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Cryptocurrencies and the Art Market

October 17, 2018

By Jennie Nadel

Following up on Center for Art Law’s popular article on Blockchain and the Visual Arts, let us dive into the topic of cryptocurrencies and their potential applications in the art world.

Reminder: What is a Blockchain?

Blockchains are described as decentralized digital ledgers, or, in simpler terms, a digitized record of transactions. Don and Alex Trapscott, authors of Blockchain Revolution (2016), define the blockchain as “an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.” The ledger is also “append only”, meaning that past entries in this online ledger can never be erased. If an earlier transaction does need to be changed, then the change is made but the entry shows the alteration made, similar to changing words in a Google Drive spreadsheet owned by many different people. The alteration is made, but the record of the alteration is apparent. Thus, the ledger can only ever get longer or “higher”. All of these transactions grouped in a set time period are then labeled a “block.” Once a block is properly verified a new block can be added on top to create a chain of blocks, or  “blockchain”. Blockchains can have many different applications depending on the type of data it stores. This video helps to visually understand the concept of blockchain technology. dB, chief technology officer at Artsy posts about the latest happenings at the intersection of blockchain technology and the art world on his website.

What is a Cryptocurrency?

Cryptocurrency is one of the applications of the Blockchain technology, resulting in the creation of new but unofficial currencies. Currency is a record of debt, for example the U.S. dollar. Cryptocurrencies work similarly to traditional currencies, and the blockchain associated with each cryptocurrency tracks debts. Cryptocurrencies begin when a founder writes a “white paper” or a business plan for a blockchain. The founder must lay out the purpose of the cryptocurrency and its importance. There is also a total quantity of that certain cryptocurrency that will ever exist. For example, Bitcoin has 21 million tokens, in existence. Coins exist as independent transaction ledgers while tokens uses the existing structure of the blockchain. By owning tokens you can trade and transfer different items. Lastly, there when a cryptocurrency is created, there is no specific amount of dollars put down in relation to the amount of a cryptocurrency being generated, we give cryptocurrency value because someone is willing to pay dollars to own it. If you are interested in learning more about cryptocurrencies, Tim Schneider has a three part breakdown of cryptocurrencies available here. Learn more about tokens here and here and learn more about the difference between coins and tokens as well as how to create a cryptocurrency here.

Cryptocurrencies? Cryptocollectibles?

CryptoKitties? CryptoPunks? What are these? How do you use them? Both are marketed as one-of-a-kind and completely owned by the user. They can never be replicated, taken away, or destroyed, yet what is their main function? They serve as a good introduction to someone who is unfamiliar with blockchain technology and cryptocurrencies. CryptoKitties markets itself as one of the world’s first games to be built using blockchain technology like Bitcoin and Ethereum. Unlike a cryptocurrency, CryptoPunks and CryptoKitties are cryptocollectibles. On CryptoKitties’ website you can buy, sell, or trade your virtual kitty as if it was a traditional collectible; however, with the added knowledge that the blockchain will securely track ownership. Even camera company Kodak has their own cryptocurrency called KodaCoin.

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Photo taken from the cryptokitties.co website

What now, art world?

What do cryptocurrencies have to do with the art world? Jason Bailey, founder of Artnome and self-professed “art nerd”, believes there are great incentives for the art world to start embracing blockchain technology. He states at least four major areas where blockchain technology can be utilized in the art market: (1) Driving digital art sales through digital scarcity, or introducing a limited amount of copies and providing unique blocks for ownership, (2) Democratizing fine art investment, (3) Improving provenance and reducing forgery, and (4) Creating a more ethical way to pay artists. So can blockchain improve upon the art world? Will primary and secondary markets allow for buyers to pay for works in cryptocurrencies?

