As the art market has grown in scale, it has been confronting the issues of counterfeiting and fraud. Some experts believe blockchain, the framework technology that underpins cryptocurrencies like bitcoin, can bring about a change in the global art market by tackling the challenges.
The Hong Kong Economic Journal recently sat down with Lawrence Yee, co-founder of Blockchains Limited, a Hong Kong-based technology startup, to discuss how blockchain can enable a mechanism for validating the authenticity of artworks as well as transparency in sales history chain.
HKEJ: From your experience as an art collector, how has technology changed the art market?
Yee: I recall some auction houses did plan to introduce the electronic trading system to the art market over a decade ago, but it didn’t work. One of the reasons was the transformation required support from the large buyer base. And it also gave rise to the trust issue: whether the system was safe, can it provide sufficient protection to users’ privacy, and how can it tackle transaction issues such as no shipment after payment was made.
As far as I know, over 90 percent of the art worldwide was traded by galleries. But there are so many art galleries all over the world that it is extremely hard for buyers to identify a good gallery.
That was what led to our investment two years ago in a company focusing on blockchain technology. With this revolutionary technology, we are able to provide a safe platform for buyers and sellers, with all the transactions recorded in the blockchain which can never be modified or changed. And the custody and sales history of every art item can be electronically traceable.
Q: For this blockchain trading platform, which type of currency would it require to use?
A: Cash is fine. US dollar, yuan, or any other fiat currencies can be used to pay. That can have nothing to do with cryptocurrency.
Q: How would this technology transform the pricing mechanism in the art market?
A: All transactions of art items will be recorded in the blockchain. But galleries of the transaction have the right to decide whether to disclose the price to the public. For the art traded at auction, the price should be disclosed to the public so that buyers can take reference from it.
Q: Can blockchain technology minimize counterfeit art in the market?
A: Previously, if a buyer wanted to authenticate a work of art, he or she needed to hire many experts to discern the quality, authorship, and provenance of it, in which human errors could occur.
Take the Chinese painting transaction as an example, it requires multiple experts to provide stamp authentication every time it changes hands. Moreover, the buyer needs to hire experts to authenticate those stamps as well.
But with the blockchain technology, the chain of custody and sales history of every piece of art will be recorded, including the theft events if applicable. The technology is neutral to all parties in the transaction, with high transparency. Besides, by utilizing smart contracts, the self-executing contractual states stored on the blockchain which nobody controls, every transaction would be non-refutable, immutable once committed.
Q: You previously mentioned the potential of crowdfunding for art based on blockchain technology. How does it work?
A: Currently, friends and partners chip in to an artwork investment, where arguments about profit and responsibility sharing could occur. Utilizing blockchain technology, the investor information is disclosed via the blockchain network, with smart contracts clearly defining actual shares for every investor of the project. And those data cannot be altered or deleted after committed. Once a problem is found, the source can be traced and even legal liability can be pursued. That would minimize the occurrence of malicious exceptions.
This article appeared in the Hong Kong Economic Journal on May 24
Translation by Ben Ng
[Chinese version 中文版]
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