Back to the list

$300 Million From Christie's And Art Tokens As A New Type of Trading

17 October 2018 08:57, UTC
Anna Zhygalina

Big changes in big business

The value of luxury art market accounts to $60 billion, and in the world of luxury goods everybody got used to trust the proven auction houses with centuries-old traditions. But despite of all the conservatism, even such market giants as Sotheby's and Christie's, strive for transformation in the digital age of the new technologies.

Christie's auction house with a 252-year history announced its first auction on the blockchain. Christie's pointed out in the press release, that this project is dedicated to one of the most famous collections of  20th century American art by the artist Barney A. Ebsworth. This collection is estimated to exceed $300 million total at auction.

Christie's is entering a totally new for itself space, relying on a partnership with the blockchain startup Artory, which will encrypt all the lots, as well as register all the auction trades on the blockchain.

It is obvious that Christie's was completely busy in preparing for the new auction and the related new upcoming changes, as the auction house representatives strongly avoided comments to the press on such topics for 2 weeks before the release. After the official announcement, the Christie's press center representative Rebecca RIEGELHAUPT made a comment for Bitnewstoday.com:

“This project is a collaboration with Artory company. It’s a new pilot program, with the one collection that will be registered on the blockchain. And it’s not involving the cryptocurrency".

What was the reason for such rapid changes, why Christie's recognized the blockchain as a necessity? And will its single competitor in this sector, Sotheby's, follow this example?

Perhaps one of the reasons is the desire to get rid of the possibility of counterfeit. Since the problem of counterfeiting entails much greater losses than the introduction of new technology. Prashant SURANA JAIN, the founder of innovative blockchain project in India, in an exclusive interview for Bitnewstoday.com said: "The cost of such kind of platform can be from $100 000 to $5 million, or even $10 million. It depends on the specialization of the platform and its functions”. In his opinion over the 1/3 of all luxury goods in the world that sold and produced is fake globally. “It’s very difficult to track the ownership trail of particular luxury goods and that is why people trust giants like Sotheby’s than any other individuals” - says Mr. JAIN, citing the example of cases where even such reliable auction houses sold fakes because of incorrect authentication.

According to him, if Christie's properly implement the system, it will have a positive impact on the entire market, for example, it may reduce the verifying cost by 90%.

In 2009, "The Odalisque" by Boris Kustodiev was recognized as a fake. This painting was purchased for $2.9 million in 2005 at Christie's. As a result, the London court decided to cancel the transaction and return the cost of the art object to the deceived owner. Another scandal ended with the examination of the famous painting by Vincent van Gogh "Sunflowers", that has been sold in 1987 for a record amount of $39.9 million. And although the new examination showed that the painting belongs to the brush of no less famous impressionist Paul Gauguin, Christie's experts were accused of criminal motives and incompetence. In May 2000, Sotheby's and Christie's simultaneously put up for sale the same painting – "Vase of Flowers" by Paul Gauguin. The conclusion was not in favor of Christie's: the analysis showed that this auction house had the fake one.

Worldwide, blockchain is already widely used to fight the counterfeiting and theft. Prashant SURANA JAIN told how the entire ecosystem is created with the help of IoT, which allows not only to identify the owner, but also to know the exact location of the luxury goods. “Through this whole idea is: we are establishing “Proof of Ownership“, even if someone gets stolen of his rolex watch, using iot and serialisation on blockchain the owner can be traced globally and the thief can be prevented or rather would be caught if he is trying to sell stolen watches, because as soon as it gets stolen one can go to any police station and register a complaint”. Thanks to this technology, you can register a complaint at the police station and record it in the history of the subject on the blockchain. In addition, according to Mr. JAIN, it opens up opportunities for the safe and direct sale of elite products on the blockchain due to “Proof of Ownership”.

It is not known yet if Sotheby's will follow the example of its competitors, but the representatives of this auction house refused to comment on some issues about their plans, referring to the active sales season. However, it is worth remembering that not so long ago Sotheby's also received a serious blow to the reputation when sold in 2011 for $11 million

the art work by the Dutch painter Frans Hals "Unknown man" was recognized as a fake in 2016. And in 2017 "St. Jerome" painted by Parmigianino sold at Sotheby's has been declared as a forgery.

The art to the masses: pioneers of the democratic crypto-market

While Christie's categorically rejects cryptocurrency for participation in trading, many companies in the luxury goods market are already actively using them. Edward NORMAN, the founder of the auction platform for the diamond trading, existing since 2009, told Bitnewstoday.ru about his experience with digital assets: "Christie’s and Sotheby’s, the two biggest auction houses in the world, the companies we are after competitively, they have online platforms now but they are not allowed to use cryptocurrencies. That’s in my opinion a mistake. The more methods of exchange are available between buyers and sellers the greater are chances of having the highly valued goods bought and sold in the first place. For me it’s a very simple issue. It just makes easier to exchange people money for goods. So there is no other reason for me not to do it.”

