10 June 2018

Blockchain and the Art market

Yet another 'blockchain is the answer' report, this time as an answer to problems in the high end art market.

The Art Market 2.0: Blockchain and Financialisation in Visual Arts report  by Duncan MacDonald-Korth, Vili Lehdonvirta and Eric T. Meyer (University of Oxford and The Alan Turing Institute) comments
This report examines the potential impacts of blockchain technologies on the art market. Using a primarily interview-based approach with sector experts, the report analyses how and in what specific areas blockchain technologies could be used to change the composition of the art market, including the method of sale, record of provenance, and transparency of ownership. It also considers how blockchain technologies may change the balance of economic power in the art market, integrate art into the financial sector, and whether the art industry is likely to grow more or less consolidated as blockchain and/or other digital technologies are introduced. Finally, the report proposes the creation of a new fair trading standard for the art market, and argues that London will need to fight to maintain its dominant position in the art market.
The authors state that
• “Blockchain” is more than a technology: it is a discourse that unites and divides, and holds great meaning for all those involved. 
• Blockchain is not as far along in its development as many expect, with one leading technologist comparing it to the internet in 1993. 
• Blockchain is a concept that is pushing organisations and individuals to compete and collaborate to hash out a new digital future. 
• The economic stakes involved in the introduction of digital ledger technologies into the art market are very high. 
• Digital ledgers could help with not only the trading of art, but also provenance tracking and tax collection related to art transactions. 
• The conflicts of interest which plague the art market will not be solved by technology, but technology can offer an infrastructure to ease them. 
• Art market liquidity and value are likely to soar if digital ledger technologies are successfully introduced, creating new side industries, such as a boom in art-based lending, and making art an integral part of the financial industry. 
• Such financialisation of the art market holds significant promise for artists if correctly governed, but also comes with risks. 
• A single large company seems likely to dominate the art market as technologies are introduced. 
• The UK is likely to lose out on tax and royalties if it does not work hard to adopt digital art technologies. 
• The art market and the UK can set a standard for the adoption of digital technologies across the economy.
The key findings  are
 “As important as the internet itself” is how one of our most esteemed technological interviewees described blockchain. The comment captures well the uproar surrounding the poorly understood yet sensationally hyped technology. The technology, which fits into a group broadly referred to as “digital ledger technologies”, is as hard to define as it is easy to proselytise. In its most simple form, blockchain refers to a shared digital ledger, but such a summary hardly does justice to the range of uses, or better, the range of promised uses, for what at present appears among the most celebrated emerging technologies.
The sheer volume of media coverage and industry reports are a testament to both the technology’s promise, but also its power to manifest both hope and greed in industry and society. One of the most interesting aspects of blockchain is how it is imagined and presented by such diverse groups with varying goals and beliefs. Blockchain is the technology of the future for both the staunchest capitalists as well as those hoping for a utopian future of information sharing and the end of big business dominating the use of personal data. How could a single technology fulfil the hopes of such seemingly irreconcilable visions? One set of possible scenarios would see distributed ledger technologies develop into a generative platform comparable to the internet, which supports both the flow and the control of information, although the balance between these are the source of ongoing tensions among stakeholders. 
Because of the hype surrounding blockchain, it has been covered extensively in the media and by industry experts. What more is there to add? The answer is quite a bit, especially in specific areas which will have substantial impacts for stakeholders. The report will focus on the implications for blockchain on the art market. This is one of the leastdiscussed applications for blockchain, yet one where the technology may hit hardest. Our research has shown us that despite art frequently being seen as a niche, standalone sector, the battle over blockchain and the way in which it is implemented here may have extensive implications for its adoption across the rest of the the economy.
Looking at the art market, it is hard to miss blockchain’s potential. Art is currently plagued by fraud, illicit business, and tax evasion, all products of a fragmented physical market that is hard to follow. Enter blockchain, which on the surface appears a silver bullet. In one shot, blockchain 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. But surely it won’t be this easy, especially given how high the stakes. The total volume of annual art transactions is over $70bn year and growing, and that is just what is visible. 
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? Our research shows that all sides may be able to achieve their goals, and in doing so, set a model for how blockchain and the digital economy may evolve.