Thanks to Blockchain, You Too Could Own (Part of) a Warhol

I’m walking along a tree-lined street in New York’s Chelsea neighborhood, headed home from the galleries west of Tenth Avenue. I’m lost in thought—but about blockchain, not art.  

Someone calls my name. It’s one of my neighbors, walking his dogs. And not just any neighbor, but Robert Gober, a highly regarded sculptor whose 2014 retrospective at the Museum of Modern Art featured a series of deep slop sinks that he’d fashioned by hand from porcelain. Also, wax legs sticking out from the wall, some with human hair, some featuring candles. Reviewing the show in The New Yorker, Peter Schjeldahl wrote, “His works are enigmatic but not coy, morally driven but not aggrieved. They radiate a quality that is as rare in life as it is in art: character.”

“Hey Robert,” I say. “Are you into blockchain?” I find it impossible these days not to start babbling about blockchain within the first few sentences of any conversation. I’m sure I’ve lost friends because of it.

He gives me a sideways look. “Not much,” he says. “Should I be?”

“It’s a really hot topic in the art world right now,” I say. He sort of laughs, since the art world is probably the last thing he wants to talk about.

And yet, a map unfolds in my imagination: the artwork, and the artist, the customers and the consumers of the art, all in a distributed ecosystem—no dealers or curators taking a cut. In May, a series of three of Gobers’ handmade porcelain urinals fetched $3.5 million at Christie’s. A furnace grate with what looks like the mummified torso of a corpse trapped beneath it went for nearly $7.3 million. Gober didn’t receive a cent from either of these secondary sales.

Blockchain technology is making it possible that he could. Its self-executing digital agreements, called smart contracts, can be programmed to guarantee a royalty payment to the artist on the resale of any item, including a handmade porcelain toilet. That’s pretty enticing, considering that a federal court recently denied efforts to require auction houses and others to pay a resale royalty to artists. What’s more, the value and ownership of any artwork could be “fractionalized,” using tokens allowing someone to own a tiny piece of the work, and profit from the marketplace.

Of potentially more interest to Gober is that the provenance of his works could be registered on a blockchain, guaranteeing an immutable record of when the work was made, the materials used, who has owned it, and what it last sold for. This provenance, or the record of creation and ownership of a piece of art, is a vitally important facet of the global art market, especially when it comes to secondary art sales. Until now, provenance mainly existed as documents collected in manila folders, or maybe PDFs, that were meant to travel with an artwork when it changed hands. Many works of art have no official provenance, leading to frequent controversies about whether or not they are authentic.

With a blockchain-based registry, Gober, or the owner of the work, could register as much information as they liked, and then decide on a case by case basis how much to share with interested parties. Until now, there has not been a secure registry like this. Yet, at this moment, a number of players, including, most notably, Codex Protocol, are using blockchain to make this a reality.

I want to share this all with Gober. Perhaps I could have converted him to the church of blockchain, but he’s already gone, escaped up the block with his dogs.

Jason Bailey is a self-described digital nerd and the proprietor of a blog called Artnome, which he describes as a cross between Zillow and Moneyball for art; he says his analytical database of works by our most important artists is the world’s largest. When Bailey first heard about blockchain, in 2017, he immediately realized that its decentralized, tamper-proof nature could help him build a more robust historical record. Provenance of artworks is something Bailey thinks about often. According to the 2018 Art Market Report, published by Art Basel, the 2017 art market totaled almost $64 billion. Much of this exchange of value is conducted secretly and anonymously, with scant paperwork and complex machinations across borders and currencies designed to milk the most value and pay the least taxes.

Jason Bailey, of Artnome

Photo courtesy of Jason Bailey

TheChain: Image

The FBI estimates that $6 billion to $8 billion worth of artwork is stolen worldwide each year, to be resold privately or held for the future. And countless artworks are misplaced in museums. After the Mona Lisa was snatched in 1911, the Louvre did an inventory and realized it had lost more than 300 pieces of art, according to Milton Esterow, former owner of Art News, and author of The Art Stealers. Because there currently are not any reputable, comprehensive registries, misplaced and purloined artworks are hard to track.

An immutable blockchain-based registry of provenance would be searchable and trustworthy. Before being entered onto a blockchain, a painting would be photographed by any one of several methods that result in detailed images against which any painting could be easily checked for authenticity. Or it could be marked with a permanent diamond-dust “fingerprint” by a startup called Dust Identity. Once the data was entered with keystrokes or by scanning a QR code, and the block was closed, the information would be permanently stored. Any time a painting was put up for sale, its provenance could be checked, and if there were discrepancies between a rescan of the image and the original, the cryptographic hashes would be different. This would help prevent the sale of forgeries.

Conservative estimates say 15 to 20 percent of art on the market or in museums is either forged or misattributed; obviously, nobody knows the real number,” says Bailey. Recently, a small French village museum devoted to the work of Étienne Terrus discovered that half its works were forgeries. Even Google usually doesn’t know how many works a given artist created.

