While a lot has been said about the Blockchain’s resolution of the ‘Double Spend‘ problem and it’s revolutionary ability to create original, unique digital assets, Bitcoin being one of them, we are only now getting to grips with tying physical objects to the ‘Chain’.
While Blockchain fits hand in glove with fine art, its implicit ‘provenance‘ transaction structure, immutable title record and through its document authentication features, bringing ‘real world’ assets or ’outside’ decision making securely into the fold remains a moving target.
The ‘Oracle Problem' clearly encapsulates this. Smart contracts are only as 'smart' as the information they receive. The decentralized enterprise is tainted when the outside information source, or 'oracle' is not democratic and has free rein to decide what information is fed to the contract.
Tying real word assets to the blockchain presents its unique challenges, too, although, in some respects, is also an off-shoot of the Oracle Problem.
There is a lot of talk of asset-based blockchain platforms enabling direct underlying-asset fractional ownership. Not more so, it seems than with real estate, where the idea of building a REIT devoid of intervening corporate structure gathers interest.
Blockchain opens up exciting opportunities to revolutionize asset- holding and investment structures. Just ask Shark Tank’s Kevin O’Leary who has been banging on about blockchain real estate fractional ownership and who now apparently is “working on a deal” to offer direct asset-based fractional ownership in a “very prestigious brand hotel” in New York.
Yet, tying in real estate and other traditionally ‘centrally’ controlled title regimes is difficulty. The State controls real estate title and transfer registries. While blockchain is ground-breaking in its ability remove the intervening corporate layer between investor and asset, the direct asset relationship is unattractive unless there are external guarantees in place to ensure that title and control of the asset on the blockchain equates with title and control in the centralized State records. With real estate this would involve an Oracle type custodian relationship with the centralized title register.
Not so with fine art. Traditionally, without a centralized, State imposed title register, fine art is an asset which is ripe for asset-based blockchain holding. Art Investment Funds, as alternative investment vehicles, have existed for decades. Philip Hoffman‘s London-based Fine Art Fund is an important example. Yet, with traditional fine art funds there remains the differential between the underlying net asset value and the value of the securities which investors hold in the, usually, closed ended fund. What’s more, investors in traditional fine art fund structure have little if any liquidity in securities they hold, and may suffer, to varying degrees, from conflicts of interests apparently inherent in the advisory structure relied upon to purchase for the Fund.
Blockchain can remove these limitations, at least to some extent, by eliminating the corporate level-discount between asset and investor, providing true, direct ownership in the underlying asset and potentially providing for greater liquidity in the asset holding. It also allows for more efficiency by potentially making any work of art instantly fractionally owned, creating opportunities for collectors to own interest in art work which they otherwise would not be able to afford on their own.
The Fine Art Ledger is creating a simple, easy to use fine art asset-based blockchain platform which directly and uniquely ties the underlying fine art asset to tokens, which we call Art Title Tokens (ATT).
Once signed up to The Fine Art Ledger, a user can submit a work of fine art to the platform and generate a block-chain based Certificate of Authenticity by filling out a simple form. Registered title in each work of fine art on the Fine Art Ledger is represented by 100 ATT. These ATT represent direct ownership in the work of fine art, and can be transferred by email through a simple transfer feature on the platform, allowing for title in a work of fine art to be shared by multiple people.
The real world question then becomes how the work of fine art is tied to The Fine Art Ledger’s platform. A logical question which, as a subset of the Oracle Problem, is, as noted, a recurrent theme when tying real world assets to the blockchain.
With digital works of art, the actual work of fine art can be digitally tied to the blockchain. Naturally physical works of art, the ‘real-life’ objects can’t. To tie the physical works of art in, The Fine Art Ledger uses Near Field Communication (NFC) technology, the same underlying concepts which supports Apple Pay and other mobile payment solutions.
A rolling-authentication NFC sticker is embedded in the frame of the work of fine art which contains an identifier unique to the work, and which is stamped into The Fine Art Ledger platform. On scan of the frame with your NFC capable mobile phone, the permitted user can generate within her mobile phone browser the blockchain authenticated Fine Art Ledger Certificate of Authenticity showing details of the work and the registered title holders in the work.
The Fine Art Ledger is building an integrated fine art title, authentication and direct asset-based fractional ownership platform which is versatile and very easy to use.
It is a big step to testing blockchain as a viable asset based ownership tool and to realizing what only a few years ago could only be achieved through structural, top-heavy corporate structures.
To experience for yourself what The Fine Art Ledger can do for your or your client's works of fine art, sign up for an account here