Cryptocurrency in the art market is in its infancy, but its provenance-marking capabilities are exceptional.
Since digital currencies are not backed by the government, each country has a different standard for them.
In 2017-18, the term “cryptocurrency" reverberated in the international art scene. Several firsts associated with this digital currency, which uses cryptography for security, emerged. In April 2017, Crypto Art Gallery in Manchester organized an event for blockchain- and cryptocurrency-themed works (titles included “Crypto Socialism" and “Bitcoin Supper"). A few months later, Dadiani Fine Art in London’s Cork Street became the first in the UK to accept cryptocurrency as a payment method. This exploration of the virtual method of exchange carried into 2018 with the first Rare Digital Art Festival. Held in New York, it focused on the use of blockchain and cryptocurrency in the art market.
Around the same time, at Art Stage, Singapore—one of the major contemporary art fairs in South East Asia—four paintings were paid for with cryptocurrency. These included a major work, Fishing Catch Games, by a young Indonesian artist, Naufal Abshar, represented by Singapore-based Art Porters Gallery. Today, one can find analysts hard at work, churning out reports about the likely impact of bitcoin, ethereum, dash, litecoin and other forms of digital monies on the art market in the coming years.
So how does a cryptocurrency work in the context of the art market? To understand that, one has to first understand the blockchain technology on which it is based. Imagine that all the information about a particular artwork is stored in a series of data blocks, maintained on an open network that any network can join. It is a decentralized ledger, but one whose security can’t be corrupted. So, when you pay with digital currency, that too gets added to the data blocks. Once a collector purchases a work, the gallery gives him or her a public key—a string of words and numbers—and this is used to transfer money from one digital wallet account to another, and without middlemen. “My wallet is linked to my personal bank so I can then convert those bitcoins into pounds, euros or dollars," gallerist Eleesa Dadiani said in a 2017 interview to the BBC.
Several applications of blockchain and cryptocurrency make them interesting for the art market—one of the most crucial ones is related to transparency and provenance. “Blockchain ensures that all data about a piece of art is always available. There are no questions around authenticity, and even if the certificate of authentication is lost there is still proof of transaction for insurance purposes," says Elio D’Anna, founder, The House of Fine Art, based in London, Mykonos and Los Angeles, which put up its entire collection for sale against cryptocurrency in October. Christie’s too conducted a pilot project, with Artory (a blockchain-based art work registry), around a high-profile collection of American art—the Ebsworth Collection. Held in November, this was the first major evening auction recorded on a blockchain registry. This has become the starting point for blockchain in the auction market. By creating a secure digital registry, the owner has a more efficient means of managing an eventual loan, exhibition or resale of the work.
According to Anders Petterson, founder and managing director of the London-based art market analysis firm ArtTactic, another interesting aspect is the democratization of art investment through “fractional ownership", when a single art work is divided into tradable “shares". A significant case in this context again emerges from Dadiani Fine Art, which sold 49% of Andy Warhol’s 14 Small Electric Chairs to various buyers in an auction powered by Maecenas, an art investment, blockchain-based platform that seeks to democratize access to fine art. The buyers could use bitcoin, etheruem or ART tokens to purchase a share in the work, and the purchase was then recorded on blockchain. An article on the online publishing platform Medium posted by Art Acacia, a San Francisco-based art gallery and advisory, sheds more insight on this sale: “Though the actual artwork still remains in the hands of the original owner (who still owns 51%), buyers of a share get a digital certificate that proves their partial ownership, that they can then resell on the secondary market, or use as collateral for a loan."
The technology has given rise to some new actors in the art market. The Hiscox “Online Art Trade Report 2018" lists some of the blockchain-based art start-up companies and initiatives, such as ArtByte, a cryptocurrency which allows collectors to buy works directly from artists, and Artory, which builds a blockchain database of artwork information. Then there is Maecenas, which issues cryptographic certificates against artworks.
These platforms, many believe, are giving rise to a younger generation of collectors. “Perhaps, going to auctions and galleries puts a certain type of investor off. But with blockchain, online purchases are possible for those immersed in the digital world. Younger investors are now looking at art as an investment opportunity," says D’Anna of The House of Fine Art.
Yet, experts such as Petterson say its application to the art market is still in its infancy. “Art is a challenging domain, with a wide number of investors steering clear on account of being unable to understand how it functions. Numerous attempts have been made in the past to simplify it and widen its patron base. Crypto is likewise being used to decipher the market’s movement and to make it more accessible to the investor community," says Arvind Vijaymohan, founder and CEO of art research and advisory firm, Artery India.
In India, one of the biggest deterrents is the fact that it’s still unregulated. Since digital currencies are not backed by the government, each country has a different standard for them. While the Indian government has issued warnings around the use of cryptocurrencies, it does not currently regulate exchanges. According to a guide to global cryptocurrency regulation, published on the CNBC website in March last year, India is taking steps to make cryptocurrencies illegal to use within its payment systems and is looking to appoint a regulator to oversee exchanges. According to experts, the take-off will be slow here, and will most likely be thwarted by government regulations.
Gallerists and collectors are watching the policy frameworks and technology evolution closely. “We’ll have to wait and see if cryptocurrency becomes legal tender. But other applications of blockchain need to be executed. Its provenance-building capabilities are exceptional," says Aparajita Jain of Nature Morte gallery.
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