Blockchain, Boom or Bomb for the Art Industry?
What is blockchain ？
Underlying technology of Blockchain is hardly new. On October 31, 2008, the white paper “Bitcoin: Peer to peer electronic cash system”was published by a person or group named“satoshi Nakamoto.”the paper, in fact, never mentioned the term Blockchain but explained the concept of chaining multiple data blocks in chronological order. It was a database solution to ensure that a payer in fact had sufficient money to make the transaction to a payee (known as“double spending challenge”) without needing a central trust party such as a bank. This database solution made references of multiple prior studies, one of which dating back as far as 1957. We, the public, made a new brand name for this technology “Blockchain”
and have been hearing that it can solve wide range of challenges in our society including world hunger issue. Perhaps the boom of Initial Coin Offering (ICO) made the Blockchain popular. A new, alternative way for a company to raise funds. Instead of relying on conventional and laborious process of Initial Public Offering (IPO) involving regulators, auditors and banks; ICO enabled crowd funding mechanism that anyone can invest in a company. As return on investment, one would receive the company’s electronic coins (a.k.a. Cryptocoins) implemented and managed by the Blockchain technology. It is a great news that the ICO opened the doors to the public by allowing anyone to invest during the initial offering. This also significantly improved company’s ability to raise funds efficiently. The brutal reality, however, is that the true value and acceptance of the Cryptocoins remains to be seen. For instance, if I cannot pay for a bowl of rice at my favorite restaurant with one-dollar worth Cryptocoin, then the Cryptocoin does not deserve the word “coin”in our society.
Regardless of how and why Blockchain became popular these days, the technology is an important part of the overall vision to any industry to improve or transform completely. However, it is not “the” automatic solution to a business problem no matter how small or large the problem is. Before applying Blockchain to their existing business, every industry needs to first identify and clearly define needs or problems that they are attempting to solve for their customers. It is not a tangible technology that consumers can feel and experience since it serves as an underlying platform. For example, if you buy a Bitcoin and sold it later, would you have seen or even care about the “chain of data blocks” that made it happen? No.
Application of Blockchain in Industries and its Trend
When I was 7 years old, my farther bought me a hammer so that I can help him around the house. I loved the hammer so much that I pulled out the hammer for every nail I saw, big or small, wooden or metal.even for screws, I tried to use the same hammer. Adoption of Blockchain by almost all industries feels a bit the same way. Technology developers already developed many flavors of Blockchain platforms and have been looking for more nails to hammer in. It is also business leaders’responsibility to ensure that statements of business problems to be solved are articulated well and applicable for Blockchain to solve. Even if Blockchain is the right solution, business leaders must acknowledge that it is only one piece of the puzzle in their overall business, often referred as “Blockchain ecosystem.” Changing the industry to desirable state is often much more difficult not because of the Blockchain solution itself but other pieces of the ecosystem such as business process, workflow, people talent and governing policy. Many people asked whether I have seen a successful Blockchain implementation. Although there may have been successful proof of concepts via pilot programs or operational efficiency cases, I have yet to see a notably impactful Blockchain implementation that has helped change an industry fundamentally. Having said that, I give a lot of credit to the Bitcoin implementation itself for providing alternative means of payment that has never existed before in the financial industry. When people lost trust in banks during the 2008 financial crisis, Bitcoin did address the problem by taking the banks out of the equations and enabled peer-to-peer payment without centralized bodies, banks. Did it change the current financial industry? No, not yet. It still lacks consumer protection interest and has high volatility. But, it did successfully offer an alternative means of payment without traditional banks being in the middle. By leveraging this concept, several new companies in financial industries started developing payment network to communities where stable and trustworthy banking system does not exist. I also witnessed a donation process for communities in need that did not require a third party administrator who manages and distributes funds for the two parties involved; hence, eliminating the middle man who can potentially mismanage the funds. These are wonderful signs of what Blockchain could enable. In manufacturing industries, companies have struggled with managing complex supply chains. Since Blockchain offers ability to automatically execute contract
(a.k.a Smart Contract) then send and receive funds accordingly, the companies have adopted some forms of Blockchain to decentralize the management of the supply chains and automated the execution of buyer/seller contracts. In healthcare industries, much discussion related to medical record management have flourished. Once medical records are generated and signed by a doctor, the integrity of the record must be secured. As the records are being used and updated, the trail of activity and changes must be recorded. Since patients go to multiple hospitals and medical offices and see various healthcare specialists, easy access to their own medical records are critical. Blockchain could address the protection of data integrity, medical record history traces by creating the“chain”and providing transparency to multiple healthcare providers by distributed and open ledger solution. Blockchain can solve healthcare’s long overdue problem of medical record management issue. However, I would like to emphasize that the current organizations that are already in the position of creating, collecting and maintaining medical records, must accept that the patient’s data do not belong to them but the patients. Transparency in patient’s data and interoperability within the medical industry are achievable only through the patient’s (data owner’s) empowerment, not the Blockchain itself. Gartner, a leading technology research and benchmark company, noted the Blockchain’s trend well in March 2018 by stating “massively hyped state of blockchain adoption and deployment.” I a gree w ith t he s tatement, b ut I d o n ot think it is solely due to the immature aspects of the solution or the dependent components within the ecosystem, but more so caused by disconnect between business expectation and what is meant to solved by the Blockchain.