Real Art vs. Digital Art: Paying for Electronic Art with Electronic Currency

Not only is there a digital market for real art, the emergency of websites like DADA.ny and others have created a market for digital art paid for using digital currency and tradeable online as an exchange network all backed through blockchain technology. There now exist websites dedicated to the buying and selling of completely online works of art. DADA.nyc provides a decentralized marketplaces that highlights limited-edition digital works of art. The work have their own IP protection and proof of ownership. DADA art is embedded in the blockchain and therefore cannot be modified, thus ensuring the ownership to the individual. Read more about the experience of digital art, with artist, Moxarra on DADA’s website here.

Galleries embracing Cryptocurrencies

On June 14, 2018,  Āto Gallery founded by Carrie Eldridge in 2016, sold a painting for 150 Bitcoin – equivalent to around $1.25 million. The painting, Chasing Hearts/Northern Lights was by a New York-based mixed media artist, Benjamin Katz. At the time of sale it was a record price in cryptocurrency for a work of art. The purchaser of the work communicated to Eldridge via social media before switching over to Signal, an encrypted messaging service. At first, Eldridge was ensure how much to price the work, knowing it was more complex than some of the artist’s previous works, which usually sold for around $5,000-$10,000. Before the gallery owner proposed a price, the collector offered her 150 Bitcoin. The mysterious buyer remains anonymous but could this sale be a precedent for more outrageously high sales in art through cryptocurrencies? The previous record for the most expensive artwork paid in cryptocurrency was in February of 2018. The work sold was Kevin Abosch’s Forever Rose for $1 million. However, unlike Katz’s painting, Forever Rose is an online digital artwork and a token called ROSE on the Ethereum blockchain. The work was purchased by 10 different investment funds, advisory firms,  and tech-savvy collectors, each owning a share of the dematerialized work. Āto Gallery plans to launch its own currency and raise $10 million with Initial Coin Offering (ICO). Investors can buy a certain amount of tokens which they can then use to buy token for the gallery’s artists. Each artist would have their own assigned value based on their resume and past sales history.

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Benjamin Katz, Chasing Hearts/Northern Lights (2018) sold for around 1.25 Million in Bitcoin in June 2018.

Reservations and Concluding Thoughts

There still exist a number of reservations in implementing blockchain technology into the notoriously slow-to-change art world. In one of Jason Bailey’s many articles surrounding blockchain technology, he and Marion Maneker, owner of Art Market Monitor, make a point that the blockchain can not solve all the issues surrounding opacity that the art market faces. Many of these issues surrounding transparency do not transpire from insufficient technology. For example, how can one ensure that the blockchain associated to a physical artwork remains connected with that same physical artwork? How can we be assured that it is regulated and not used for illegal or shady practices? Perhaps the first implementation of blockchain technology is the use of cryptocurrencies to buy work whether digital or real before addressing other issues existing in the art market.

On October 11th, On October 11th, Christie’s announced that their sale of the Barney A. Ebsworth Collection in November will the first auction to incorporate blockchain technology. They are collaborating with Artory to produce digitally encrypted certifications for each artwork up for auction. The blockchain technology will be used to store information about the works. This marks a huge shift towards the application of blockchain technology given the influence Christie’s has as a major auction house.

In summary, the blockchain might be most useful to new and emerging works where there does not already exist a complicated past of ownership. This might be especially helpful to digital works of art that allows them to contain a unique code and provide a sense of ownership through the internet. The art world is slow to change, especially to a concept as difficult to grasp as new terminology like cryptocurrencies, tokens, coins, blockchain, etc, but we will surely see more examples of digital currencies permeating the art world as well as new applications for blockchain technology.

Works Cited: 

About the Author: Jennie Nadel was a 2018 Summer intern and a current remote contributor at the Center for Art Law. She graduated from Johns Hopkins University majoring in History of Art with a double minor in Museums & Society and Visual Arts. She is currently pursuing her M.A. in Art Business at Sotheby’s Institute. She can be reached at jennierebeccanadel@gmail.com.

Disclaimer: This article is for educational purposes only and is not meant to provide legal advice. Readers should not construe or rely on any comment or statement in this article as legal advice. For legal advice, readers should seek a consultation with an attorney.

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