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Three ways blockchain is reshaping the art world

The art market is booming again. While good news for some, for many collectors and investors this means rising prices and increasing difficulty accessing quality. But change is on the horizon. Blockchain technology is helping to reshape how we buy, sell, trade and even create and enjoy art.

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Art has long been one of the most dynamic and compelling of markets – for many both a personal passion and a lucrative field of investment. But it can also be a very challenging market to enter. With the best pieces often demanding astronomically high prices, access to quality opportunities in the high end can be difficult. And while the global and highly diverse nature of the rest of the art market makes for a great deal of choice, it is not always easy to gain an overview of what is available, be sure of the provenance or value a piece, or to guard against counterfeit and fraud.

The good news is that, thanks in part to blockchain technology, new platforms are arising that address these issues, driving a quiet revolution in how art is being bought, sold, supported, enjoyed and even created.

New blockchain-based platforms, for example, are making it easy for collectors to buy shares in fine and high-end artworks and to trade them in increasingly liquid markets. This is opening up new opportunities to participate in the market for masterpieces and to create more diversified high-end art portfolios without the high cost and potential risk of full ownership. Other platforms are using blockchains as a means of recording and sharing cryptographically secure, demonstrably authentic certificates of origin and provenance for artworks and so enable tamper-proof, trustworthy audit trails of the lifecycle of a piece. This is helping to bring more transparency to art markets and is a potent tool to fight fraud. Blockchains are also enabling new ways of interacting directly with artists, creating direct markets between artists and collectors and paving the way for new forms of patronage.

How does it work?
These platforms are a good example of the application to the art market of the broader, blockchain-based “tokenisation” and digital assets revolution currently disrupting a host of sectors, from finance and healthcare to supply chain and impact investing.

Tokenisation is the process of using a blockchain to issue a digital token: a unique string of numbers that can be used as a digital representation of a physical asset. What’s unique about blockchain-based tokens is that they cannot be copied, forged or – once created – altered in any way. They can also be transferred from one person to another in the digital equivalent of a physical exchange: when someone transfers a token to you over the blockchain, they cannot take it back without your consent.

Using tokens to represent assets on a blockchain offers a number of advantages for art collectors:

1. Own shares of artwork
For one, it can make the process of securitisation much easier and less costly than it is today, involving fewer and sometimes no intermediaries. That in turn makes fractional ownership of expensive pieces of art (or any highly valuable item) much more viable than has been in the past.

Since blockchain-based digital assets can be easily and securely exchanged without the need to trust a centralised authority, markets in such tokens are generally more transparent, and involve far less friction, than markets using traditional intermediaries. That tends to make them easier to access and, as a result, more liquid.

2. Verify authenticity and provenance
Because tokens can be used to represent information as well as assets, blockchain-based platforms can allow large groups of people to share trusted data without relying on a central authority. This too can lead to larger, more liquid and, importantly, more secure and trustworthy online art markets – markets in which credentials for artworks, artists, buyers and sellers can be easily authenticated and where transfers of value can be securely carried out directly between parties.

3. Protect ‘digital Picassos’
Last but not least, because blockchain-based tokens are unique and uncopyable, they can be used as the basis for purely digital artworks that cannot be forged and whose ownership can be clearly asserted, maintained and transferred. This can – and is – opening up new types of art and digital collectibles markets.

These are not just theoretical exercises. Today we are seeing a number of live platforms coming online that make use of these capabilities. Some use tokens to create shares in artworks that can be bought and sold on line, while others issue tokenised digital certificates for artworks (as well as diamonds and other items) that contain verifiable information about the piece and can be easily transferred along the chain.

And these are just the tip of the iceberg. As tokenisation matures and goes more mainstream, we can expect more platforms to come online, and more established players to make use of this new technology.

This means a whole new world of opportunity for art collectors, patrons and aficionados.