Art is in the eye of the beholder, and everyone will have their own interpretation.”
Once viewed as a patchwork of regionally focused art markets, the art world has become an integrated global system. Issues concerning artworks and art transactional integrity now span insider trading, conflicts-of-interest and money laundering to other systemic issues.
This means that museums and high net worth individuals, will increasingly face what is today’s perhaps most vexing and seminal art industry issue: the risk surrounding legal title or ownership of highly portable, high value art objects which physically move and actively trade throughout a globalised marketplace and, like magnets, attract title risk.
Art is a inter-generational investment for institutions as well as individuals, and today it is underpinned by art fraud and dubious legal title or provenance.
The Fine Arts Expert Institute in Geneva stated that over 50% of the artworks it had examined were either forged or not attributed to the correct artist.
The art industry has never systematically recorded both sides of each transfer of ownership of artworks. As a consequence, one can never be certain that any given provenance is complete and accurate, even if one assumes that the partial information is true. Furthermore, the art industry has shown that provenance documentation itself can be faked and forged, with greater ease than art forgeries.
The art industry has never systematically recorded both sides of each transfer of ownership of artworks. As a consequence, one can never be certain that any given provenance is complete and accurate, even if one assumes that the partial information is true. Furthermore, the art industry has shown that provenance documentation itself can be faked and forged, with greater ease than art forgeries.
Today no catalogue raisonné, can prove that the provenance information it incorporates, is accurate, nor can it prove that the provenance data contained is complete. Finally, no catalogue raisonné can demonstrate that a specific artwork trading in the art industry is the specific artwork to which the catalogue refers.
One of the art market’s greatest challenges for works where the artist is no longer alive, is to verify its authenticity and provenance to an acceptable investment due diligence standard.
While the art world is shrouded in secrecy and self appointed experts, the issues are actually very simple.
One of the art market’s greatest challenges for works where the artist is no longer alive, is to verify its authenticity and provenance to an acceptable investment due diligence standard.
The Problem
While the art world is shrouded in secrecy and self appointed experts, the issues are actually very simple.
‘Is the artwork authentic, and does the seller have the authority to sell it?’Legal title is the full and absolute legal and equitable ownership of property unencumbered by any interest in or to the property by any other person in the world. Having clear legal title to fine art property means that one has the unrestricted right to hold, use, sell, donate, exhibit, pledge as financial collateral or otherwise transact the property – what the law recognises as the right ‘to enjoy’ the property.
The biggest art fraud in modern history was shockingly simple. Yet it went on for 15 years, duped some of the world's most sophisticated collectors, brought down a 165-year-old New York gallery, and brought in more than $80 million.
Even if one can solve the authenticity legal title issues, can one achieve a legal transfer of authentic title to the art, which can be enforced on a global stage, basally the classic financial system, unconditional transfer of title with legal finality.
Today this simple expectation within any art sale, is problematical and cannot be guaranteed.
Provenance
Provenance is crucial when it comes to collecting art and highly valued collectables. If anyone claims to own a Picasso painting and can establish no knowledge or record of its history, they are going to have a hard time when it comes to selling it. Not having a record of the ownership history for a piece often raises suspicion that it could be stolen or fake.
The art industry has long held a distorted view of provenance, namely being the history of the location or holder of the art work. This was driven in part by the portability of art objects and the lack of any ability to practically track title transfers or ownership of the art object, in a manner similar to "land titles".
Legal title is not the equivalent of physical possession. Many art industry stakeholders misunderstand this distinction. Legal title is the full and absolute legal and equitable ownership of property unencumbered by any interest in or to the property by any other person in the world. Although legal title issues have long been present in the art industry, broad awareness of the ramifications of legal title questions came to the forefront in the context of World War II (WWII)-era stolen art.
All transfers of art objects, like all legal forms of transfers of property, follow "no one can transfer more right from himself than he has," current possessors' claims of title are very limited in law.
Clear legal title goes to the heart of the value of art objects, and questions of liability.Provenance[8], correctly defined, means the history of the ownership including all legal title transfers of an artwork from the day it was created by the artist to the present day. It is important to note there cannot exists any Gap in provenance, as some time used by the art industry to cover up any loss in continuity of an art object provenance.
The legal system[10] has historically managed the differences between "real property" (immovable) and "personal property" (movable property), while ensuring there is no legal ambiguity of property title[9], the artificial constructs used within the art industry must be deprecated to ensure integrity of the fine art world.
