How new technology of Blockchain can stem illegal traffic of works of art?

Blockchain Technology

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Manhattan Art Auctions

This is an old art market rule: provenance of a work of art determines a large part of its value. While a prestigious past can increase the price, or even gets more valuation than the work of art itself, an insufficient amount of details about provenance cause issues. Artists foundations, experts and certificates of authentication help art market institutions to compensate for the lack of transparency intrinsic to this market. Unfortunately, all of these controls are not enough to stop forgeries or stolen works of art during wars to be auctioned off. This is the reason why Blockchain technology could be a revolution in the art market by guaranteeing the provenance of any work of art.

The dark side of the art market

This is the price of success: the rapid growth of art market during 20th century resulted in an increasingly important market of forgeries due to demand outstripping supply. For bypassing the distrust of auction houses and art experts, some forgers exercise high imagination about provenance of their false masters canvas. One of the most famous, the couple Wolfgang and Helene Beltracchi, created new canvas from lost masterpieces of Max Ernst, Heinrich Campendonk and many others. The illusion was total. Arrested in 2010 after more than 30 years of career, he declared “Sometimes, in a Christie’s catalog, there were three paintings by famous artists I painted”. One year after, in 2011, another scandal followed. The former director of Knoelder Gallery in New York, Ann Freedman, got arrested due to its forger activity. For more than 15 years, she was taking advantage of the great reputation of the gallery (the oldest in USA) to justify the mysterious provenance of great signatures. She sold more than 40 fake canvas of Jackson Pollock, Willem de Kooning or Barnett Newman, among others, and eared around $70M. Today, because of the lack of transparency concerning provenance, many canvas created by forgers are still auctioned off on the art market as original masterpieces.

Forgery to justify forgeries – This picture shows Elena Beltracchi (Wolfgang’s wife) dressed as her grandmother surrounded by fake paintings to justify their provenance.

The ease of investment in the art market resulted of another burden: money laundering. Lately, very high rise of prices in art market could be partly due to dirty money transactions. USA and European Union are preventing these illegal practices by imposing a maximum for cash payment. In France, customers can pay 3000 euros in cash at the maximum, and 15000 euros concerning citizens out of the U.E. However, in Asia, and mostly in China where art market is one of the least regulated, there is no limit for cash payment in auctions. Therefore, some experts are denouncing that 30% to 50% of auctioned art is related to laundering. Once bought with dirty money, works of art are transported abroad through free port area as Hong-Kong. A new identity about provenance and owner is established, and work of art is auctioned off again. This is one of the many techniques caused through the opacity of the art market.

lately, the looting of antique city of Palmyra by Islamic State in Syria has raised awareness of international community about the scale of illegal trafficking of stolen works of art. Indeed, this illegal market is the third most lucrative after drugs and weapons. Criminal organizations earn billions of dollars annually with antique art looted.

Blockchain : Revolution in progress

All these issues have a common denominator: opacity of the art market. The use of blockchain could become the ultimate weapon for art experts and auction houses by making provenance of each work of art more transparent and therefore, prevent illegal market to integrate art market.

Blockchain is the technology behind cryptocurrency. In simple words, it’s a new technology for storing and transmitting data. However, blockchain innovates in three points. Firstly, it is transparent: all exchanges intervened on blockchain are public and everyone can consult them. Secondly, these exchanges are ultra-secure thanks to an encrypted blocks system. At last, it is decentralized: a new transaction on blockchain appears through a vast network of computers, and not only on a centralized ledger.

First used by the financial sector with the cryptocurrency Bitcoin born in 2009, Blockchain technology is being compatible with many other trades. In the art world, this revolutionary technology could overcome transparency, copyright and ownership issues, and therefore restore confidence and proper functioning of this market. In addition to the above-mentioned issues, art market is growing on internet and many pieces of art are sold on Ebay without any guarantee for the buyer. For example, a research on Ebay about “Sunflower Seeds” leads to many lots mentioned as “Ai Weiwei porcelain Sunflower Seeds London Tate Modern” with prices ranging from 6$ to 500$. However, it is almost impossible to know with real guarantees which lot comes from the London exhibition and which ones are fake. This opacity impedes art market growing by dissuading a large part of customers to invest.

Tate Modern London – Weiwei and its artwork Sunflower Seeds.

These issues would be settled if all of art transactions were recorded into blockchain. Nowadays, many start-ups are proposing a blockchain service as Ascribe, Seezart, Blockai, Verisart. Then, as usual, new technologies result in innovations. Artprice is launching its own blockchain and builds also a OTC market (OutTheCounter) dedicated to the million artists not auctioned off. Maecenas offers “The first open blockchain platform that democratizes access to Fine Art“. This new investing platform enables art owners to trade 49% of their works of art. Purchase a Picasso is no longer beyond the reach of most people. Everyone should be able to buy a part (large or small) of a master’s painting and achieve profitability. By offering the possibility to outsiders people to participate to art investment, this innovating start-up enables market to widen his customers scale and therefore, increase even more the growth of art.

Blockchain technology is bringing a unique balance between the need of safety and innovation. In addition to overcome the oldest art market issue: lack of transparency; this new technology enables to develop new selling mediums complementary to auctions market.

Jimmy Arens-Reuther

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