“Instead, this information, when available, is locked in rare, expensive, out of print books,” says Bailey. “We have more information on stamps, Beanie Babies, baseball cards, and Pez dispensers than we do on our most important art.”

To better understand the need for an irrefutable record of provenance, consider the case of the artist Ruth Kligman, who had an affair with Jackson Pollock while he was married to the artist Lee Krasner. One day, said Kligman, Pollack dripped paint onto a canvas set on the lawn outside his studio in Springs, Long Island, and presented it to her with the words “Here is your Pollock.” Several weeks later they were in his car when he drunkenly crashed into a tree and died. She survived to tell the tale of the painting.

Until her death in 1984, Krasner insisted the painting was a fake. The Pollock-Krasner Foundation, which was in charge of determining the provenance of all the artist’s paintings, supported that view. That means the painting can’t be represented in the marketplace as a genuine Pollack. Instead, it has to be described as “attributed to Jackson Pollack,” a distinction that reduces its value at auction by countless millions of dollars.  

Eventually, a police detective did forensics on the painting. He found a number of fibers and other materials in the work that seemed to corroborate Kligman’s story. One of the fibers was a polar bear hair. Polar bears are not exactly common on Long Island, of course, but the polar bear rug that had been in Pollock’s living room was still stored up in the attic. The foundation insisted the polar bear hair only showed that the painting had been on Pollack’s property, not that he painted it. In the art world, the foundation had the last word.

The whole kerfuffle could have been avoided had Pollock registered the painting on a blockchain, using a provenance service.

Jess Houlgrave, cofounder of Codex Protocol

Photo courtesy of Jess Houlgrave

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Clearly, tracking and securing provenance could be the first killer app for the art business. A London operation called Codex Protocol is at the forefront. I speak with cofounder Jess Houlgrave by phone in London. It is late in the evening for her, and the clanks of cookware as she talks suggest her life right now is one long multitask. Houlgrave began writing her master’s thesis on blockchain for the art world in 2016, and in 2017 joined Mark Lurie, who had founded an online marketplace for fine art, to create Codex, a decentralized registry for the $2 trillion art and collectibles market. Her theoretical experience, combined with Lurie’s industry knowledge, gave them a running start to build the blockchain-based platform in about a year.

Houlgrave sees Codex as an art and collectibles company, with blockchain as a useful tool to that end. She intends for the user experience to be as easy as possible.

“It’s very much of the zeitgeist to be a blockchain venture right now but I suspect that soon that kind of talk will be as dated as branding yourself as an ‘internet company’ would sound today,” she says.

Recently launched, the Codex Protocol registry records and stores information about artworks (or other categories of collectibles) securely on a blockchain platform. These records remain private to the owners of the work in question, but they can make whatever information they choose easily accessible to insurance companies, shippers, banks, or potential buyers.

Other registries using blockchain have popped up in the last year, but Houlgrave says Codex is the only completely open source, decentralized platform. It costs, in dollars, in the single digits to register a title, paid in Codex coin. The fees fall into a community pool, which eventually will be governed in a distributed way, by the consensus of the community members. In theory, and in hope, this means that all the members of the platform will be able to vote on how profits will be taken, and how the platform itself will be run—what blockchain folks call “governance.”

This completely decentralized governance, where every participant in the chain has a vote, is Houlgrave’s ideal for Codex. She’s guiding the company toward that outcome, even though it means she will eventually lose control over the enterprise (of course, she’ll keep some coins). Still, for now, Codex runs the show because there aren’t enough participants to ensure the system would continue to function well, at this stage, without Houlgrave and her team in charge. As more people and partners are added, the governance will devolve to total control by the token holders.

“The mechanisms aren’t fully developed yet,” says Houlgrave of this radically new way of running an organization. “It’s very exciting for the first time to create these ecosystems that are meant not to be under the influence of any particular government or body, but rather are managed by the people for whom they are intended. As an economist and business person I find it fascinating to create systems we’ve never before seen.”

Applications built on the open-source platform will accommodate bidding, fractionalized ownership through tokenization, and many other possibilities. The provenance ledger, like any blockchain, cannot determine the validity of the information that is entered into it. But once detected, false information will be called out in a future block that references the earlier block. This is a built-in incentive for participants to enter accurate information in the first place, and perhaps have it validated by a trusted organization. Once an artwork is registered on Codex, its future story will be tracked, immutably, throughout its life, as transactions, shipments, restorations, museum loans and other activities are entered into its provenance.

Maecenas is fractionalizing expensive works of art so even the lowest budget collector can own a portion of, say, an Andy Warhol.

