By Louise Carron*
“Don’t worry, we’re from the Internet.” Blockchain is about trust and transparency, yet it is quite the rabbit-hole, since the use of the technology underlying the Bitcoin goes beyond cryptocurrencies. The digital has also conquered the art world (see “Let’s Get Digital”), and raises a lot of issues, such as authentication and unauthorized reproduction of digital files: how can one track the provenance of a piece of digital work that can be copied and sent for free? Blockchain technology promises to answer some of these issues. It is poised to protect privacy and eliminate uncertainty, two seemingly mutually exclusive objectives, and simplify contractual relations. Yet what are the potential and actual effects on the art world? And, most importantly, what legal concerns arise out of the union between blockchain technology and the visual arts?
What Is The Blockchain: A (Not So) Brief Introduction
The Background Of Blockchain Technology
The proliferation of YouTube videos on the subject suggests it to be rather evolved. On the very basic level, blockchain is the backbone of the Bitcoin cryptocurrency, which has been in circulation since January 2009. Bitcoin recently made headlines when it reached the exchange rate of $17,900 for 1 bitcoin (BTC) on December 15, 2017 – but crashed to $6,200 on February 5, 2018. The term “Bitcoin” first appeared in October 2008 when a mysterious scientist (or maybe a group of individuals) named Satoshi Nakamoto published a paper entitled “Bitcoin: A Peer-to- Peer Electronic Cash System”, introducing Bitcoin technology to the world. It described how this new cryptocurrency can be utilized to transfer funds between two entities without requiring a third-party monetary physique.
Blockchain uses the method of peer-to-peer network, and was later separated from the Bitcoin to be applied to other fields, such as supply chains, contracts, and even voting. “Blockchain” is literally a chain or stack of digital blocks containing information about a particular transaction, where each new transaction adds another block to the chain. “The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value and importance to humankind.” To put it simply, blockchain is an “open, decentralized database of every transaction involving value”.
The Characteristics Of Blockchain Technology
First, all information stored on the blockchain is decentralized. The data is shared, similar to a Google Document, so users who have access to it can make updates and verify and approve transactions, which appear on the network as soon as they occur. Everything is transparent and irreversible, and unencumbered by third-parties such as banks, lawyers, accountants or notaries.
Second, the data is encrypted through a two-step security process. To prevent abuses, blockchain relies on “keys”, which can be public or private. A public key is a random string of numbers, which corresponds to a user’s address on the blockchain and is used to exchange values. A private key is the password that gives the owner access to their digital vault, containing Bitcoin or other assets (such as Cryptoart, see below). When accessed, an immutable record is left behind.
Third, the value is traceable. Since all the information about a particular transaction is recorded, it gives proof of provenance, including origin and actual and previous ownership of an asset.
The Regulation Of Blockchain Technology
Criticized as outside of law enforcement’s purview, Bitcoins and other cryptocurrencies can and have been used in illegal transactions (see here for the Silk Road case). However, there are regulations that have been expanded to control this emerging financial sub-sector. States have developed regulations, starting with New York in 2015 with the infamous BitLicense, which requires Bitcoin trading companies in the State to obtain permission to operate, a lengthy and costly process that makes New York an unwelcoming environment for cryptocurrency traders. Other states have started implementing Blockchain regulation with regards to evidence.
As of February 2018, the United States Federal government has yet to enact a law specifically targeting cryptocurrencies. After the bitcoin skyrocketed in December 2017, Senate decided it was time to address the issue of regulating cryptocurrencies. On February 6, 2018, senators heard Securities Exchange Commission (SEC) chairman Jay Clayton, in order to achieve a better understanding of how Bitcoin could fit into the current legal landscape, with a special emphasis on consumer protection. In a debate between adapting old rules or creating new regulations, it seems that most members of the Senate are only getting used to new terminology about blockchain and cryptocurrencies.
How The Blockchain Can Revolutionize The Visual Arts
Blockchain is already changing a lot of artistic domains, such as the music industry, especially when it comes to allocating royalties. Innovative art market players are examining the advantages of using the blockchain in the visual arts, whether it be regarding auction houses, authenticity of digital art, or the development of an exclusive art-world currency.
Resolve Authenticating And Provenance Issues
Historically art has long suffered from uncertainties over authenticity and ownership. Those buying and selling works of art expect to have assurances that they are investing or transacting in valuable “alternative” assets that are neither stolen nor fake. To help with tracking ownership and ensuring authenticity, Blockchain can provide efficient solutions.
