Will Blockchain and Christie’s get on ? – John Klemme
My wife manages art collections for wealthy clients. When I mention this, people are always impressed and want to know more. Truth be told, the bulk of her job is assembling correspondence related to insurance, bills of sale, appraisals, loans, restoration work, etcetera. All of these items are used to establish “provenance”. This word refers not only to the record of ownership that proves that a piece of art is authentic; it’s also the work’s life-story.
A bullet-proof provenance shows where the work has been exhibited, auction records, pages from a catalog and possibly even family photographs. If a work is purported to be from 1930, but records only go back to 1987, there may be reason to worry and my wife gets cracking. She tells our children that she’s an “art detective”.
Very few collectors bother to hire someone to manage their collection. It’s costly and the collector must also actively participate and that can be time-consuming for a busy industrialist. But just like a last testament, it’s something that should be done so that the heirs don’t have the burden.
Indeed, at some point someone will decide to sell the work and all of these bits of paper become crucial breadcrumbs in establishing the work’s authenticity. This is especially true if it’s a small collector with only a few important pieces. If you’re a large collector, all of this will be sorted out for you by the hordes of auctioneers asking to “estimate the value of the collection at no charge.” But if you’ve got just a few paintings from a dead artist whose entire body of work has not been collected in a catalogue raisonné, then you will need to get on the phone and hope the gallery where the painting was bought 30 years ago is still in business and has a trace of the invoice. If the gallery is well-organised, they may even be able to tell you how they acquired the piece. This takes time and freelance collection managers charge rates similar to those of lawyers. And this method isn’t failsafe. It relies on trust and credibility, something that has been eroded in recent years by even reputable dealers and galleries.
There are several start-ups currently competing to streamline the authentication process using blockchain. In a nutshell: Living artists can use one of these platforms to certify the work they produce. The artist sends in a photograph with the work’s title, dimensions and date. The platform then provides the artist with a unique token which serves as a certification of authenticity and the work is added to a blockchain. When the work is sold, the token is transferred with the art work and the transaction is added to the blockchain. In this way, every sale becomes part of a permanent record that remains immutable and impossible to destroy thanks to the decentralized nature of blockchain. If the artist is deceased, these platforms suggest using third-party certification boards to verify authenticity and then the blockchain begins from that point onward.
The two contenders vying for relevance are Verisart and Codex Protocol. Verisart got a head start by being the first to apply blockchain to physical art objects back in 2015. They’ve recruited Peter Todd (legendary Bitcoin coder) to their advisory board and superstar artists Shepard Fairey and Ai Weiwei are certifying their own pieces through the Verisart platform. The company has also just received 2.5 million in funding to expand their partnerships.
Still, the Codex Protocol is running close behind is nurturing it’s own network of relationships and has ambitions beyond simply being another platform for authentifying art and collectibles. Codex Protocol is working to make cryptocurrrency a new and important medium of exchange for art purchases, thereby helping auction houses avoid one of the taboo scourges of the industry.
All retailers have to manage buyer’s remorse at some point. A merchant will likely refund a purchase on some hastily bought earrings or a pair of shoes if the client shows up with a receipt and and an apologetic smile. It’s good business. Vendors should not alienate their customers.
Things become more complicated when the purchase is a £3,000,000 painting at Sotheby’s. Perhaps the buyer doesn’t have the liquidity at that precise moment or balks at the fees and delivery charges. Whatever the reason, Sotheby’s is likely to lose out. Initiating litigation against a wealthy client will be costly, the process will be long, the judgement uncertain, the press will be bad for business and and an otherwise good client will antagonised. For these reasons, auction houses rarely pursue buyers who default.
The large auction houses insist that high bidders rarely renege, but in those unfortunate rare instances when they do ? Well, it’s just the cost of doing business. And the cost is significant. Auction houses spend vast sums promoting consignments to potential bidders, so when a work is ballyhooed, won at auction and then subsequently rejected, it’s as if a giant circus came to town and performed for free. To make things worse, the work of art will likely never again reach its peak. There’s a blemish that can’t be undone and the consignor likely will blame the auction house for incompetence.
Although European and American auction houses assure us that buyer’s remorse and default are rare, a 2017 Art Market report done by Art Basel and UBS quietly acknowledge that there has been an upward trend on the rate of non-payment. The Chinese, however, are very open about the problem:
According to a Chinese Art Market report, the percentage of total sales value paid as of May 15, 2018 dropped to 49% for all lots sold in 2017…”
Even when all goes as it should, there is still considerable haggling behind the scenes concerning fees, transport costs and the insurance therein. Some commentators insist that there is no way to correct the problem short of forcing bidders to attend live auctions in person with suitcases of cash.
Enter Codex Protocol. Like Verisart, the company was founded in hopes of streamlining all of the bureaucratic issues revolving around the provenance of fine art and collectables using blockchain. Since then Codex has teamed up with LiveAuctioneers, the largest online auction platform for art and collectibles with over 5,000 auction houses around the world. Now Christie’s and Sotheby’s have their own on-line bidding platforms, but the collaboration between Codex and LiveAuctioneers is different because it attempts to alleviate the problem of buyer’s remorse by using the Codex API, Biddable. Once registered with Biddable, cryptocurrency holders from around the world can bid on items by depositing assets into an escrow account which will then be managed by a smart contract making sure both sides are protected until the transaction is complete.
Spreadsheets were introduced 40 years ago last month. Of course, they’ve revolutionized the way and speed in which we do business. So, aren’t we just as likely to adopt these blockchain solutions that facilitate and expedite the drudgery of searching and compiling documents ? And won’t smart contracts and crypto-currency help by opening up the market and protecting everyone ?
Blockchain platforms would seem to be as inevitable as spreadsheets until we we realize that Excel has serious shortcomings that we all accept. Spreadsheets are created by imperfect and distracted minds. There are now far better tools out there which take the risk out of building databases and running simulations, and yet companies are slow to adopt. It’s often the big players that are holding us back. For corporations, these spreadsheets are an immutable feature of the landscape. And there are larger forces out there that obscure our vision…for profit or simply by way of their omnipresence. In the case of blockchain; the galleries, experts and auction houses may not immediately see a reason to make the market more efficient when 67 billion dollars were spent last year. Cutting costs will not necessarily make the business of art more profitable, especially if it also means cutting services along with the middle men and women who provide them.
Published at Tue, 26 Nov 2019 13:17:34 +0000
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