To date, a variety of enterprises have partnered with Codex, to either use the open-source platform to customize their own applications, or to add information directly to Codex’s title registry. These include Feral Horses, a trading platform that aims to democratize the ownership of contemporary art. Feral Horses takes a painting and fractionalizes the value into small increments that can in turn be divided further, meaning it can be owned by a consortium of people who might not even know each other. Another partner, Maecenas, is also fractionalizing expensive works of art so even the lowest-budget collector can own a portion of, say, an Andy Warhol.

Codex has built its first application, Biddable, with LiveAuctioneers, a consortium of auction houses from around the world. The platform will allow the latter’s 12 million customers to more easily register for auctions, leaving a deposit in cryptocurrency for payment. The auction houses represented currently reject about one million bidders a year due to payment problems. They expect that the Codex platform will lessen this headache, and open the art market to cryptocurrency.

“We do not have the goal of disrupting the art ecosystem, which has existed for thousands of years,” says Houlgrave. “Rather, we see ours as a facilitative system. There are many things in the art world that are needlessly difficult. We hope to solve some of those problems, working with existing players, like artists, insurance and logistics companies, museums, and hedge funds. It’s a huge number of stakeholders, and every one of them suffers from frictions associated with unverified provenance.”

Authenticity is vital in determining the value of a painting, and if the provenance is in doubt, the value drops.

Tracking the provenance of a painting you are going to purchase on the secondary market is one thing. Buying a new artwork is a whole other problem. I visit a blue-chip art gallery in an old factory building on the far west side of Manhattan. Three impeccable young women in crisp, minimal dress are stationed at the counter, faces down, no recognition of my presence as I approach and flip through literature describing the paintings.  There are no prices, no cash registers, no suggestion of how I am to purchase this art. I leave with as much money as I had when I entered.

The experience of engaging with a high-end Manhattan gallery these days is akin to entering private club where the hoi polloi are allowed to mingle in the lobby, but all the networking takes place in secret rooms. That’s because galleries have very centralized control over the paintings they sell. They sell only to customers who they believe will enhance the value of the artwork in the long run, either because of their fame, great wealth, or reputation. If I were to win the lottery and try to buy a blue-chip modern artwork, I wouldn’t be able to do it until I’d proven myself worthy.

Beatriz Ramos, cofounder of DADA 

Photo courtesy of Victor Jeffreys II

TheChain: Image

The elitist art world might soon have a wake-up call as people seek out new places to purchase and look at and store their art—especially if it can all take place on a phone.

Just as we now own books and music on our phones, we can now own and collect artwork inside our devices. Which brings us to, a decentralized platform designed to let people communicate with each other through drawings and collaborative art. This platform, founded several years ago in a pre-blockchain moment by Beatriz Helena Ramos and Yehudit Mam, is now scaling up on the Ethereum blockchain with the aid of ConsenSys Ventures.

I take the L train to Jefferson Avenue, in Bushwick, to visit Dada’s corporate headquarters. Stepping through the front door of a barren, lofty co-working space, I find Ramos. Originally from Caracas, she has spent years in New York working as an artist and head of an animation studio. The low-key setting suits Ramos’s world view that “everything is wrong in the art world right now, and we need to give artists new options.” She believes that giving people access to art, and the resources to make it will benefit society. More than half of artists make less than $5,000 a year from their art. To improve that statistic, she is working with economist Michael Albert to design DADA’s system, which will be powered by smart contracts and tokens.

Albert has always followed a radical path, culminating in his philosophy of participatory economics. These ideas are helping to shape DADA’s economy into one that will benefit artists by sharing the wealth generated from a decidedly capitalist venture. To put it simply, this economy will benefit all the artists in the system, whether or not their work is popular.

On DADA, artists create artwork using the built-in drawing application. Working collaboratively is designed into the system. While she’s still fine-tuning the platform, Helena Ramos would like to see it reward artists for their effort, rather than just for their talent. Meaning that someone who works hard and contributes heavily to the platform will receive payment even if another person might not judge their artwork to be exceptional.

Ramos hopes to provide a minimum basic income to all artists who participate in DADA. To do this, she is leading an initial coin offering this fall that will sell tradable tokens—in the form of ERC-20 smart contracts—to investors who believe they will profit as the coins increase in value over time. Let’s say she raises $30 million dollars, which doesn’t seem out of line, considering that DADA has a stable platform, a good team, and a partnership with ConsenSys. About 50 percent of the initial tradable tokens will go to the investors. And 45 percent will go to a fund that provides income to the artists who participate regularly in the platform. Five percent of the tokens, or $1.5 million of a $30 million dollar sale, would go to Ramos, her cofounder, and their associates.

I’m stunned by this small percentage. While the value of the coins is expected to rise in time, clearly she’s not in it for the cash. She’s in it for the art, and the happiness of artists.

“What’s important for me is that people get to enjoy art, and that artists get to enjoy making art,” she says.

Blockchain, that technology of Lambo-worshipping crypto-billionaires, makes this egalitarian vision possible.

Main photo courtesy Clem Onojeghuo /Unsplash