Art markets have gone through a great transformation over the past years:
· Based on the Tefaf Art Market Report 2016, over the last 10 years the volume of transactions has increased by 3.1 percent annually from 28.2 million in 2005 to 38.1 million in 2015. The value of transactions in the same period has increased annually by 5.9 percent from $35.9 billion to $63.7 billion. Global import and export have also noticed a strong increase during the last 10 years; Import increased by 6.6 percent per year from $13 billion to $24.7 billion during the period 2004-2014 and export increased by 8 percent per year from $12.7 billion to $27.5 billion
· Based on the Hiscox Online Art Trade Report 2016, online art market sales reached $3.27 billion in 2015, up 24 percent from 2014. Based on this trajectory, the report expects that the online art market could be worth $9.58 billion by 2020. According to a recent survey of collectors on Instagram, an incredible 51.5 percent have purchased works from artists they originally discovered through Instagram: https://www.artsy.net/article/elena-soboleva-how-collectors-use-instagram-to-buy-art
· Based on Deloitte’s and ArtTactic’s Art & Finance Report 2016, art-secured lending business in the US is expanding rapidly with a loan book size of US$13 billion to US$15 billion with a 5-year annual growth rate of 13 percent
· Based on The Contemporary Art Market Report 2016 by Artprice, the number of fine art consumers have increased from 500,000 after World War II to around 70 million in 2015.
· Based on the Tefaf Art Market Report 2016, there were 600,000 mid to high-level art collectors in 2012 and around 675,000 in 2015.
The development of the art markets have created the need to tackle a certain number of issues such as traceability, authenticity, anti-money laundering, etc to ensure its sound development. A certain number of technological products and services that use technology for authentication and attribution, and recently also blockchain technology to track and trace works of art, could help solve certain issues. Some technologies even embed bio-engineered DNA elements within the surface of art objects.
What is blockchain?
Distributed Ledger Technology (DLT) or blockchain is a record, or ledger, of digital events or transactions that is “distributed” between many different parties and supported by a network of computer nodes. This ledger can only be updated through a consensus of all participants in the ecosystem. This consensus comes in the form of a software programme that validates the digital events or transactions and guarantees the synchronization of each copy of the ledger managed by the different computer nodes. Once entered and validated, information can never be erased. Hence, users of DLT does not need to trust specific parties, they just have to trust the consensus itself.
Applying DLT for the art market, Deloitte Luxembourg has developed the proof of concept ArtTractive, a technological alternative to the paper trail that normally proves the provenance and movements of an artwork. The artwork is first “tokenised”, meaning that a digital token – or object – is created to represent the physical asset. This token holds information on the artwork such as its title, the artist information, its current owner (potentially anonymized), and any data describing it. This token is created by the artist or the current owner through a specific application which then “uploads” this new digital asset on the distributed ledger. At this point, the digital asset is not yet useable as it needs to be “certified” by a specified party that is referred to as Certification Authority in this model. The Certification Authority reviews the information uploaded, checks whether the physical asset is legit, and potentially uses technology – such as chips or synthetic DNA – to seal the link between the physical asset and the digital token. This generates some kind of signature or identification that constitutes one of the critical data attached to the token.
Once certified, the token can be processed on the blockchain. This means that it can be exchanged, lent, moved, and so on, in real life. The different steps of those processes generate events that are captured through ArtTacktive using tablets or computers and recorded on the distributed ledger. As this chain of events is recorded and immutable on the blockchain, it represents a full digital trail of the life cycle of an artwork and offers the possibility to prove its provenance and movements at any moment in time. ArtTracktive takes into account different processes and art market actors such as artist, owner, freight forwarders, customs, art galleries, museums, and all the way to potential buyers. This digital asset can also be leveraged for collateral management, private wealth portfolios, or insurance purposes.
ArTracktive has the potential to solve major issues of the art industry linked to traceability. But some challenges that relate to distributed ledger technology or digitization remain to be resolved, such as ensuring a secure and not forgeable linkage or seal between the physical asset and the token. Different techniques are emerging but they still need to be proven at industrial level. Confidentiality is also a challenge. As different actors have different needs, the confidentiality scheme should be adaptable in order to convince users, and especially owners, that the data is secured and cannot be captured and used by malevolent persons. The fact that no current DLT offers fiat cryptocurrencies is also a barrier to fully process all types of transaction – such as buy, sell or auction – on the ledger.
Additionally, the ArtTracktive model especially makes sense if deployed globally and if adopted by the minimum set of actors required to “ignite” the platform organized in a sort of community. Indeed, as the model relies on the absence of trust in a central party, it would not make sense that a single party finances, provides and operates the platform.
In conclusion, the art market can strongly benefit from technological developments. We see a certain number of initiatives popping up and as a consulting firm we strongly support the development of technology in the art markets to support its growth to the benefits of all stakeholders: artists, collectors, art dealers, galleries, auction houses, wealth managers, art experts, cultural institutions, customs and tax authorities.
Please see how blockchain technology can solve traceability issues in the art market (prepared by Deloitte Luxembourg):
Thibault Chollet, Director Technology & Enterprise Application, Deloitte Luxembourg, and
Adriano Picinati di Torcello, Director and Art & Finance coordinator, Deloitte Luxembourg
Specially for artlaw.online