Blockchain and its Effect on the Art MarketAnchin Private Client CenterMay 28, 2021
It’s difficult to find an aspect of life that remains unaffected by technology. While many people may associate art collections with paintings and sculptures, art is a space where technology continues to make its mark.
This article, the first in a series, will discuss some of those impacts, specifically regarding blockchain technology as a possible solution for the problems of provenance and forgery.
To begin, let’s define a few important terms:
- Provenance (as it related to art): Documentation of the history of a work of art, including details such as the work's creator, ownership history, physical locations and conservation and repair records.
- Blockchain: An impossible-to-change digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the peer-to-peer network.
- Non-fungible token (NFT): A unit of data stored on a blockchain that certifies a digital asset to be unique and therefore not interchangeable. It offers a permanent record of ownership that can be connected to any asset.
So what is the connection between these terms and issues of the art world?
The problem of provenance is a tale as old as time in art. To illustrate with examples, let’s say a collector owns a particular work of art, having gone through all of the reasonable steps at the time of purchase, such as obtaining an appraisal and conducting due diligence related to provenance. Suppose an individual recalls that piece of art in their own home or collection many years earlier. (The best example of this would be art stolen in wartime.) The individual could question the provenance of the piece and assert that their family should attempt to assert ownership of it. This could turn into a situation where a piece of artwork is reclaimed, creating a costly loss for the purchaser who was unaware that it was stolen.
Another big issue in art is forgery. It is not uncommon for artworks to be discovered to be forged, or for provenance documentation, which has traditionally been a paper trail, to have been doctored or incomplete. Spending large amounts for fraudulent artworks is another very unfortunate loss.
Enter blockchain technology and non-fungible tokens.
Because NFTs can be connected to any type of asset, they can be used as a method of chronicling the history of newly-produced artworks. As art is sold and resold, it can serve as unalterable proof of provenance. NFT terms can be customized, and might specify whether a collector has whole or partial ownership, or whether there are any restrictions or rights, such as to reproduce or alter it.
While this system cannot solve these issues for older art, the digital ledger, once implemented, can give an accessible, cost-effective history of some of the specifics related to that art and become a hub of what is known about a particular piece.
As with any other asset, there is always the possibility of theft. However, with the use of blockchain technology, a stolen asset could be flagged in such a way that it becomes unmarketable, should it ever be offered for sale in the future.
As with any change, blockchain technology is being met with a mixture of embrace and uncertainty. While some look at the transparent nature of ownership as a positive, others feel that their anonymity is compromised, as sale information becomes public.
While blockchain technology appears to be a promising solution that will have future benefits for artists, collectors, galleries and auction houses, it is not without its flaws.
To further consider blockchain technology or NFTs as an asset ledger, contact your Anchin Relationship Partner or Gary Castle and Michael Belfer, members of Anchin’s Art Specialty Group. Please stay tuned for more alerts in our digital art series.