Fine art as private digital bearer property
Ownership of digital goods is not the same as ownership of physical goods. The underlying causes of this difference are complex, and unwinding the mess requires a return to the history of property and its first principles so that we may gain a clearer view of the specific problems plaguing the digital environment.
At its simplest level, a property is an asset plus a property title property is technically defined as the rules governing access to and control of assets, whether those assets are land, means of production, inventions, or other creative works or fine art. Within every society, laws known as property rights regulate which entities can assert ownership claims to which assets and what rights come with such property claims.
A valid ownership claim functions as a “bundle of rights” for a specific property and can include such rights as:
- the right to exclusive possession
- the right to exclusive use and enclosure
- the right to transfer ownership (conveyance)
- the right to use as collateral to secure a debt (hypothecation)
- the right to subdivide (partition) any rights
We propose a technical and legal framework where the digital environment’s most pressing negative externalities can be ameliorated by the introduction of digital property rights. These rights as digital property is the alignment of property rights bundle with legal possession of said property via a public ledger.
We term this resulting codification, digital bearer assets.
Digital bearer assets affords digital property the same bundle of private property and privacy rights historically attached to land. A property system for digital properties supports both legal and technical protection of property rights over legally codified collectable such as fine art.
The appropriate legal codification of an art object, combined with the global transparency provided by the public block chain ledger, potentially affords an ability to finally seal the provenance chains, including past provenance gaps and establish unambiguous legal title, over all fine art objects, for the first time in human history.
The Block Chain Asset Register
To enable this recording of property titles across the full depth and breadth of the the global assets or property, the solution supplements existing methods for tracking provenance with a globally and publicly accessible property register known as the Block Chain Asset Register.
This block chain register is the technical implementation which affords the non-fungible legal codification of any asset which can be demonstrated to achieve BIS Model 1 unconditional settlement with legal finality, when title is transferred between a seller and buyer. Part of this codification involved the collection of public provenance for the asset and unique global identification.
The global decentralised Block Chain Register contains every single property and provenance ever recorded in the Block Chain Ledger system. This codified ownership registry satisfies the functional requirements of conventional property systems in a decentralised public data resource.
The Block Chain Asset Register allows anyone to safely and easily claim property rights, and securely transfer said property rights, via atomic swap exchanges of bearer assets, within a digital environment as safely and easily as they can transfer physical properties.
Fine Art DNA
In order to achieve global economies of scale, the fine art provenance registry make use of commodity Block Chain Ledger with custom "meta data", this removes the need for a "global art standard" to verify fine art property.
The current approach creates a globally unique and non-reproduce-able DNA or finger print of each art piece. This finger print is securely bound to the non-fungible provenance chain.
This art equivalent of a VIN number for a classic car could underpin essential provenance records without the need for a physical tag or surface contact.
Any solution has its time, and today for the first time in human history, we can achieve an secure and commercially viable unique DNA print for each digital property or fine art piece on the planet.
The Unbroken Provenance Chain of People
The provenance chain traces a unbroken or immutable pathway though the various decentralised Asset Registers, from the point of the art creation. There exists no centralised, database, blockchain thingy, museums or curators of the fine art property provenance; hence the chain cannot be corrupted or censored.Fine Art objects travel, they are bought and sold, ownership and possession moves across geographical dispersed locations and the art piece itself, physically change over time—this journey is called its provenance.The secure, decentralised provenance chain, is about managing Provenance and Title Risks.
Disputes between purported owners of art objects are settled by comparing the quality of each claimant's provenance, or chain of title, and awarding legal title and possession to the stronger claimant. The legal objective of the Block Chain Ledger Provenance chain is to ensure the non-reputable holder of the "private" key, assorted with the last entry in the Public Asset Register is the legal owner of the property, in a ubiquitous legally recognised manner within all national jurisdictions.
The fine art provenance chain is part of our overall "Internet-of-People"vision, as without people no art exits.
The Art of Liquidity
Art collecting is so much more than an investment, but for those that seek to include art in their portfolio.
Art is an illiquid asset because selling an artwork is not an immediate process despite the mechanism used. Dealers, auction houses and galleries usually incur in complex processes to complete a transaction between a buyer and a seller. Furthermore, transaction costs are much higher in the art market than in most financial markets. Despite many investment qualities, when simply collected and not securitised and diversified art often is an illiquid asset.On the upside, in the art market there is a practical impossibility of a collective panic situation, as opposed to stocks that can suffer from a double-digit decline in a single session.
