Thursday, January 11, 2018

Could the Blockchain and cryptocurrencies really revolutionise the art market?

How might the Blockchain have affected the
 sale of Gauguin's When will you marry?
We used to have a saying at Invaluable back in the mid- to late-90s that America was about two years ahead of the UK in terms of technological take-up. This was an important consideration for what was then a UK-based business seeking to convert a historically conservative art market to the importance of price data and other digital innovations. There’s no question that Artnet, Artprice, and Invaluable all went on to have (and continue to have) a profound impact on the art market, bringing greater transparency and helping to democratise a somewhat elitist commercial sector.

One outcome of those early innovations was the interest they sparked among the finance and investment communities attracted by what seemed like a relatively unregulated market ripe for exploitation. Almost twenty years later those communities have come to exert a powerful impact on art, helping to transform it from a niche ‘commodity’ into an investable ‘asset class’. 

Now we are witnessing the intimations of an arguably even deeper transformation with the dizzying acceleration of interest in the Blockchain and underlying cryptocurrencies such as Bitcoin, Ethereum, and Ripple, to name just a few. The more radical apostles of this new economic creed, such as Roger Ver, peer into the not too distant future and maintain that cryptocurrencies have the potential to take the money-supply out of the reach of governments, annulling their power to wage war, abuse our tax revenues and exert malign forms of social control. 

You are free to dismiss these predictions and their rapidly proliferating adherents as just another extraordinary popular delusion, but this week it was reported that China and South Korea have moved to outlaw Bitcoin trading, ostensibly on the grounds of its high volatility and excessive energy consumption (bitcoins are ‘mined’ through computer power). Some have even drawn a comparison between cryptocurrencies and the tulip bulb mania that spread throughout Golden Age Holland during the 1630s. But the tulip bubble never threatened to undermine the power of central government or revolutionise the global economy.

One zone of international commerce energising the new Blockchain evangelists is the art market. Here it is predicted that the ‘distributed ledger’ theory that underpins the Blockchain will usher in greater transparency and effect a major and positive change to provenance, authentication, and other aspects of art market business. 

It is one thing to profess an unbending faith in the transformative power of technological innovation, but it’s also important to be aware that some sectors of the art market are genetically programmed to resist attempts at greater transparency. 

There’s no question that some of the ‘fintech’ incursions into the art market have been good for speculators, but they have arguably also had a detrimental effect on art, nudging it into the regimes of finance, speculation (and increasingly money-laundering) at the expense of aesthetics, connoisseurship and art’s social and cultural value.

The recent case of the Salvator Mundi (right) is perhaps the most glaring example of this, the $450 million outcome being apparently a product of secretive back-office financial structuring, with aesthetic quality and authenticity marginalised as largely irrelevant considerations.  

The Blockchain promises to open up provenance and other details of an object’s transaction history to everyone on the network through the distributed ledger, whose ‘blocks’ of data cannot be adjusted or changed after the fact. This sounds utopian unless you are one of those who values the art market precisely for the confidentiality it brings to art collecting (and indeed to art investment). 

A couple of years ago, Gauguin’s masterpiece Nafea faa ipoipo (When Will You Marry) (above left) was sold by the Swiss businessman and collector Rudolf Staechelin to the Al-Thani family of Qatar for a reported $300 million. That price is now being questioned and may have been considerably less, the important point being that it was a private treaty transaction, the details and beneficiaries of which are confidential. So too was the sale of Cézanne’s Card Players for a reported $250 million, and so too would have been the original sale of the Salvator Mundi to Russian oligarch Dmitri Rybolovlev had Mr Rybolovlev not discovered quite by chance the allegedly excessive mark-up levied by the seller, the Swiss freeport magnate Yves Bouvier. To what extent might any of these cloak and dagger transactions have been changed by the introduction of Blockchain technology? I for one, can’t see how any of the players involved would have wanted any such exposure. Since the internet arrived, the top echelons of the art market have become more private and opaque, not less.

It seems indisputable that the Blockchain and cryptocurrencies are already being used effectively by purveyors of various forms of relatively low-priced digital art. But what impact will these innovations have on a market in which privacy and confidentiality have become indispensable to the world’s wealthy who are seeking to buy or sell their masterpieces? 

All buyers, and indeed sellers, of high-ticket works of art should be accessing professional provenance researchers to minimise risk. The findings of that research ideally should then be installed in the existing appropriate catalogue raisonné, whether it be digitised or not. But exposing the underlying transactions to universal scrutiny through the Blockchain? 

Critics of the Bitcoin phenomenon dismiss it as nothing more than Marxist smoke and mirrors or the madness of crowds. The Nobel Prize winner Alfred Stiglitz goes further, recommending that Bitcoin and other cryptocurrencies be outlawed. Is that not just another form of social control? Surely the organic logic of economics states that if something is inherently flawed — as ‘tulipomania’ proved to be — it will not survive. 

There’ll always be winners and losers. Only time will tell.  

Tom Flynn

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