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Buying art with bitcoin, authenticating it with blockchain – art world cottons on to cryptocurrencies

The art world sees trading art using cryptocurrencies as a way to draw in tech-savvy new collectors, and blockchain both as a way to guarantee artworks’ provenance and sellers’ ownership of them, and to raise funds from investors

PUBLISHED : Wednesday, 09 May, 2018, 8:33am
UPDATED : Wednesday, 09 May, 2018, 10:22pm

What do the international art market and cryptocurrencies have in common? A love of the conceptual, a tendency to confuse with jargon and an obsession with secrecy, perhaps. Now, a growing number of businesses are combining the two, including in Asia.

Four paintings were bought with cryptocurrencies at Art Stage Singapore in January, the first time the city state’s biggest art fair had adopted a system called Aditus, which can facilitate payments in numerous virtual tender options.

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Independent galleries are also getting on the bandwagon. Singapore-based collector Joe Nash is selling some of his Australian art collection through Visionairs Gallery, which is accepting cryptocurrencies.

“I have a dual purpose. First, to give exposure to Australian art, including works by major aboriginal artists. Second, I hope that giving access to cryptocurrencies will draw in technologists who have not bought art before,” says Nash, a fintech investor who has been buying art for 12 years and cryptocurrencies for about a year.

Prices for artworks in cryptocurrencies must be reset frequently because of the currencies’ volatility – an added financial risk for artists without a regular income. From January to April this year, the price of bitcoin fell 65 per cent, and ethereum by 73 per cent.

Nash doesn’t see this volatility as a problem, though. “My paintings are priced in three anchor currencies: euros, US dollars and Australian dollars. It is easy to check the real-time exchange rate against cryptocurrencies,” he says.

Terence Chung, a Hong Kong-born collector based in Vancouver, has been buying art with bitcoin, and sees both art and cryptocurrencies as investments. He particularly favours artwork inspired by cryptocurrencies that their creators sell online without going through an intermediary.

For digital art especially ... you can store a part, or the entire piece of art, on the blockchain itself. With physical pieces of art, however, you need to tie the ledger to an extra, physical identifier
Adam Stuckert, KPMG China

Last year he bought a painting called Cryptsy – Cryptocurrency Market (2014) by Romanian artist Stefania Nistoreanu, acquired through Bitpremier.com, an online luxury market where all goods are traded in bitcoin.

The two bitcoin he paid for it were then worth S$4,500 each (US$3,370), a lot less than the almost US$20,000 apiece they were worth in December, before a correction.

Chung has also bought paintings by French artist Youl since spotting his Last Bitcoin Supper being auctioned on eBay in 2014. In the picture, Leonardo da Vinci’s Jesus is replaced with a cryptic figure looking down at a QR code instead of a plate.

Facilitating payments is only one function of the cryptocurrency phenomenon that the art world is embracing, however. What also excites art-loving technology buffs is the potential for using blockchain – the decentralised digital ledger that publicly records cryptocurrency transactions – to revolutionise the way art is exchanged and authenticated.

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Jehan Chu, one of Hong Kong’s first art advisers to invest in bitcoin, runs a fund called Kenetic Capital that invests in cryptocurrencies. Although he doesn’t expect many collectors to be using them in the near future, he thinks the idea of applying blockchain technology to the art market is gathering momentum.

Mark Lurie is the founder and chief executive of Codex Protocol, one of a number of new web-based companies creating digital “title banks” for collectibles such as art, fine wine and luxury cars.

Title banks work in the same way cryptocurrency transactions are recorded: Artist X finishes a painting, then creates a Codex identity for it in the company’s ledger, which includes close-up photographs showing minute details.

When he sells it, through Codex’s own cryptocurrency payment system or by other means, he “unlocks” the blockchain using a secret, personalised code and the system records the change in ownership by assigning the Codex identity to the new owner, secured with his or her own code.

A future prospective buyer of the painting has the reassurance that, as long as the seller can authorise a transfer within the Codex ledger, there is no question about the authenticity of the painting or the seller’s right to it.

