Blockchain-backed Art

This is the second of a three part series dedicated to creative people interested in the blockchain. Looking for Part 1 or Part 3?

This section by Jake Fry, of Rkey, written in April of 2018, republished in July 2019.

When we use blockchain technologies like Ethereum to store the source of truth for assets, we introduce a few neat properties.

First, we can cryptographically verify ownership of assets. We can use smart contracts to keep track of the owner’s public key, so only the person with the private key can actually “sign” transactions that modify the information that the smart contract manages. This is really powerful because we don’t need to trust a third party or the legal system to keep track of ownership, and can combine this feature with those below to enable more and more self-sovereignty.

We can also use these smart contracts to create rules like “swap the owners of these two artworks, but if one of the swaps fails, cancel the other one as well”. This is known as atomically transferring assets. Atomic transfers or swaps result in not needing to involve a third party to verify that all parties have met their part of an agreement. It results in not needing to trust the person you are entering into a smart contract with. The only trust you need to have is in the system itself.

As a side effect of using a blockchain to store this information, we have perfect tracking of an asset’s provenance — its ownership history. We can see the past owners and perhaps even how much was paid for the piece. We can also potentially track licensing and copyrights in this way as well. Codex Protocol, for example, is focused on providing high quality provenance information for blockchain-backed art pieces: who owns it, where it was sold, where it was shown, and more, all of which provide valuable context for pieces.

Using smart contracts we can write code that says “allow exactly 100 licenses to this artwork to exist”. The idea of verifiable scarcity means we don’t need to trust a third party to not sell extra licenses — we can simply trust that the numerous miners in the network are enforcing our rules correctly.

All of this together means we can start disintermediating publishers of digital content by operating around them and enabling the artist to actually capture the value they create.

We can already see these properties being used across the space. CryptoPunks is a project that produced exactly 10,000 algorithmically generated pictures of punks; some have hoodies, glasses, funky hair, and even some are aliens. The community has audited the code — it doesn’t allow any more than the initial 10,000 to exist. Your digital punk is verifiably rare; it is one of 10,000 and no more. This is really, really interesting, especially for digital art, since in the past we couldn’t stop anyone from copy-pasting images across the web. These CryptoPunks have cryptographic ownership, verifiable scarcity, and provenance, which make them truly unique compared to traditional digital art — they’re digital collectibles, or cryptocollectibles.

You can use this technology to create, for example, trading card games that have verifiably rare sets of cards, or in-game items that can’t be faked or artificially created.

We can more explicitly track ownership and licensing with this technology. The legal precedents for these sort of things are lagging, but we could even write code that, for example, issues licenses to artworks immediately for payment or can enforce that only a certain number of licenses are granted. Perhaps even implement license exclusivity, making sure that only one person can own a legal license to a work.

Finally, we can create various mechanisms for rewarding artists. One option is a fractional ownership model; we can use this technology to divide the ownership of assets between multiple people and equitably distribute the value that the asset generates. We could also create continuous reward mechanism where an artist is paid dividends when their art is traded at a higher cost, allowing them to share in their own success in ways not possible before.

Using the blockchain to store information about an asset is called “tokenization”. Tokenization means adding all of those digital properties above to some sort of asset like art.

We call it “tokenization” because these digital properties were previously only applied to monetary balances (“tokens”). But we can tokenize any sort of asset. Think about tokenizing equity in a company: now you can use the shared blockchain to check who owns how much of the company, easily trade them, see ownership history, and more.

Both digital and physical assets can be tokenized. As we mention above, Codex is developing a system for recording the provenance information of high value real world assets onto the blockchain. This is sometimes referred to as pegging a token to a physical asset. As there is no central registry for title or chain of custody for high value art, this is a game changer.

The keyword “Attention Economy” is a little vague, but the idea is that as a user your attention to something is a scarce resource and has value. The theory is that if we capture this value correctly, it will be enough to create an ecosystem where we can cut out the rent-seeking middleman (advertisers, publishers) and better directly reward creators for driving attention and consumers for providing it.

This idea has been around for a while, but the recent technology advances and the more recent resurgence of self-sovereignty make this once again an exciting — and much more probable — concept.

Decentralized organizations are literally just like normal organizations, except we can use new ideas about how people communicate, backed by these decentralized technologies, to collectively accomplish things

How do you organize a group of people (or perhaps machines!) to collectively create art in which each artist has equity and is encouraged to provide value?

Just like the attention economy, these ideas have been around for a while and artists have already done a wide variety of collective, decentralized art. Perhaps the blockchain technology that enables better decentralized governance also enables a more efficient, creative process for collectively creating art.

Emotional Value — The personal, irrational, and intrinsic value I get by owning something and showing it off. We get the same emotional value from physical artwork, signed album covers, and the like.

Speculative Value — Hey, someone might want this more than me later. Verifiable scarcity contributes to this, as well as novelty.

Utility Value — Some things have utility like trading cards, CryptoKitties, in-game items, and more.

Uniqueness — Matt Hall describes an interest in exploring the appraisal of digital art. Unique attributes, such as an alien CryptoPunk, resulted in high subjective valuations.

But how do you value blockchain-backed art? Honestly, nobody knows, and it’s a very personal decision. Some CryptoPunks have sold for the equivalent of thousands of dollars. At the end of the day, it’s worth what you (or someone else) is willing to pay for it, just like traditional art.

Pretty much throughout the history of the world, art and technology drive each other. Artists are among the first to adopt new technology in the name of creativity, and new technology is often without purpose until creatives build something valuable on top of it.

“I think in any technology, it’s really important to have diversity in the people who are building it and thinking about it and working on it because that way, the technology is the best that we can build. And so for me, I think blockchain and art can be kind of mutually reinforced in one another. And so I’m a big fan of it, and I have a CryptoPunk, I have some Kitties, I have one or two of the other bits and pieces. And yeah, there’s some really cool work that’s been produced by these artists and I think in the long run, just like any new kind of art movement or medium that will kind of become absorbed into the canon.”

— Jess Houlgrave, Artnome Interview

Jessica Angel speaks a little about the idea of artists “changing the game” for blockchain, incentivizing use by the general public, and the artwork “legitimizing” the blockchain, the way the art world often legitimizes new cultural phenomena and technology. We’re still very very early in the overall timeline of blockchain technology.

Everyone involved now is building foundations for what’s yet to come — today’s creatives are the giants whose shoulders will support the future of self-sovereign creativity.

This is a collaboration between Matt Condon, of XLNT, and Jake Fry, of Rkey. Check out Part 3 below.