976, and may contain out of date material. The article is for information only, and not for the purpose of providing legal advice. Readers should consult a solicitor for legal advice on specific matters. Artists can get free online legal information from Artquest.