Is Blockchain the Future For Art Investing...Not So Fast!

The article listed below makes some interesting and valid points, however, it fails to address the gorilla in the room. That gorilla is the issue of fraud. What makes Bitcoin and other digital currencies so valuable is the anonymity of those using them. As such, someone wishing to sell a fake painting (of which there is certainly no shortage) can mask their identity using a digital currency. If a buyer of fine art were to discover that they were sold a fake, what recourse would they have? Is this company (whose CEO also wrote this article) guaranteeing the artwork? I didn't read that anywhere.

Last year our gallery was offered a painting by an individual who lived in Europe. The painting was by a major artist of the 19th Century. The work looked a little dubious at first glance, but I still proceeded to perform due diligence. I quickly determined that it was a fake. I learned something else that was quite interesting, namely that the painting was being offered on Bitcoin for the sum of $40 million. An ingenious no doubt, however, did the fraudster really think that someone would pony up that much cash without knowing the identity of the seller, and without determining authenticity? I guess anything is possible.

I agree that the fine art market is ripe for disruption, but in order for digital currencies to be that disrupter there must be first be a system in place that guarantees authenticity. This is no easy task, as even if this company were to make such guaranties, would investors buy into it? Can they develop a level of trust that investors have with the likes of Christie's and Sotheby's and established galleries. This remains to be seen, but to me it seems like a very tall task. Until then, bitcoin and other digital currencies remain another avenue for fraud in the art world.

https://ackermansfineart.com/

ARTICLE

Why Blockchain Is The Future For Investing In Fine Art

BY MARCELO GARCIA CASIL ON 06/13/17 AT 5:07 PM

 Blockchain technology can transform the way the financial world works. Besides being highly secure, transparent and robust, the key aspect revolutionizing the industry is that blockchain lets parties handshake and transact without intermediaries. By combining advanced cryptography with decentralized security, blockchain platforms democratize access to capital very much like email democratized access to communication worldwide.

This creates opportunities and threats for financial institutions. Well-established players who rely on being the trusted middle man are at risk. There is a reason companies like Visa or Western Union are researching and investing in the technology best-known for underpinning the digital currency Bitcoin. If people can make payments and transfer money across borders without needing a bank account or a third party, then these institutions’ business models crumble. The blockchain technology creates its own smart contracts to govern value transfers, meaning there is no need for a third party to verify the transaction. Its currency is trust.

Now, payments and remittances are not the only transaction areas dominated by intermediaries. Other industries such as real estate and fine art are also controlled by brokers and dealers — and they are ripe for disruption.

Fine art investment, in particular, has operated practically the same way for hundreds of years, with large auction houses like Christie’s and Sotheby’s setting high fees (up to 25 percent), controlling liquidity and access to information. They can get away with it because their centuries-old reputation makes them hugely trusted. But what if you could replace trust based on reputation with trust based on technology?

The $56 billion art industry is in desperate need of open and fair marketplaces that create transparency and liquidity. Blockchain technology can provide the foundation for a secure and efficient market that enables buyers and sellers to transact directly without intermediaries.

Want to own a Monet? A Van Gogh? Now, millions of people who have been priced out of the exclusive art market, can own a piece of a Picasso. Blockchain platform Maecenas democratizes access to fine art investment. It converts million-dollar artworks into smaller, financial units that can be bought and sold easily — literally at a fraction of the cost. For the first time, technology will allow investors, collectors and owners to exchange shares in paintings and sculptures easily and instantly, similarly to how stocks are traded today. And galleries benefit too. When a museum wants to add Rembrandt to its collection, it no longer has to ask a bank for a large loan and then submit to high auction- house fees. Instead, it crowd-funds the purchase on the Maecenas platform — and still gets to hang the masterpiece in its exhibition.

Art has long been an attractive asset class, thanks to its resilience in downturns and its long-term capital appreciation. And recent surveys show interest in fine art among investors and wealth managers is on the rise. But despite all that, the art finance industry is struggling to see trading volumes make new highs. The problem is that access to information is patchy as long as pieces are traded almost exclusively at outdated venues. Sales are still processed manually and settlement can take weeks. The inefficient, opaque process discourages too many potential investors, meaning art trades are too infrequent. In short, the art world must join the digital age.

Maecenas aims to make that happen. Investors will be charged a fee of just 2 percent each trade while owners pay no more than 6 percent of the price of their pieces. The brainchild of experts in financial technology and the art world, the company has received funding from a Swiss venture capital business, Polytech Investors, and galleries and collectors are lining up to list artworks at the platform’s launch.

Masterpieces will be traded briskly through an open exchange, giving frequent updates of what the artworks are really worth. Portfolio managers will be able to price their positions more accurately and diversify their risk by investing in a range of different art assets. They will no longer need to have their funds concentrated in a handful of hard-to-sell pieces.

Art should become a first-class citizen in capital markets, and have rich market data feeds, order books, indices and even derivative markets.

Blockchain can save the art investment world.

Marcelo Garcia Casil is co-founder and CEO of Maecenas, a financial technology expert, experienced in designing and building large-scale enterprise-grade applications, primarily focused on investment banking and financial systems.