Why Art Industry?
I attended“art and Technology”conference hosted by Christies’in London in July 2018. One of the panel speakers summarized the industry’s condition in one
sentence: “We are unhealthy.”the global art market is approximately $65 billion per year, and mere 150 top collectors are making the bulk of the transactions, leaving out the majority when art work is meant to be a form of communication reaching as many people as possible. What are potential business issues of this relatively closed industry, the world of Art? And let’s not think about Blockchain for a minute. Artists do not have good access to the market place, and emerging artists have even harder time breaking into the market; Neither artists nor buyers have transparency into valuation of an art; Arts are generally not affordable, and yet there is a general perception that artists cannot make a decent living and that galleries are not sustainable; Provenance and trail of subsequent transactions are very hard to find, and this discourages market activities; And, lastly, as digital medium gains more popularity, digital copyright is becoming harder to enforce, resulting unsustainable market value. Could Blockchain address these issues of the art industry? I would like to think so and remain cautiously optimistic. Blockchain’s key capability offers creation and maintenance of immutable records. A new art work could be registered in this public chain of database and all subsequent transactions of the art work could be recorded for everyone’s transparency. One could seamlessly learn and verify where an artwork came from and where it has been at what price. Even if a con artist could make an unauthorized copy of the original, a buyer could check its claimed source against the transaction history in the Blockchain. As provenance and authenticity trail could be verified seamlessly, we can enable more open and active market place for prospective buyers. Artists and galleries, collectively “art sellers,”could also benefit by this Blockchain powered platform. This creates a new market place that art sellers could now offer fractional ownership of an art work that otherwise could have been too expensive for a single buyer to purchase. Through the execution of Blockchain’s smart contract capability, the platform could issue Crypto Tokens representing the co-ownership of the art work. The fractional ownership represented by Crypto Tokens would attract much broader audience, allow art investors to hedge risk, increase market liquidity, and enforce copyright and ownership. An arrangement can be made so that the art can be enjoyed at home one owner at a time by taking turns.
To be is not to be
It sounds too good to be true as I think about what Blockchain could do for the art industry. The successful implementation and adoption of the Blockchain depends on all market participants. They are accountable for being fair and honest within the new marketplace. The Bitcoin white paper clearly noted this point by stating “the system is secure as long as honest [people] collectively controls more [computing power] than cooperating group of [bad actors].”for example, group of bad actors could potentially create massive amount of fake records to invalidate original arts. Or they could collectively buy out large amount of ownership only to create speculation then immediately sell (a.k.a Pump and Dump in financial industry). Instead of creating trustworthy peer-to-peer network, my worst worry would be having multiple centralized hubs of Blockchain under the mask of “Decentralization.”to protect against such bad actors, our society historically created and so far relied on centralized governing or regulatory entities. Through Blockchain, we can improve the market activities and fuel growth of the industry by removing those centralized entities, but we cannot ignore what they were originally meant to do for the public. To make this successful for whatever industry, we must not only implement the supervision of entity organization but also utilize the blockchain technology.