As a media partner of the Grand Asian Art Bazaar (GAAB) in Warsaw, Poland, Art World Forum catches up with Denis Belkevich, Co-Founder of Artherium, on new technologies, bitcoin and new tools for collectors.
With an active involvement in art finance, art management, and new technologies, how would you characterise the art market of today?
All reports on the art market over the past year note three main trends:
- aligning the positions of the public and private art market
- increasing the gap between the sale of cheap and more expensive works
- and a significant increase in the importance of art fairs in the sales of galleries and art dealers.
I will comment on it this way, the strengthening of the role of auction houses (i.e. the public market) speaks of people’s desire to have a documented fixed purchase price in order to use art as an asset and a financial instrument in the future. Gradual decline in sales of “middle class” art is also the result of discretion in choosing an asset: collectors either make win-win bets on ‘blue chips’, or put on young artists, where there is excitement of the player. As for art fairs, it is obvious that today the purchase of artworks in the primary market is not limited to the name of the gallery. The emotional component of the fair, a new destination, a large crowd of people is important to the collector. I would also like to note one trend that has gone unnoticed by many: the online sales market is stable, albeit slowly, growing – this is the only segment of the art market that showed growth even during crisis, when the total turnover declined. At the same time, I would not overestimate the impact of online sales, rather high technology will become a mediator in the usual actions of collectors – purchases at auctions and via private sales at fairs or local galleries. Similarly, the implementation of blockchain is considered by us as an auxiliary tool, but not a panacea, capable of instantly changing the art market for the better.
As the Co-Founder of Artherium, can you maybe share a little more about the platform – how it works, who it caters for, and how it differs from other platforms in the market at the moment.
We started working on the Artherium project on the blockchain with my partner Pavel Rabchevsky in 2016. Three main problems of today’s collectors were identified:
- the opacity of the private art market, which now accounts for 53% of the world’s turnover
- the absence of indices that would show the collector the current capitalization of the collection in real time
- and the presence of a large number of intermediaries with private sales.
We tried to combine the solution of all three problems in one platform. Artherium is a management system for art collections on the blockchain, focused on the primary market, which should save the collector two main indicators: time and money. It’s no secret that in order to successfully sell an artwork, it must first be successfully purchased. Today’s trade in art in the primary market is a hunt. A collector is among many other rivals and must take a weighted decision in minimum time. Artherium will create an ecosystem in which it will be convenient to work both for the seller and the buyer – the first will download all the data about the artworks in the system, and the collector, when scanning the code, will get all the data about it on his screen, including a constantly updated capitalization forecast. Further, the platform will simplify the purchase of work and ensure its tracking to the destination. Once the piece of art is purchased – it is automatically added to the collection management system and is accompanied by all the usual collector tools. However, unlike existing systems, we introduced two innovations: our own index, which we have been developing and testing within two years, will show the collector the value of individual artworks and the collection in general in real time, based not only on auction sales, but also on sales in the primary market, as well as the marketing activity of the artist. And the second innovation is tracking all actions of the managers, which will allow the collector to keep a financial record and track at what point the mistake was made, if the actions of the team lead to a slowdown in the growth of the value of the collection.
Naturally, all information about the collection and individual artworks will be stored on the blockchain and constantly supplemented automatically – this will lead to the fact that at the time of selling a separate artwork, a new package of documents will be generated for the new buyer, who can quickly check it. This will increase the cost of the sale, as if we are selling a car with a garage and fine-tuning services. In the future, Artherium should become an ecosystem in which registered collectors will be able to trade directly, through smart electronic contracts. What will guarantee the availability and authenticity of their artworks – you ask? The fact that they were bought through a platform in the primary market. The money paid, and the transaction registered in the system is the best guarantee.
In an ever-growing ‘borderless society’ online, what are your thoughts on Blockchain and its relationship with the art market? What role do cryptocurrencies play and are there particular benefits or efficiencies that come with using them?
