Summarize

The article explains blockchain as such, as well as points where it meets art and what legal issues arise out of this interconnection*

*Intro by ArtLaw.club

Maria Boicova-Wynants,

Mediator, Business Writer, Trademark and Patent Attorney

The Blockchain in the Art world

In this article, I will first sketch out the playing field and then proceed to numerous (legal) questions inevitably arising in connection with blockchain.

Even those who are totally not interested in technological developments have probably already heard the word “blockchain”. Very simplified, blockchain is some sort of a database, which is shared across a whole network of participants. Thus, imagine that there is, say, 100 computers in the chain and each and every one of them at any moment in time has the identical copy of this database. In more complicated terms blockchain is a cryptographically secured distributed ledger. The cryptographic security aspect means that in order to access this database or write anything on there one needs to have a set of keys: a public one and a private one. Moreover, these credentials (keys) when used are verified by other computers in the blockchain. An important add-on: normally once a piece of information is on the blockchain, it is immutable (namely, cannot be deleted or just altered)^[1]. Therefore, it is a bit like… Google Sheets, but with a heavily enhanced security and almost no way to tamper with and especially delete the information entered.

What has all of the above to do with the art world? Well, as recent as in November 2018, one of the major auction houses — Christie’s — partnered with Artory (blockchain-based registry) for one of their auctions. For every work sold during the auction of the Barney A. Ebsworth Collection, there was a secure, encrypted certification of the sale, ensured by Artory. Blockchain meets art. Not that it never happened before, just the first time at a major auction house level. For the record, there are numerous startups trying to introduce this or that feature in their blockchain offer for the art world. There is the Codex Protocol — a blockchain-based, decentralized title registry. There is Verisart — a platform to certify and verify artworks and collectibles using the Bitcoin blockchain. There is ArtChain, the already mentioned Artory, the Blockchain Art Collective with their “stickers” (or a “holistic art identity” as they call it) and many-many others.

In the context of digital art, which in the last years has also seen some tremendous developments, using blockchain, of course, makes a lot of sense. Aside from providing a possibility of limiting the number of copies and having a clear provenance for digital artworks, it also establishes a better way of paying artists for creating them. On the flip-side, it forms a new iffy game-field, which is less about art and more about pure speculation. Consider CryptoKitties (or as some call them “Beanie Babies on blockchain”) or the Hyperion Mythic card, which sold for a then-equivalent of $54,000. The Hyperion Mythic card is the digital card from a blockchain-based digital card game “Gods Unchained”. It features the cartoon character of the Titan of Light — Hyperion. Yes, it was sold for $54,000. No kidding.

There is also a project on so-to-say a borderline between physical and digital art — Maecenas. This is a decentralized art gallery auction market run on the Ethereum network, where one can buy a “piece” of… Warhol for example. In essence, this platform allows buying shares in famous paintings, which are tokenized. Tokenization, for those who never heard of the term before, is using the value of an artwork to underpin tradable digital tokens. In plain English that means, taking the market value, say $100K, and splitting it into a 100 pieces (tokens) of $1K which can then be sold. Maecenas has already tokenized a $5,6m painting by Andy Warhol and now is running a “Project Phoenix”, which is the digitalization and tokenization of an artwork by Picasso. To clarify, it is not that you get to hang the actual Warhol or Picasso painting on your lounge wall, as the actual artworks remain in custody of galleries, collectors or whoever owns (or better owned?) them. What one gets with Maecenas is a share, and likewise with shares of a company, a voting right for instance in relation to release of the physical painting. Complicated? You bet! Sounds a bit like speculation? Sort of.

Maecenas also partnered with the above-mentioned Codex Protocol and now the artworks and liens sold by Maecenas are registered on the Codex Asset registry. The Codex Protocol also partners with Feral Horses — another share-selling platform, where one can buy shares by selected galleries and contemporary artists. If you have read until here I guess you formed an impression that blockchain is some sort of gambling supporting technology. That would not be totally fair, so let me further omit the domain of digital art and proceed with physical (or as I am tempted to say — real) art and what blockchain technology can do or claims to do for it.

Some of the most heated issues in connection with art are certainly its provenance and authenticity. Thus, in dealing with artworks there is a huge amount of due diligence to be performed. A decentralized and highly secure ledger which has all the required information in one place would hugely simplify such a due diligence. It would be possible to share the data on transactions with a real-time worldwide access. Seems attractive? Possibly.

