Issues and Commentary: The New Property Regime

A CryptoKitty named Panther.

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IN FEBRUARY 2018, Venezuelan president Nicolás Maduro introduced an oil-backed cryptocurrency, the petro. After an initial release of 82 million petros, another 18 million coins are planned to go into circulation, the total pegged to 100 million barrels of the country’s crude oil. The petro is one of several cryptocurrency variants, and one which contradicts the standard line that cryptocurrencies should back themselves, as Bitcoin and Ethereum claim to do. The blockchain technology they are based on creates distributed ledgers to keep the authenticity and ownership of digital objects in check. Coupled with a cap on the total units that can ever be produced, standard cryptocurrency tokens gain a scarcity akin to that of material goods.

Proponents of blockchain like to emphasize its ability to become “more than money.”1 A blockchain is a distributed database, managed and updated by a decentralized network of computers and cryptographically secured. This database holds a ledger of all the objects that populate the network—such as Bitcoins or petros—as well as a record of their owners and all exchanges between owners that have ever taken place. Libertarians see blockchain-based cryptocurrencies as a way to manage an economy without fiat currency and state regulators. But the flexibility of the blockchain format has also led to a variety of proposals for other applications, from managing intellectual property to authenticating votes in an election. Blockchain adherents often write about “smart contracts” that could replace the need for traditional legal documents or any judiciary system at all.2 Somewhat less alarmingly, people are already using blockchains to create collectible digital goods: in May 2018, one CryptoKitty, a sort of virtual Beanie Baby, sold for $140,000.

Recently, the art market has gotten wind of what blockchain could mean for its future. Multiple companies—including the almost satirically dystopian-sounding Verisart and Codex Protocol—are now offering platforms for blockchain-based certificates of authenticity. The intention of these firms is to provide buyers and sellers a verifiable chain of custody from the artist’s studio to the present holder of the work. In a white paper, Codex touts anonymity as its product’s primary selling point, despite the fact that this flies in the face of current upper-tier art-buying psychology and established standards of provenance. Its ledger traces a sequence of ownership and records payments without identifying individuals or galleries in a way that would require establishing interpersonal trust. “This gives the buyer peace of mind that they are buying an item with good provenance which supports the value of the item,” Codex claims. “The buyer is willing to pay as much as if they had purchased the item directly from Christie’s or the artist.”3

While Codex’s public statements sometimes quote CEO Mark Lurie, they are mostly authored anonymously and attributed to the company. Such publications express a transactional view of art. A Codex post on Medium quotes Lurie as saying “almost the entire value [of an artwork] is based on provenance and authenticity.”4 In another post, the company argues for the importance of its services by citing a report predicting that the global population of “Ultra High Net Worth Individuals” will grow by 43 percent in the next eight years.5 Apparently, as global economic inequality increases, the wealthy will need more robust authentication for artworks in their collections. Codex’s dreams extend all the way into the artist’s studio: “[i]f a work of art is registered at the point of creation, the provenance will be created automatically on the blockchain.”6 Codex envisions a world in which every artwork in existence is registered to the same distributed database, including retroactively. Its founders imagine that artists will take it upon themselves to aid such registration for the benefit of the third, fourth, or nth owner of their work.

These aims are shared by most entities working on blockchain-based management of artworks and other cultural objects, and have been received with little critical scrutiny. In a breathless article for Artnet News, Tim Schneider writes that such start-ups are tackling the “lingering mysteries of provenance and authenticity,” the “weight of the traditional finance system” (allowing buyers to skirt transaction costs), and the “burden of traditional contracts,” which he asserts can be easily violable and thus make the exchange of expensive works risky. To explain why blockchain-based contracts of sale are safer than a traditional transaction, he uses the metaphor of mutually assured destruction. Much like an exchange of nuclear weapons, a transaction cannot be undone once it is initiated.7 Anything a user might do to violate an agreement would not be possible.

Rhetoric like this masks the reality of a wildly unregulated flow of capital through the art world that these start-ups would only exacerbate further. The “promising use cases” of these platforms named by Schneider provide various ways to evade taxes, hide clearly identified records of assets, and get around government sanctions. Blockchains are purportedly open and transparent, so anyone can see that a work of art has changed hands. But it is difficult for the state or its courts to prove that someone’s Codex ownership wallet, for example, is in fact owned by a particular collector.

An external paper trail is nothing new for the art world. There is a long tradition of certificates of authenticity providing legal ownership of even the most intangible or ephemeral works. If this were merely a case of creating a technological underpinning for this system, skeptics might point out that Codex or Verisart’s services are a solution in need of a problem. Noah Wunsch, vice president of digital marketing and global strategy at Sotheby’s, said at a recent panel that linking physical artworks to a digital ledger would likely require another technology altogether. He suggested spraying works with synthetic DNA sequenced as an authentication code.8 His proposal betrays the fact that the physical possession of a painting does not change if its certificate of authenticity is stolen, regardless of whether that certificate is printed on paper or recorded on a blockchain.

