The tokenization of assets is changing fine art ownership

16 July, 2018

Fine art collecting requires a significant amount of cash upfront. In fact, the very mention of "fine art collecting" dredges up pictures of smoky cigar lounges, snifters of brandy, and fast-talking auctioneers.

The world of fine art collecting has always been an exclusive club, with membership prices stretching into the millions of dollars.1 This upper-crust pursuit is being democratized by blockchain technology, however. The tokenization of assets is changing the way fine art is both created and sold and creating opportunities for fine art ownership at all levels of society.2

Digital Signatures

It's probably best to start in the world of digital art. What makes an artist's original digital work different from a copy? For that matter, what makes any original digital creation different from the real thing? When it's easy to just Ctrl-C-Ctrl-V a painting, short story, or other digital creation, what is the value of owning an artist original?

This question came to the fore with the rise to prominence of Napster, BitTorrent, and other peer-to-peer file sharing utilities. Lawsuits filed by the Recording Industry Association of America and championed by mega-artists like Metallica alleged that copies of original artworks were themselves valuable and possessing them was a form of counterfeiting. Freedom advocates argued that the files were basically worthless if they could be created with a simple copy-paste command, and the artists ought to seek value for their work elsewhere.

This became a powerful bone of contention between artists and their fans. How could an artist simultaneously share his or her work without surrendering ownership of the work? How could they prevent their hard-earned work from being digitally diluted?

The blockchain provides the answer with digital signatures. Much as an original painting, baseball card, or other collectible item can carry a verified signature or certificate of authenticity, the cryptographic signatures that make up blockchains can be used to differentiate an authentic original piece of art from a simple copy.3

It's not really much different from the process that makes each Bitcoin both fungible and unique. A digital signature is assigned to the artwork in question, effectively tokenizing it. This digital version of the artwork can then be bought and sold as a stand-in for the "true" digital creation in question.

It's a short hop, then, to tokenizing real-life assets.

Bit Mona Lisa

Nick Szabo's "bit gold" proposal is at the heart of this new blockchain innovation.4 Although Szabo is probably most famous for his development of smart contracts, he also refined the concept of taking a real-world item and assigning it value on the blockchain via a cryptographic signature. This signature acts as a coded certificate of authenticity, ensuring that the token you own is unique to a single painting, sculpture, or other work of art.

This makes buying and selling art a matter of trading tokens, in the end. The physical work of art can be moved - or left in place in a museum or gallery. The proper owner isn't determined by who has physical possession of the work, but by who owns the tokenized version. This greatly simplifies events like auctions and safeguards potentially fragile works of art from damaging shipping or hastily set up displays.5

In this model, then, it's possible to buy and sell the Mona Lisa without it ever leaving the wall of the Louvre and with no possibility of forged authenticity paperwork. The applications are endless; tokenized fine art doesn't have to be limited to painting, or even tangible objects - songs, dances, light sculptures, and more can all be translated to the digital world while retaining their value and uniqueness.

My Rembrandt

This tokenization process can be inverted to take a single piece of fine art and break it up into shares. Many different tokens, all carrying a distinct cryptographic signature, can represent a portion of the artwork in total, much the same way many different shares denote ownership in a company.

There are several reasons the holder of a work of art may want to tokenize, break up, and sell shares in the piece. The most obvious is fundraising. Preserving fine art is costly, and many museums must rely on the aforementioned smoky cocktail parties to secure generous donors for continued art upkeep and acquisition. Selling digital "shares" in artwork that carry real value could be a quick and easy way to drum up liquidity for an artwork's upkeep without surrendering ownership of the painting itself - the Mona Lisa can remain on the wall at the Louvre, which retains a 51 percent share, while the remaining 49 percent of shares can be sold on the open market to keep her smile crisp and unfaded.6

There's a motive for the art-loving public to support tokenization, as well. Owning the Mona Lisa is out of reach for all but the most prestigious institutions. Even owning a second-rate work by one of the masters is impossible for all but the extraordinarily rich. The public at large must make do with cheap prints or costly pilgrimages to the gallery to see the artwork in person.

Tokenization won't change that, necessarily, but it will change the way the public at large views fine art. Right now, fine art is a cultural outlet, a hobby of appreciation. Making money from or storing value in fine art isn't in the cards for most folks; they must be content to admire at a distance. This has contributed to a sense that fine art appreciation is only for a select group of folks with the money and the leisure time to get anything tangible from it. Fine art lovers without boatloads of money are like the folks who window-shop at Neiman Marcus but never actually walk into the store.

Tokenization changes that paradigm. If it's possible to buy just a tiny slice of the Mona Lisa, which isn't going to lose its value anytime soon, it's possible for the Average Joe to store value in fine art. This obviously creates value for the artist, the museum holding the piece, and the Average Joe.

Perhaps more importantly, however, it promotes the idea of fine art as something other than a pursuit for the ultra-rich, like fox-hunting or dressage competitions. Fine art enters the realm of regular investing, and an investor with regular amounts of money could include Rembrandt and Botticelli in his or her portfolio alongside General Electric and US Steel.

Democratic Art Revolution

Decentralized blockchain technology is hard at work putting power back into the hands of the people in fields from medicine to political science. Within fine art, however, the blockchain may just have the ability to give power to people who never had any at all. Tokenizing fine art opens the door to more general ownership and, hopefully, more general appreciation. Blockchain turns fine art investing from a hobby of the jet set to a cornerstone of the Average Joe portfolio. Soon, it may be possible to drag out your laptop at a neighborhood barbecue and ask your jealous neighbors over a glass of fine Coors Light, "Would you care to see my new Van Gogh?"


1) Wowed by the Auction Battle for 'Salvator Mundi'? Hong Kong's Epic Bidding Wars Put That to Shame, Art Net News.

2) The Blockchain Art Market Is Here, Art Nome.

3) 5 Ways Blockchain Technology Is Changing How Art Is Made, CoinCentral.

4) The Genesis Files: With Bit Gold, Szabo Was Inches Away From Inventing Bitcoin, Bitcoin Magazine.

5) How Blockchain Can Change the High-End Art World, CoinCentral.

6) Art and Blockchain: Revolution in Art Collecting, Coin Telegraph.