The blockchain, as an ecosystem, provides four main advantages: a decentralized database, reliability of information storage, cross-border efficiencies and the absence of intermediaries in transactions. It is important to understand that the blockchain was developed in parallel with the crypto currencies and forms a single blood system with them – where the blockchain itself is the arteries, and bitcoin – the blood running along them. Only in this combination blockchain can you earn in full force, bringing the greatest benefit. Today, the circulation of crypto currencies in most countries of the world do not yet have a legislative status, allowing companies to develop the blockchain separately – and wait for the legalization of the crypto.
Without crypto currency, a blockchain can execute only two functions out of four: to serve as a decentralized database and to ensure the reliability of information storage. That’s why most of the art projects on the blockchain have chosen to work as a business model with provenance. With the development of the legislative framework, the blockchain will ensure cross-border payments – i.e. collectors will be able to easily buy and sell art all over the world without additional commission and freezing payments. Also, the blockchain facility will allow the trade directly between the seller and the buyer, without numerous intermediaries, which often only contribute to an increase in the final amount or the breakdown of the transaction.
However, I do not consider the blockchain a revolution – it is more correct to call it the evolution of all spheres of our life, from the banking sphere to the management of the life of entire cities. In the art world, the blockchain should bring more transparency, which market functionaries talk so much about. And, if the implementation of the blockchain will be inhibited by them, it means that their words were cunning.
To quote Stefan Simchowitz, “Art will effectively continue its structural function as an alternative currency that hedges against inflation and currency depreciation.” What are your thoughts on this?
With the advent of academic works on the art economy, market indices and analytical platforms, the concept of ‘art as an asset’ began to enter into the everyday life of investors. It should be noted that today many investment portfolios contain 10% -15% of artworks as a stabilization fund. The art has a fairly good volatility indicator – an average of 25% – higher than gold and wine (10% -13%), but lower than shares and real estate (32% -36%). However, art has one feature that hinders its full use as an asset: low liquidity. Unlike stocks or gold, the object of art cannot be sold on the day of the decision. And liquidity – i.e. fast conversion – is one of the main characteristics of any currency. Therefore, in most cases, art today is used as a ‘social investment’ in the status of the owner and a new circle of high-level communication.
To use art as an alternative currency, it is necessary to increase its liquidity and create reserve funds. Today’s financial art funds manage assets of up to $ 3 billion, while the total value of art in private ownership is over $ 4 trillion.
Personally, I predict the emergence of large financial funds that will manage the objects of art, emitting them in stocks – and selling on specially created exchanges, like NASDAQ. Due to this, it is possible to achieve liquidity, and the sale of similar artworks at public sales and the overall growth of the art market will increase the capitalization of the fund and regulate the cost and inflation of shares. The next stage after this is the creation of a single currency, for which art will be sold and purchased all over the world. According to our calculations, this will save up to 20% of the collector’s costs, which he bears today on exchange courses and turbulence of the particular regional economies during long-term transaction periods.
For all readers keen on adopting cryptocurrency and Blockchain to promote innovation in the art market, what would your advice be and what should they be looking out for?
I would advise them to get a time machine and be transferred in 2016, when the first art-related blockchain projects were conceived before the massive increase in interest in crypto-currencies. Today, it is very difficult to separate truthful information from false information, for this you need to re-read everything that has appeared in the last two years. The main thing that needs to be remembered is that a lot of projects related to the crypto industry and blockchain choose art not for real business, but as a promotional tool. Art attracts attention, it causes investor confidence – and unreliable start-ups use it. In the same way, many companies working in the art industry announced the transition to the blockchain and the use of crypto-currencies in the future – you should also separate those who see in this a realistic perspective, and who wants to achieve artificial capitalization of their business. But the general advice is: after reading the materials, communicate as much as possible in a circle of like-minded people. Live communication will either make you doubt, or strengthen your knowledge, but will give birth to new ideas. Attend forums, conferences and other events – only there your ideas are born and sharpened