The art investment industry is in the undergoing a development process and very few institutions have managed to build a solid track record so far. However, as financial specialisation continues to permeate in the art market, issues such as art’s liquidity via Global Decentralised Asset Exchange (DAX) utilising digital bearer assets to safely and securely match buyers with sellers on a global basis will significantly increase fine art liquidity for all investors. For an investor perspective, this affords the opportunity for Fine Art to become a financial product?
Enter the world of The global Fine Art Exchange.
The Fine Art Exchange
Given the legal codification of collectables, one can now enter the world of atomic swap decentralised exchanges, these are not a unique construct created for the collectable or fine art world, but a standard component of a global Financial Market Infrastructure.
The key observation is that any change of ownership via an atomic swap guarantees the unconditional transfer of title of the digital bearer asset (property) with legal finality.
The fine Art property revolution, via legal codification on the Block Chain Asset Registry, and executed on the global atomic swap, Block Chain Ledger Asset Exchange.‘When you buy an artwork, you’re not clicking to buy the piece, you’re falling in love with it. This is a different kind of transaction, it’s based on human emotion and relationships.’
The fine art exchange is not a pure technology play, technology is simply the enabler for secure human based transactions.
Be-warned
Put simply: ‘If you put crap in, you will get crap out.’ Similarly, services such as art authentication are carried out independently of the system described, hence due diligence must be done before inputting the data. Companies, which forensically authenticate works with a globally unique finger-print, require a underlying non-fungible register and provenance chain. The associated legal codification of the property as a digital bearer asset is the elusive missing link between the physical object and its digital property.
Legal codification of fine art is an expensive and time consuming process, and hence only economically viable for a range of high value objects, beware of those peddling technology only solutions, having data integrity without legal binding to the digital property has very little actual value in today's global world.
It must be recognised that today, it is estimated that less than 50% of the worlds fine art objects, are likely to achieve legal codification, and hence while these art objects may still have artistic value, their investment value is likely to deprecate towards zero.
The ethereal digital world?
I am constantly bemused by those that peddle technologies as an alternative universe detached from the real world in which humans exist. These thingies peddle "immutable", "trust" without humans, based solely upon " rule of code", and algorithms; without the need for anything outside their platform.
'What of the scenario where criminals take possession of your art objects? Holding the private key on some piece of technology won’t magically return the art objects to you or enforce property rights that have become a hallmark of well-functioning economies. You’ll need to either take matters into your own hands to persuade or coerce the thieves to return your art, or you’ll have to appeal to an executive force that you trust to enforce your rights to the art object. There is actually no point of creating a technology based system which has zero points of convergence with the "rule of law".
If one needs to trust a government and courts to enforce your rights to a physical art object, that cannot exist solely within any technology context, then one has to acknowledge that no blockchain or technology thingy on its own can exclusively enforce rights over the art object, as physical art must exist solely in a physical world?
The legal codification process of a "digital bearer asset" is the linkage between the ethereal digital world and the physical world of art and the legal enforcement of the rights contained within the digital bearer assets over the physical art object.
Disclaimer
The contents of this site should not be understood to be accounting, taxation or investment advice but rather as general product related educational information that may or may not meet your specific requirements.
References
- Digital Bearer Assets, the next revolution
- The Future of Forever
- The future of food, is farm to plate
- Decentralised Atomic Swap exchanges
- Block Chain Marketplace - Governance
- The Global Block Chain Marketplace
- The Internet of People
- Provenance:A record of ownership of a work of art or an antique, used as a guide to authenticity or quality. -- The Oxford English Dictionary, second edition at 710 (1989) and Dictionary of Art (4th ed.), Oxford University Press, at 504 (2009) .
- Legal Title: Legal ownership of an asset or property specified as a clear and enforceable title.
- Property law is the area of law that governs the various forms of ownership and tenancy in real property (land as distinct from personal or movable possessions) and in personal property, within the common law legal system. In the civil law system, there is a division between movable and immovable property. Movable property roughly corresponds to personal property, while immovable property corresponds to real estate or real property, and the associated rights, and obligations thereon.
- Art and Cultural Heritage: Law, Policy and Practice --University Press, Barbra Hoffman
- Rules for the Transfer of Movables: A Candidate for European Harmonisation
- Technology such as 3D printed reproductions of fine art works. "reproductions, accurately capture the colour and relief of an artist’s original brushstrokes."
- Liquidity in the Art Market
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