Art Market
Could Blockchain Put Money Back in Artists’ Hands?

There’s a hypothetical Amy Whitaker likes to use when she pitches her idea for a blockchain-enabled art registry that would let artists retain an equity stake in their work, giving them a piece of the financial action if prices for their works go up.

What if American painter and sculptor Robert Rauschenberg had packed up his paintbrushes a few years into his career, moved to Albuquerque and become an accountant? How likely would it have then been that his early works, such as the 1958 painting Thaw purchased for $900 by taxi tycoon Robert Scull, could sell at auction fifteen years later for $85,000, a 94-fold gain for which Rauschenberg received not an additional penny?

Her example illustrates the ongoing work artists perform to build their careers, an investment that often redounds to the early purchasers of their work, who can sell those cheaply acquired pieces for multiple times what they paid, but not necessarily to the artists themselves.

“We’ve democratized creativity, but we haven’t democratized ownership,” says Whitaker, an assistant professor of visual arts management at NYU Steinhardt.

She’s proposing a way to do just that. By registering artworks with blockchain to establish authenticity and create property rights which can then be split off and traded, artists can retain an “equity share” in the works, much like the founder of a startup retains an ownership stake that grows in value as the company expands.

Whitaker is not the first person to try to help artists benefit from an increase in their works’ prices. But until now, she said, contracts or legislation mandating that artists benefit from the resale of their work were unwieldy and difficult to enforce. The emerging technology of blockchain could change all that. It “allows near seamless transfer, without transaction costs,” Whitaker has written.

Blockchain, a digital ledger made up of blocks of data, is a “distributed registry of authenticity,” as Whitaker put it in a recent white paper. The ability to easily establish ownership, track authenticity and trade shares would mark a significant upgrade from the current system, in which copyright clearances are often still handled by fax.

Most importantly, such a platform would help “align price and value for the artists,” Whitaker says, enabling them to participate in the economic value they help create.

Consider what happened to Rauschenberg, who, far from pursuing a quiet life as a suburban accountant, went on to push the boundaries of sculpture and performance, collaborating with everyone from choreographer Merce Cunningham to the National Aeronautics and Space Administration (NASA). His continued investment in his own career drove prices higher for his oeuvre as a whole.

In Whitaker’s vision, Rauschenberg’s famous auction-house confrontation with Scull could have been avoided if he had retained a stake in the works himself (the artist shoved the collector, then asked him to buy a new work at his current, sky-high prices). It works like this: Instead of the typical 50/50 split between artist and dealer on a primary market sale, the artist forgoes 10% of the purchase price and receives 40% plus a 10% stake. The value of that equity stake rises as long as prices for the artist’s work go up, meaning Rauschenberg could have recouped $8,500 at the auction had he forgone $90 in cash at the time of the primary sale.

Contracts and legislation with similar aims already exist. In the 1970s, for example, the art dealer Seth Siegelaub developed a contract, The Artist’s Reserved Rights Transfer and Sale Agreement, that stipulated artists were entitled to 15% of the profits on any subsequent resale of their work, and of course contract provisions can be worked out on a case-by-case basis. The European Union and the state of California mandate artists royalties by law, but Whitaker points out that enforcement is weak. Over the period from 1977 to 2011, the council in charge of collecting royalties from the California Resale Royalty Act netted just $325,000 in royalties on a total $6.5 million of art sales.

“This debate has been going on for over a hundred years,” says Franklin Boyd, a New York lawyer specializing in intellectual and cultural property rights. She says she is intrigued by the potential for blockchain technology to help facilitate artists’ resale rights, but cautions that the radical ownership transparency promised by blockchain might butt up against the art market’s culture of privacy.

Indeed, that’s part of its promise, says Whitaker, who is preparing to launch such a platform herself. She is currently inviting galleries to contact her and share historical sales data anonymously to help build a model portfolio. Whitaker also serves as an advisor to Bitmark, a Taiwan-based firm that helps enable property rights for digital assets. Blockchain could provide an elegant private-sector solution that lets artists easily track an artwork and its traded price as it passes through the hands of collectors and institutions, bringing much-needed transparency to a market long on information asymmetry and opacity.

It’s unclear who might be the first to adopt the technology. Collectors could be disincentivized to use it, because it could stymie their ability to resell works, a criticism that’s been lobbed at similar royalties efforts in the past. Professor Roman Kräussl of the Luxembourg School of Finance says artists clearly have the most incentive to use it, but if none of the artists who take it up have a large market presence, it’s hard to see the technology gaining traction. He could envision a progressive gallery or a prominent artist getting on board, though, and pushing others to do the same.

Giving artists a chance at the upside “would revolutionize the art world, and would make it a bit nicer,” he says.  The art market, according to the most recent TEFAF Global Art Market Report, was worth $45 billion in 2016. But despite those jaw-dropping numbers, Kräussl says, “no one talks about whether the artist can live or not.”

Still, there are few artists whose work reaches the heights where an ownership stake might be worth the trouble, says Will Goetzmann, a finance professor at Yale University who has studied the art market. In 2015, works that sold for $1 million or more at auction accounted for the majority of the art market’s value, but less than 1% of the total number of transactions, according to the TEFAF report published in 2016.

He notes the price distribution in the art market is unlike most other industries, with a handful of stars and thousands, perhaps millions, more artists who make very little through the sale of their work.

“There are a very tiny number of people who get high prices for their art,” he says. “It’s not a one in a hundred chance, it’s more like one in ten thousand.”

He also raises the question of how to properly assign value to an equity stake in an artwork that may never get resold, especially since the artist doesn’t share in the aesthetic value of the work (since “it’s in some rich guy’s house,” Goetzmann says). Indeed, many galleries’ stated aim is to “place” works in the hands of thoughtful collectors who hold works over the long-term, and have even gone so far as to call for blacklisting “flippers” who seek to resell art at a profit.

“If the gallery sells the work to a true collector who would never sell, why would they keep the 10 percent, because the 10 percent is lost,” says Kräussl, who adds that artists may also be constrained by short-term needs (rent, bills, food) from betting on future gains. “Why would the artist do this if he could not pay the rent?”

Still, the availability of an easy-to-track ledger of transaction, provenance and price history could gently nudge the art world towards more transparency and greater participation by artists in the secondary market, a development everyone welcomes.

Whitaker, who worked at the investment firm D.E. Shaw & Co between stints at museums and academic appointments, also sees it as a tool by which artists, many of whom recoil from the financial side of the industry, could come to understand and embrace the art market as a whole.

“Being anti-business is the last acceptable prejudice amongst artists,” she says. The blockchain solution, in her words, is a way to “think about business well and creatively. Pretending the market doesn’t exist really doesn’t serve you as an artist.”


Anna Louie Sussman is Artsy’s Art Market Editor.

CORRECTION:

A previous version of this article stated that, through using Amy Whitaker’s blockchain proposal, Robert Rauschenberg could have recouped $85,000 on his painting Thaw. The correct figure he would have recouped is $8,500, or 10 percent of the purchase price at auction.