Artworks could be linked to a “digital passport” that contains all the data available for that particular artwork: artist, biography, date of creation, price, as well as previous owners, critiques, or previous or current places it was or is exposed. This would have the effect of making the market more transparent and objective (provided that there is effective cooperation of all the actors), since the transactions are not repudiable, thanks to cryptography.
The digital passport’s positive outcome enhances artworks’ traceability: Deloitte’s ArtTracktive service relies on the blockchain to trace artworks, allowing customs and officials to authorize exports and imports of art by using the data encrypted in the blockchain. Codex is working with auction houses to launch an art registry, which will record copyright and provenance for works of art using blockchain technology (more about Codex here).
Sedition Art also uses digital tools to resolve authenticity issues. Sedition Art created a primary and secondary market for digital art, to sell limited edition art in digital format. “Think of it as an art collection for your digital needs accessible anywhere and anytime” explains the Sedition Art website. The company issues certificates of authenticity and the art is stored in a digital “vault” and can be exchanged. The startup Verisart also certifies and verifies artwork and collectible using the Bitcoin blockchain for living artists.
Blockchain would also make online payments more secure (see here for the case of galleries’ hacked emails). The use of cryptocurrencies makes exchanges easy and secure, where the users can track the transaction and make sure that it reached its destination. In 2015, Austrian Museum of Applied Arts/Contemporary Art (MAK) became the first museum in the world to have purchased a work of art, namely a limited-edition screensaver, using Bitcoin and Ascribe (which was created by a former art curator). As of 2017, the Dadiani Fine Art gallery in London became one of the first galleries to accept cryptocurrency as payment for art sales.
Democratize Investments In Art
Purchasing art can be a form of investment. Using blockchain in an artistic context could make art investment accessible to non-professionals who have cryptocurrencies to invest. The digital passport makes all the information about a specific artwork accessible. Here again, startups are democratizing the art market using the blockchain: Maecenas calls itself a “decentralized art gallery” and is scheduled to be launched this year; Artex is an “art provenance market”, aiming to attract artists and inexperienced investors, through a mobile app and geolocalisation which reveal information about works of art, to make the market open and understandable.
Get Rid Of The Middleman
In addition to making transactions more secure and attracting new purchasers, “Blockchain allows for the creation of money and financial records that aren’t maintained by any central authority like a bank or a government” and outside the purview of intermediaries.
On the one hand, Blockchain could be a threat to galleries or art dealers in the long term since artists can sell their art directly online, without the help of a publicist or an agent. But on the other hand, artists could also set and control prices themselves, without intermediaries, which would considerably lower the price of transactions – since a lot of those third-parties are paid on commission.
The blockchain is also a potential threat to lawyers and notaries, because of smart contracts, which can be found on platforms such as Ethereum. Smart contracts use the Blockchain technology and allow users to create self-executing contracts which are immutable (i.e. crypto-protected and permanent) and distributed (i.e. the output of the contract is validated by the network). This would make licensing, consignment, or other types of contracts commonly used in the art world easier and more automatic. But this does not mean that the legal profession is dead; provided they adapt, lawyers are still needed to draft the literal contract clauses — as opposed to the digital code — and resolve disputes arising from them. Regulations of the Blockchain are ever growing, and it is likely that lawyers will soon have to be able to code and understand the underlying principles of cryptocurrencies to provide effective counsel to a new generation of clients.
How The Visual Arts Are Using The Blockchain
In addition to the logistical improvements offered by Blockchain technology, artists themselves are including or implementing the Blockchain into their works. Artists are not only getting more involved in digital arts, but are also recurring to digital currencies to exchange corporeal or virtual art.
A major change happened through CryptoArt. It is a combination of art, technology and currency; it works like Pokemon cards, each “card” is unique, digitally associated with a value, and can be traded. Here again, art is used as an investment, and artists are often remunerated for every future sale of a single work, thus earning a type of resale royalties. We are witnessing the creation of a digital art market, which lacks hierarchies and physical restraints, as opposed to the “institutional art world” limited by budgets, calendars, and venues. DADA.nyc is one of those decentralized digital art marketplaces used to sell CryptoArt. Another is the Crypto Art Gallery in Manchester, which held an event in April 2017 to “bring together the amazing bitcoin/crypto based artwork from around the world for everyone to view.” The first digital art auction took place in New York on January 13, 2018 under the name of Rare Digital Art Festival (reviewed here). “Rare digital art is a movement to take internet assets that have previously been infinitely copyable (songs, memes, etc.) and turn them into provably rare, tradable Blockchain assets,” says their website. Records were hit with the sale of Homer Rare Pepe, a single edition piece of CryptoArt, which sold for the equivalent of $39,000. Is the art world challenging established, opaque auction houses?