The innovative startups are already on the heels of the industry giants. And they set as the goal the democratization of the art heritage with the help of blockchain and cryptocurrencies.

One of the first attempts to democratize and scale art objects was the auction in December 2017, where the picture of the great Pablo “Buste de mousquetaire (Musketeer Bust)” on the Qoqa website was bought in parts by 25 000 people. Each new owner paid $50,5 (50 Swiss francs) from the total cost of $2.02 million. It was the first experience of shared or “fractional” ownership, where each customer received a certificate of shared ownership, allowing all owners to decide the future of the painting. However, it was an experience without the participation of cryptocurrencies.

Prashant SURANA JAIN explains, why such a scheme of ownership may be needed: “The problem is that only one guys in the community cannot buy it but together they can come contribute and get their heritage back. I believe that’s the whole idea behind cryptocurrency and blockchain - bringing power back to the community. Imagine people of that particular community can participate globally and get their heritage back. That’s the power of crypto and blockchain.

Also, maybe when they decide to sell that back all income can also be automatically distributed among the investors without relying on the third party or agents since they can trust blockchain as all the transaction details including the sale value is visible to everyone. Furthermore, they can vote on blockchain at what value they wish to sell by having consensys”.

Marc GARRIGA, the founder of the online platform for crypto-auctions Maecenas, brought "shared ownership" to a new level, offering a piece of art as a successful investment bought for cryptocurrency. It was Mr. GARRIGA who held the world's first crypto auction on June 20, 2018.

Buying a “part” of the lot for bitcoins, you can then sell it on the market, and all transactions are recorded in the Ethereum. Marc GARRIGA believes that the popularity of their auction is caused by the need to make profit from their crypto assets: “Currently, there is a need in the crypto space where a sizeable number of individuals are looking to divest their cryptocurrency portfolios. These individuals have amassed considerable sums of money in cryptocurrencies. Maecenas enables these individuals to divest their portfolio into art, thus reducing their exposure to crypto and finding a more stable and secure asset backed by a real artwork”.

Blockchain evangelicals believe that in the auction business, this technology will reduce high transaction costs, and the authentication blocking mechanism also allows for the introduction of opportunities for trading in forms of digital art that were previously difficult to exchange due to the complexity of registering the original property and preventing piracy.

However, the initial assessment of the authenticity and value of a new work of art still requires expertise at the first stage. But once the art object has been authenticated and recorded on the blockchain, there will be no need to repeat the attribution process before every next sale.

Crypto gallery as a new type of crypto exchange

Digital assets are gaining popularity in the art world, claiming to create a completely new art market.

In April 2015, the Austrian Museum of modern art MAK Vienna was the first to purchase a digital art object “Event Listeners” for bitcoins. And in July 2017, London's Dadiani Fine Art Gallery began to accept cryptocurrencies as payment for lots. Contemporary online gallery offers digital works of contemporary international artists only for bitcoins, using the services of Coinbase crypto exchange.

Maecenas, which we discussed above, also positions itself as a new kind of exchange: “This is the end goal. An exchange where users are able to buy and share shares of art backed by a real asset, is the actual artwork. This will allow investors to diversify their portfolios with a whole new asset class - Art. Our use case (art and blockchain) is one of the many out there in the market. However, as we grow and establish business operations, this will have a positive impact as a first validated use case” - said Mr. GARRIGA.

In order to fight fraud and illegal transactions, crypto auctions must use the KYC and AML process, and potential customers must go through certain verification steps before bidding. In terms of cryptocurrencies volatility risk, Mr. GARRIGA advises firms to hedge the risks.

The first and so far the only crypto-auction was recognized by the organizers even more successful than it was expected: 800 applications were received from 56 countries. “We received 3 times more sign-ups than we initially expected. The main goal of this private beta was to validate the end-to-end process of the Dutch auction and artwork tokenization using blockchain technology. Not only we achieved that, we successfully reached the funding target for the auction” - Marc GARRIGA said.

The only lot of the Maecenas auction was silkscreen by Andy Warhol "14 small electric chairs", which is estimated at $5.6 million, and the owner of artwork is Eliza Dadiani, who is the founder of London’s Dadiani Fine Art Gallery. As a result, it were sold 31.5% for $1.7 million at the auction, which means that every new fractional owner has a digital certificate confirming the right of ownership. These owners can now dispose of their shares as an investment or trade them on the Maecenas exchange in future.

Despite the fact that Mr. GARRIGA attracted to his gallery world-class works with a total market value of about $100 million, he does not consider himself a competitor to the traditional auction houses: “Regarding Christie’s and Sotheby’s, I think they are the market leaders and will continue to do so. We are just adding another option for investors to access fine-art”.