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Codex has partnered with two consortiums that provide online-trading software programs to auction houses, which Lurie says may help Codex quickly become an industry standard. One of its rivals is Verisart, which is also building a system to digitally certify art and collectibles based on blockchain ledgers and image recognition technology.

Later this year, Maecenas, a blockchain platform for investors, will also launch its art-financing business based on the same technology. It will even offer subdivided stakes in a single artwork, allowing investors to own a portion of, say, a Picasso, and use that as collateral for a loan.

Traditional art galleries are also setting up blockchain-enabled platforms as a way to raise capital. Whitestone Gallery, which moved its headquarters from Tokyo to Hong Kong in 2015, wants to raise 5 billion yen (US$46 million) through an initial coin offering (ICO) to fund its expansion.

We don’t necessarily make the market more transparent. Who owns what is private
Mark Lurie

In January, the 50-year-old gallery invited members of the public to buy its cryptocurrency, called WHS and initially priced at 1,000 yen a unit. The gallery has various plans for the funds raised: building an art trading and verification platform using cryptocurrencies and blockchain technology, and opening more bricks-and-mortar galleries in New York and London to promote Japanese artists abroad. Early investors have been promised dividends paid in WHS.

Chief executive Koei Shiraishi says the gallery has not yet achieved its fundraising target, and plans for public trading of WHS on cryptocurrency exchanges have been delayed because Asian governments have begun to enact laws to regulate the market.

In January, Artcoin.art founder Jiang Jie became the first person to be arrested in China for launching an ICO. He had raised 260 million yuan (US$41 million) to fund “a blockchain-enabled art trading and appreciation project”. Then, in February, China’s central bank announced a ban on all cryptocurrency trading websites and ICOs.

In Hong Kong, markets regulator the Securities and Futures Commission says it has sent warning letters or taken action against at least eight cryptocurrency exchanges and issuers of ICOs for trading “securities”, as defined by the SFC Ordinance, without a licence.

Despite claims that these new art platforms are “democratising art” and “adding transparency”, there are bound to be concerns that they are anything but. The art market is already notoriously ill-regulated, with money laundering and insider trading being the dark side of the anonymity it provides collectors.

Although it is easier and faster to transfer funds overseas using cryptocurrencies, such transactions also enable users to evade banking regulations and dodge taxes. They are particularly useful for buying art from countries under international sanctions.

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Digital ledgers of art ownership do not disclose identities, Lurie says. “Each user has a code, or pseudonym. Our system simply allows a buyer or an insurer to verify that ownership if a piece of art goes back to an auction house, or gallery, or artist, and that is very valuable. We don’t necessarily make the market more transparent. Who owns what is private,” he says.

Christie’s and Sotheby’s, the world’s biggest auction houses, have introduced more robust anti-money-laundering checks in recent years and are not members of the consortiums Codex is working with. A Christie’s spokesman says the auction house does not use or endorse any specific provider. Sotheby’s did not respond to the Post’s queries about its policy on cryptocurrencies.

I hope that giving access to cryptocurrencies will draw in technologists who have not bought art before
Joe Nash, collector

Adam Stuckert, a partner at KPMG China’s IT Advisory, says the concept of using blockchain technology for trustworthy transactions is “almost perfect”.

“For digital art especially, this is exactly the kind of reasonable application of the technology because you can store a part, or the entire piece of art, on the blockchain itself. With physical pieces of art, however, you need to tie the ledger to an extra, physical identifier like a very high definition scan, or a chip or sensor embedded in the artwork,” he says.

A company called Everledger is already authenticating fine wine and diamonds this way.

Stuckert warns, however, that the trustworthiness of the authenticators is key. “Who are the trusted parties who can audit or guarantee the validity and traceability of the blockchain?”

He also finds that, despite the hype in the boom-and-bust technology world, businesses in general have been slow to adopt cryptocurrencies and are more focused on the potential risks.

Nash concedes that bad information will stay bad regardless of whether it is in a blockchain. “But I believe digital authentication will be universally done one day. In 10, 15 years, most art will have a digital provenance,” he says.