It may be too soon to tell, especially when it comes to a world that only a few understand, but that is about to change. Artists need to become more familiar with the “Blockchain rabbit-hole” to implement that change, as it can help their reputation and their outreach. Artnome founder Jason Bailey conducted a digital art experiment and it looks like this could be a solution for tech-savvy struggling artists. More and more artists accept cryptocurrencies as payment. The artist cryptograffiti (cited above for his portrait of Nakamoto) was one of the first to bring together street art and cryptocurrencies utilizing a public-facing wallet to receive crypto donations for his art.
In 2015, artist Sarah Meyohas launched the Bitchcoin project, where investors could bet on the future of her not-yet-produced art. References to the famous appropriation artist Richard Prince were also made recently, involving an auction of a “Ready-Made Token” (RTM) allegedly associated with the artist in a Blockchain imbroglio started by the Distributed Gallery.
Looking forward, how can the Blockchain technology be attached to physical works? Innovative solutions can be found in painting techniques and smart materials, such as associating a record on the blockchain to a serial number on the back of an artwork, or applying traceable paint or liquid onto physical items. This could add monetary and innovative value to the work, as it would provide owners with a solution to track the work in case of theft. This still requires artists, dealers, galleries, and museums to adopt the technology, which is very slowly making its way into our lives.
Suggested readings and viewings:
- “Blockchain, Explained”: available here
- “What is Blockchain”: available here
- “Banking on Bitcoin”, directed by Christopher Cannucciari, available on Netflix.
- Roger Aitken, How Blockchain Technology is ‘Disrupting’ The Art Economy As We Know It, Forbes, Aug. 17, 2017, available at: https://www.forbes.com/sites/rogeraitken/2017/08/17/how-the-blockchain-is-disrupting-the-art-economy-as-we-know-it/#10bb0de574fe, accessed on Feb. 16, 2017.
- Jason Bailey, The Blockchain Art Market Is Here, Artnome, Dec. 27, 2017, available at: https://www.artnome.com/news/2017/12/22/the-blockchain-art-market-is-here, accessed on Feb. 16, 2018.
- Jason Bailey, What Is CryptoArt?, Artnome, Jan. 19, 2018, available at: https://www.artnome.com/news/2018/1/14/what-is-cryptoart, accessed on Feb. 16, 2018.
- Jason Bailey, Blockchain Artists Wanted, Artnome, Feb. 4, 2018, available at: https://www.artnome.com/news/2018/2/2/blockchain-artists-wanted, accessed on Feb. 16, 2018.
- Julia Michalska, Blockchain: How The Revolutionary Technology Behind The Bitcoin Could Change the Art Market, The Art Newspaper, January 16, 2018, available at: https://www.theartnewspaper.com/analysis/blockchain-how-the-revolutionary-technology-behind-bitcoin-could-change-the-art-market, accessed on Feb. 16, 2018.
- Gary J. Ross, Why Lawyers Won’t Be Replaced By Smart Contracts, Above The Law, Oct. 5, 2017, available at: https://abovethelaw.com/2017/10/why-lawyers-wont-be-replaced-by-smart-contracts/, accessed on Feb. 16, 2018.
- Ameer Rosic, Smart Contracts: The Blockchain Technology That Will Replace Lawyers, Blockgeeks, available at: https://blockgeeks.com/guides/smart-contracts/, accessed on Feb. 16, 2017.
- Anna Louise Sussman, Could Blockchain Put Money Back In Artists’ Hands?, Artsy, March 16, 2017, available at: https://www.artsy.net/article/artsy-editorial-blockchain-money-artists-hands, accessed on Feb. 16, 2018.
*About the Author: Louise Carron is a Spring 2018 Legal Intern with the Center for Art Law. She is a French LL.M student at Benjamin N. Cardozo School of Law. She is concurrently pursuing a Master’s Degree in Comparative Business Law at Université Paris Nanterre (France) and has a special interest in Intellectual Property, Art, and Entertainment. She can be reached at email@example.com.
Disclaimer: this article is intended for educational use only.