Various works by Pablo Picasso at Christie’s London in 2005.
There is no question that the art market has changed. The process can be mystifying, and, while technology has brought greater transparency, there are still myriad factors that art buyers must consider in order to get a fair price. The proliferation of information available in the art world is a double-edged sword: When used correctly, it can be a powerful tool for making informed art-buying decisions and discovering the masters, or up-and-coming stars; but, if misused or misinterpreted, information about art can be confusing, leaving an investor wondering where to even start.
Technology has allowed more data to be shared more readily about the art market, and, as investors like Larry Fink place an increasing importance on art on high-net-worth investors’ balance sheet, the art market has drawn comparisons to other asset classes, like real estate. The art market carries a set of investing obstacles: Each piece is unique, so valuations can be challenging, and few—if any—direct comparables exist. This can lead to mishandled valuations and even fraud. In addition, buying, holding and selling costs are considerable and can scare investors away. And, perhaps most notably, art is highly illiquid, as buying and selling is infrequent.
Investors must understand these unique challenges and how to deal with them in order to successfully buy, collect and sell art. Previously, these challenges went largely unsolved, as art deals were made exclusively on trust and legacy knowledge. While this is still largely the case, blockchain technologies and social media have begun to address some of these challenges, opening up the art market for more buyers and more transparency.
The Blockchain Effect
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Francesco Guardi’s Venice, a View of the Rialto Bridge, Looking North, from the Fondamenta del Carbon at Sotheby’s in 2011.
Blockchain seems to be permeating every aspect of our lives, from personal finance to philanthropy. In the art market, it’s not a cure-all, but it has already begun to instigate changes and bring greater transparency to the marketplace.
Take, for example, fraud prevention. When researching art to buy and attempting to mitigate fraud, every art collector must take into consideration authenticity. The best way to confirm authenticity is by reviewing the documents that trace the piece’s ownership from the creator to the current seller, including the piece’s sales history, exhibition history and publication history—research that can take months. Tagging each piece of art on the blockchain gives it a digital identity and, after initial work and research is done and uploaded, may track these factors over time. This method is most effective for up-and-coming artists, allowing their work to be tagged and tracked from the very beginning.
But all new technologies come with challenges, and art collectors should not throw out the old in favor of tech just yet. It’s still imperative to employ experts to help authenticate and facilitate the sale of art, especially those with high valuations. This will help ensure that pieces are authentic and help prevent fraud. Blockchain could contribute to the future of art authentication, but these public ledgers operate separately from the traditional methods of tracking and authenticating art, meaning that some critical information may be missed.
What’s more, the art market is unregulated, and this disparity of information can open up opportunities for fraudulent activity. Although the future of blockchain for authentication may significantly reduce fraud, investors must remain diligent and utilize every resource they have (including technology and experts) to verify authenticity.
Democratizing the Market
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L.S. Lowry’s Industrial Escape at Bonhams in 2007.
Perhaps the most significant change in the art market to date has been its opening to new buyers. Although high-value art is still largely bought and sold via dealers, at auctions and private sales for only the highest net worth investors, new methods of buying and selling, facilitated by technology, have opened up the market to investors with significantly fewer dollars to invest.
Social media has given rise to a direct-to-consumer market for artists, allowing them to build a following of potential buyers, secure independent gallery bookings and sell directly to their target market. This may put more money into the pockets of artists, while giving investors a faster and more streamlined purchasing process, with fewer fees.
Additionally, blockchain technology has allowed the art market to be fractionalized. Now, investors with smaller amounts to invest can own a piece of a masterpiece as an investment, similar to how technology platforms have fractionalized the real estate investment market. This is perhaps the clearest and most direct comparison to another asset class that art has today.
A World of Opportunity
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Jean Dubuffet’s Etre at paraitre at Christie’s in 2013.
The art market has changed rapidly in recent years with the introduction of new technologies like blockchain and social media. The proliferation of data available about art—previously unavailable or highly fragmented and slow to retrieve—may be ushering in a new era of buying and selling that benefits both artists and collectors. But with all new technologies, the changes in the art market come with challenges, and investors must still take the necessary precautions to ensure authenticity of their purchases.
Despite this, the art market presents a world of opportunity for those who want to engage. From the most seasoned collector to the curious first-time buyer, everyone can participate in and master the art of collecting art.
