Crypto-Tokenized Shares of a Warhol for Sale: Buyer Beware

“The millionaire is changing,” says glamorous London art dealer and Georgian noblewoman Eleesa Dadiani, and that millionaire needs a novel way to invest in art.

Even the sub-millionaire can get involved now that Dadiani’s London Gallery has partnered with ‘decentralized’ gallery Maecenas Fine Art.

Together on June 20th, the partners will start auctioning off slivers of a 49% stake in an Andy Warhol’s piece. Shares will be “tokenized” and managed on Maecena’s new art registry on a blockchain.

The 1980 work at the centre of all this, Warhol’s “14 Small Electric Chairs, a screen print depicting 14 replicated images of an electric chair arranged in two colourful verticals.

Dadiani says the piece has been appraised at $5.6 million. Reserve price in the auction (for the 49% stake)? $4 million.

A successful auctioning of the Warhol work, say the partners in a Maecenas blog post, will be followed by token sales for shares in Picasso and Rembrandt pieces.

The partners say the Maecenas art-on-a-blockchain system, which can only be accessed by purchasing the chain’s exclusive crypto token, “throws open the art market to a new class of investors who will now be able to chip in to share the ownership in a multimillion-dollar painting.”

It’s also a great way to flow cash to an artwork while maintaining ownership and hopefully boosting demand for Maecenas tokens on crypto exchanges.

Art for Crypto? Old Hat. Art Blockchain? Maybe.

Crypto-inspired art is nothing.

Paintings of goddesses sensuously holding radiant Ethereum logos can often been found on display at crypto-sector conferences.

Dealing fine art for crypto, however, is something of a frontier.

Earlier in May, The South China Morning Post chronicled several instances of fine art sold for crypto in Singapore this year.

Singapore-based Australian collector Joe Nash, a Fintech speculator who has invested in fine art for over a decade and in crypto for about a year, recently sold part of his art collection at the Singapore gallery Visionairs for crypto :

“I have a dual purpose,” said Nash. “First, to give exposure to Australian art, including works by major aboriginal artists. Second, I hope that giving access to cryptocurrencies will draw in technologists who have not bought art before.”

Art sold for crypto is a fairly straightforward proposition for people already familiar with basic crypto-transacting. But a public sale of high-end art works registered on blockchain is still quite new and experimental.

While potential ROH (return on hype), however, has made the prospect of tokenizing art very attractive to dealers- there are many issues regarding how to ensure the veracity and security of information (ownership data, for example) entered onto blockchains when they are commanded by individuals or small groups.

The blockchain that made the blockhain famous is Bitcoin.

Bitcoiners are harshly critical claims that blockchains will solve the world’s data security issues

They say that, 10 years in, Bitcoin is still the only truly ‘decentralized’ (middleman-free) and functioning blockchain.

The arbitration of transactions is automated in Bitcoin via a software that secures its ledger by running the data through a dense and energy-intensive process of mathematical encryption. No transactions can be overwritten, modified or reversed in Bitcoin.

“Immutability” is one of Bitcoin’s greatest features, its advocates say.

But despite how innovative Bitcoin is, the system still only allows one simple type of immutable transaction: send Bitcoin, receive Bitcoin. And nonetheless, even nine years after it was released, the Bitcoin system remains hard to use for all but the most dedicated and savvy.

Copycat systems like Ethereum are still weak from having tried to make blockchain all things to all people, critics say, and most of these nascent systems require middle men all over the place to function, more or less.

So called “decentralized” centrally-manged blockchain systems that claim to immutably register important property ownership, such as title for works of art, have the same or greater potential points of failure that legacy registries have, say critical Bitcoiners.

First, how does on know that the Warhol one bought shares or tokens in is real? It could be halfway across the world. How can one check?

Maybe the gallery is reputable and posts a bunch of certificates- fine.

But how does one know the gallery or artist hasn’t oversold the shares or sold a particular piece multiple times?

Who will oversee that?

One would need considerable time and skills in forensic blockchain investigation to check, and even then, the data entered on blockchains for virtually-managed ownership can be manipulated by whoever controls the system or whoever enters the data.

When one buys bitcoins, that person commands the actual coins. They control the private keys. When one trade shares or tokens of “ownership,” these can easily be linked to thin air.

Without adequate oversight, dealers can promise anything and enter whatever reassuring data they want onto a blockchain, and people can trade related tokens and possibly profit.

But unless someone is auditing the gallery vault directly, if the deal says a gallery retains 51% ownership and physical possession of a work, that dealer could easily sell thin air, then watch the thin air flip indefinitely on exchanges.

There is no way to “genetically” tag an art work at this time, no truly decentralized art registry system, nor any universally-accepted, regulated, centralized blockchain art registry that we can rely on.

The potential for abuse of so-called “blockchain” systems is why hardcore bitcoiners are so critical of ICOs and call them “licenses to print money.”

According to ICO Drops, Maecenas raised over $15 million dollars in its ICO sale last fall to fund it’s “decentralized” art registry (which it entirely controls).

Those tokens are trading now on exchanges at a market cap of $24 million.

Whereas the simple, autonomous and still experimental Bitcoin system has (so far) successfully automated trust in sending and receiving coins, contrary to exuberance, so-called asset tracking blockchains don’t seem to resolve trust issues in asset-management, and may in fact, exaggerate them.

Damiani told The Times of London that her most recent endeavours reflect, “the big shift happening in consciousness,” and that her model will, “bring greater transparency to the traditional model for buying and selling fine art.”

But if one still have to trust art dealers controlling fine art blockchains then, given a lack of oversight, the real and perhaps only reason to put art on a “blockchain” and tokenize it appears to be to benefit art flippers, create more art speculation, and increase demand for particular tokens, which are created according to whatever economic model creators choose, then are traded for real world cash.

A tokenized private blockchain system for art, rather than bringing “transparency” and “shift(ing) consciousness, arguably constitutes a misapplication of Bitcoin technology that may simply accelerate fraud.

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