Investment Strategies
Art And Technology: Redefining Authenticity In A Digital Age

Here is another segment from the family office investment summit held and organized by this news service last November.
Recently, Lisa Gelles, executive director, Howard Insurance spoke at the Tenth Family Wealth Report Family Office Investment Summit, along with Courtney Booth Christensen, senior director, trusts and estates, Winston Art Group, and Nanne Dekking, founder and CEO of Artory. This paper captures the salient points from their remarks.
Lisa Gelles
Courtney Booth Christensen
Nanne Dekking
Introduction
Blockchain technology, initially developed as the underlying
infrastructure for cryptocurrency transactions, has far-reaching
implications beyond finance. One of its most promising
applications is in the realm of fine art. Blockchain's
decentralized nature, transparency, and security make it an ideal
tool for addressing longstanding challenges in the art world,
including provenance verification, authenticity, intellectual
property protection, and valuation.
Valuation issues
Not every artwork retains value, appreciates in value, or can
even be traded. It takes experienced professionals in the market
to understand which artworks have the highest potential to excel.
This information asymmetry between investors and the art market
can arise from, for example:
Lack of standardized pricing
Art is a complex asset class that does not follow the economic
conventions of supply and demand. Moreover, the value creators
for an artwork are not always readily apparent. Beyond the
subjective aesthetic qualities that create perceived value,
factors such as condition, provenance, freshness-to-market, the
artist’s reputation, and more can have a large effect on
pricing.
Lack of data for asset valuation
Historic transaction data is key to predicting the price of an
artwork, but sales in the art market are spread across venues
around the globe and aggregating this data can be an onerous
task. The prevalence of private sales, which make up at least
half of global sales in the art market, further inhibits one’s
ability to find reliable transaction data for comparables and
valuation of fine art.
Intermediaries
It is common for an intermediary to act on behalf of an artwork’s
buyer or seller. The social and financial motivations of an
intermediary can be unclear. In transactions where a seller and a
buyer are remote or unknown to each other, with one or more
intermediaries, concealed legal title defects can occur. For
example, if an intermediary acts as an agent for an artwork
buyer, title may transfer to the intermediary in error. Any
issues for the title of an artwork can affect all previous title
holders for the artwork, and it may negatively impact one’s
ability to resell the artwork.
Title issues
Potential errors around the legal ownership of an artwork and its
provenance can occur if ownership is incorrectly or incompletely
documented – this can lead to disputes of ownership. A prime
example is art looted during the Second World War and sold
to new owners. Thanks to thorough provenance research by experts,
restitution of these artworks to their rightful owners continues
to happen to this day.
Authenticity issues
Artwork forgeries, especially for high-value artworks, are a
highly publicized concern in the art market. Any suspicion of
inauthenticity would be reason to disengage from a transaction,
but authenticity issues may arise after the purchase of an
artwork and can negatively affect one’s ability to sell the
artwork.
Artwork authentication is a complex process due to significant legal implications. Authenticating an artwork involves verifying attribution and provenance, relying on expert analysis, scientific testing, and historical research. Misattribution or the declaration of a piece as inauthentic can lead to lawsuits, reputational damage, and financial losses.
Today, artwork authentication is typically conducted by entities, including specialized foundations and art historical institutions. Foundations and archives associated with artists often play a key role in maintaining catalogues of authenticated works. For example, the Wildenstein Plattner Institute (WPI) maintains the definitive catalogues for Monet and Gauguin. Artworks that are certified in WPI’s catalogue gain significant value due to the confidence in the artworks’ authenticity.
Nanne Dekking, with two versions of Edvard Munch’s “Summer Night by the Beach.” The painting on the right is a clever forgery of the original. This work was embroiled in a 60-year legal battle over ownership, following Germany’s annexation of Austria in 1938. In 2006, it was returned to the granddaughter of the composer Gustav Mahler, and his wife, Alma, who owned the original.
Blockchain plays a key role in how an artwork’s value is secured and leveraged. Asset tokenization creates a secure, digital representation of an object’s ownership that captures intelligence from each stage of an object’s lifecycle. By securing this data, the object is transformed from a stagnant asset into an actionable and easily serviceable asset.
Key qualities of an asset token include:
Ongoing data and intelligence capture: Relevant market data can be integrated into the token to provide automated valuations qualified by a detailed and data-driven confidence score. Expert-validated due diligence and events such as loans against the object and past transactions are also captured in the token, giving object owners and service providers an organized, comprehensive view of their asset and collection management system. Information can be added to an asset token on an ongoing basis to certify the artwork for additional services. An asset token needs to be re-certified regularly to remain eligible for our services.
Object certification and actionability: Smart contracts set objective certification thresholds for the level of data and intelligence needed for an object to be eligible for services such as insurance quotes, asset-secured loans, inclusion in funds, and other financial services.
Transferability and permission-based access: An asset token can be transferred when the ownership or custody of the object changes. Third-party service providers can selectively gain access to the information within an asset token to assess the object for insurance, portfolio management, or other financial services.
Auditability: The data contained within an asset token is fully auditable, allowing owners and service providers to have complete knowledge of what and when information is added, as well as who has added the information. This auditability assures owners and service providers of the veracity of the information in their asset tokens and serves as the foundation for our institutional-grade funds.
Securitization: Based on its level of certification, an asset token can be connected to security tokens for fractionalization, peer-to-peer transactions, and other digital-first financial opportunities.
Conclusion
Blockchain technology has the potential to transform the art
market by addressing issues of authenticity, provenance,
intellectual property, and market efficiency. Through increased
transparency, improved security, and the ability to fractionalize
ownership, blockchain opens new avenues for artists, collectors,
and investors. At Howard Insurance, we work closely
with our clients to navigate complex issues around fine art
ownership and valuation.