“What good is this blockchain anyway?”
“The only use case so far is magic internet money.”
“Blockchain tech has given us new ways to speculate in silly ways, like crypto-kitties, but nothing more.”
These are a few statements I’ve heard in the last several weeks. I do understand them. New technologies don’t arrive in the world wholly completed with instantly obvious gains for society. They come iteratively, with plenty of fits and starts along the way. The status quo is obvious; the speculative future not always so.
If we only look at finished products, or obvious scams, it is too easy to conclude that the newest and greatest is really just overrated nonsense. This is exactly what people used to say about email, online shopping, or even the Internet. For that matter, the same was said about telephones, flight, and internal combustion.
Still it’s helpful to see examples of excellent applications, if only to help us gain understanding of the possible. Here is an excellent case in point.
Buy that Art!
Dadiani Fine Art in London adopted blockchain technology beginning last year, and not only in order to accept crypto as payment. Another application of the technology has now made the news. Dadiani is leading the first crypto art auction, scheduled for June 20, 2018. It’s a test case for how crypto-enabled fractional ownership rights of art will affect values.
The art house is auctioning partial ownership rights (of a total constituting 49%) in the Andy Warhol painting 14 Small Electric Chairs, with an estimated value of $5.6 million. The pricing of the fractional shares are determined in a conventional auction, payable in crypto tokens, including ART, the one floated by the house itself.
Ownership is recorded using a distributed ledger on the Ethereum blockchain Maecenas because it specializes in tamper-proof certificates for art. The idea is to democratize art ownership, making the opportunity available to everyone instead of just industry insiders.
Owners receive revenue based on paid public showings of the art in question. The analogy here is like stocks (emphasis on “like”) in a company but it pertains to a single object. Blockchain enables the valuation of the art to be divisible into small units of a much greater degree of complexity that could be obtained in the past. Those rights are recorded in an immutable record, drastically reducing the possibility of fraud and theft.
It’s very inspiring if you think of it. A painting is just one thing. You can make copies. But otherwise, it is hard to imagine a way in which ownership over the physical asset can belong to just anyone. But the image itself? There is a way in which it belongs to the world. All art does.
Blockchain is taking the model of ownership of the image and applying it to the physical painting too, so that anyone with the means can have a stake in the future valuation of a wonderful work of art. If this auction is successful, it will be widely emulated.
Who Owned This?
But there is more here having to do with an interesting word that is getting some air time these days: provenance. Provenance refers to the authentication of ownership and the trail of documentation of ownership. You know when you buy a car, you like to know that it has had only one owner? That may or may not be true but discovering that would require some documentation and perhaps some work.
It does matter, however, because if the trail of ownership is elusive, even the most valuable property can fall into the category of trash. If you own a Rembrandt for which you paid $10 million, and it turns out to be a fake, what is it worth? Maybe something but probably nothing, even if it looks exactly like the real one. Some experts claim that as much as 40% of art on the market is fake.
Provenance is crucial in establishing clean titles to houses too. I once tried to buy a house but the title company couldn’t produce a clear audit trail. The result was tragic. We couldn’t make a deal. The person occupying the place left. It fell into disuse and eventually fell down. A perfectly beautiful house made worthless just for the lack of credible documentation!
A New Method
People are always asking what is the real basis for Bitcoin valuation. The fundamental reason is that blockchain technology provides a new and improved way to document, track, and trade property claims. It performs the same core service as ancient technologies like clay tablets, or modern technology like databases, but with a twist. The audit trail is decentralized so that it can be accessed by anyone and there is no centralized point of failure. The record is immutable. The authority to make changes is commodifiable.
This is the innovation. Money is one application, perhaps the most remarkable because it was least likely to succeed. But there are many others, some known such as titles and venture funding and probably tens of thousands yet to be revealed.
The beauty of the art example of distributed ownership is that it gets the creative juices flowing. How many other applications of blockchain are out there waiting? Blockchain is like oil, like the Internet, like fire; that is, not a single instance with one use case but a resource with potentially limitless uses. doing countless other things. It is technology for building things and for making human relationships more peaceful and more prosperous.