Blockchain-technology is also being explored in such “art havens” as freeports^[2]. There are several freeports who are considering (or even already working on) creating a proprietary blockchain software system. To be precise it is not public blockchain, but rather a “side chain” or private permission blockchain. That would allow registering ownership and provenance for the artworks stored in a freeport. Additionally, it would also provide for settling all the formalities without either a seller or a buyer ever visiting a freeport. On top of that, the proceeds from the deal could be stored in the blockchain or exchanged for, say, gold stored in the same freeport. The potential is endless. The cooperation between several freeports can establish a closed, secured and confidential eco-system. This might be an interesting development for certain high-profile collectors.

If we are talking (public) blockchain, there is much less optimism than with the above mentioned private permission side chains. Typically blockchain is used to host a proof of ownership, but not the identity of collectors. It keeps the record of transactions, addressing the issue of provenance. Obviously, it doesn’t have a retrospective effect, so whatever happened with an artwork before any record was done in the blockchain, still needs to be researched using traditional methods. Another blockchain feature usually praised is decentralization. The very fact of the blockchain implies decentralized data entry and record-keeping. Real-time, worldwide, decentralized. On the other hand, who gets to add the information? If this remains open, then there appear cases like Terence Eden who claimed authorship of “Mona Lisa” on Verisart and got… verified. Bitcoin core developer Peter Todd in defending Verisart on this count claimed that it is “a tool to collect and timestamp evidence, not an authoritative blockchain”. Additional Todd’s point to supposedly counter criticism is that because of the time stamp it is still better than the status quo, as the record “still shows up as being created recently”, and thus it is suspicious by definition. It might be true in relation to the Old Masters and the obvious “fakes” like Eden’s “Mona Lisa” claim, but what about contemporary artworks? There the mere time stamp would obviously not bring any additional value.

Actually, the fact that Eden’s entry was possible, raises several considerations. One might argue that there should be some sort of control, gate-keeping or a vetted list of professionals who are allowed to enter data on the blockchain. But then again, if there is a trusted person who gets to enter data, then the whole decentralization is questionable. If there is a vetted list of specialists that can verify the information, then who gets to vet the specialists? While if there is no vetting authority, how will disputes be handled? In general, to the best of my knowledge currently nobody knows what happens in the event of disputes. Mediation? That might be an answer, but even mediation of — let’s call them — “blockchain-related art disputes” would run into a lot of unanswered questions.

Let me add just some more thoughts. What if an actual artwork is just gone, damaged, or destructed, who tells the blockchain? Moreover, having perfect documentation is great, yet, what if a fake is sold with this “perfect documentation”, but an original is safely kept away? What does blockchain-secured register give in such a case? You see, questions are endless.

The skepticism also comes from the General Data Protection Regulation (GDPR) which includes, for example, the “Right to be forgotten” and the obligation for personal data not to leave the European Union. Let me remind here that normally one cannot delete the data on the blockchain and no one knows where the nodes are (they can easily be outside the EU). Certainly, there are ways to work around those obligations, but they also significantly reduce the value of blockchain. For example, if the actual data is stored off-chain with just a reference to it remaining on the blockchain (plus the metadata and the hash — “a digital fingerprint of the data”), that basically eliminates the transparency and decentralization, and on top of that creates quite some issues around the storing and ownership of the actual data. The blockchain is already relatively complex for an average user and the work around the GDPR requirements would only add yet another level to such complexity.

Before I conclude I would like to say some words about smart contracts. Smart contracts are an innovation of the Ethereum blockchain and this is where almost all art-related blockchain activity currently takes place (except for Verisart — this one is on the Bitcoin blockchain). Such self-executing, trackable, and irreversible contracts directly written into lines of code and existing across a distributed, decentralized blockchain network might seem attractive for art-related activities. They are frequently mentioned in connection with copyright on the Internet, most notably related to music licensing and royalties. That is convenient, for sure. Still, there is a catch. One of the important issues with smart contracts are the so-called “pause buttons”. They are meant to provide an opportunity to identify and fix bugs, however, if one can pause the smart contract, doesn’t that mean that there is way too much power vested in a single person?

This article is not meant to say that things are “rotten in the Kingdom of Blockchain” or that it is not the best solution for the art world, but rather to prompt the discussion around issues which are still not resolved. The system, as it is now, is full of “bugs”, while experience tells that if there is a way to abuse the system, it will be abused. Furthermore, I wonder if blockchain powered innovations are currently solving problems which the art world actually wants to be solved in the first place?…

Specially for ArtLaw.club

^[1] I say “normally”, because apparently there still exists a way to do it (see for example https://medium.com/@artusvranken/actually-there-could-be-a-way-to-delete-data-on-a-blockchain-df62964bd927)

^[2] a warehouse complex for storage of art , valuables and collectibles and a way to obtain a special tax treatment.