To prove the merits of the blockchain model for art, proponents often point to its potential impact on the market for digital works. Digital art possesses properties fundamentally different from those in older mediums. Digital files are malleable and reproducible. They can be used and owned by many people at once. Digital art is not subject to material scarcity, which has made it an anomaly in a market where scarcity is prized.

Enter the blockchain. If we understand it as the latest technological fix to digital art’s “scarcity problem,” then the setup fundamentally amounts to a project of reverse engineering material scarcity into the otherwise abundant domain of digital art. The question of whether this material conception of authenticity, ownership, and authorship should be replicated seems almost entirely neglected.

 

PROFOUND TECHNOLOGICAL change can often result in profound imbalances of power. Mere centuries ago the printing press led to a swell of early copyright legislation, the bulk of which was aimed at creating publishing monopolies. The Republic of Venice and Tudor England enacted the first modern copyright statutes to provide legal protection not for authors but for publishers. Authors at that time, unlike today, sold their words to a publisher, who then owed them nothing further. The publisher enjoyed a monopoly on the printing of that work until the term of copyright expired. Worse, the publisher’s protection was contingent on the state’s good will, making copyright a tool for the censorship of politically divisive texts.9

Copyright can be thought of as a juridical technology introduced to suppress a threat to the feudal order. The application of blockchain technology to digital art has the same purpose as copyright once did: stalling the development of a new concept of ownership.

In his book Ownership of the Image, philosopher Bernard Edelman writes that photographic works were denied the privileged status of copyright protection because the camera was considered a neutral mechanical apparatus, which the photographer would use to capture the real. Since reality belonged to everybody in society, the photographer could not possibly claim ownership over the image. The photographer of 1860, Edelman writes, was “the proletarian of creation; he and his tool form[ed] one body.”10

Edelman warns that the formulation used to incorporate photography into the copyright system subsequently developed into the legal structure that financialized—rather than collectivized—cinema. Producers, like book publishers before them, gained superseding ownership claims over cinematic works. Copyright would be used again to maintain and entrench established power.

The history of copyright shows that a technological fix is not as effective as a social or juridical one. Even as some blockchain-based art start-ups try to incorporate artist-friendly measures, like automatic resale royalties, auction houses have successfully lobbied against laws that would guarantee those protections. A federal court recently ruled against the California Resale Royalties Act, the only droit de suite law of its kind in the United States. In a statement to the New York Times, a representative of Sotheby’s gloated that such a law is “unconstitutional.”11

As in Edelman’s example of cinema, a new regime of authentication will almost certainly come about if we fail to work collectively to produce an alternative. This is especially concerning at a time when the executive branch of the US government has ended net neutrality and seems pathologically intent on submitting its citizens to the whims of corporate interest. While scarce digital objects like CryptoKitties may seem harmless, the possibilities for rights management are much more extreme. KodakOne, a proposed initiative of the Kodak company, provides one such example of blockchain technology being used to regulate digital objects. KodakOne would be a comprehensive back end for demanding removal of or payment for photographers’ images found circulating online. In practice it would resemble an automated and highly constrictive successor to Getty Images: a database that can track images by ledger rather than watermark, while also giving the photographer or the agency the power to revoke use authorization if they dislike the context in which an image is presented.

Ironically, these aspirations depend on a degree of blockchain capability that does not match its current reality. While adherents proselytize its infinite applications and “immutable” nature, few seem to recognize how vulnerable blockchain technologies truly are. Since the entire idea rests on a distributed, shared database, the concerted effort of outsized actors can alter any blockchain record. This is known within the crypto community as “the 51 percent attack.” One cryptocurrency blogger who writes under the pseudonym Gideon Greenspan has estimated that the cost of hardware and electricity required to falsify portions of the Bitcoin ledger could be around $400 million, well within reach of “the government of any mid-size country,” and, I would add, more than a few individuals and corporations.12 Other critics have pointed to the fact that many start-ups that claim to be employing blockchain—particularly those that trumpet a “private blockchain”—are actually using the older idea of a “shared database,” an implementation without the supposed security benefits of decentralization.13 This general misrepresentation of the technology obscures the threat these platforms could pose if they are allowed to determine how we control and distribute digital property.

At its best, blockchain technology faithfully reproduces all the systemic inequities of material scarcity; at worst, it does so with increased susceptibility to malicious influence. In either case, cryptographic ledgers are known to use so much energy that more widespread adoption could mean totally exhausting the planet’s resources in the pursuit of new ways to own things that others do not. It would be a tragedy if this took place, when we could instead work to embrace the potential afforded by media malleability and shareability, automation, multiauthor and non-authored production, and countless other possible frameworks for ownership.