Navigating the Crypto Winter as a Blockchain Business: Artclear's Approach to Long-Term Data Management
Artclear is building long term data management infrastructure for the global art market.
Artclear is a blockchain business.
Do these two statements contradict one another?
The question is pertinent because we are in the midst of a turbulent period in the crypto industry, with recent events like the FTX crash impacting the market and calling into question the valuation of many high profile blockchain-based initiatives. The collapse of FTX, a leading cryptocurrency exchange and hedge fund, saw Bitcoin’s price drop by around 20% in the week following, causing significant losses for traders and investors. This comes on the back of Coinbase reporting quarterly losses of over $1 billion or $4.98 a share in Q2 2022, double analysts’ expectations, and Bitcoin trading 62% down from its 2021 peak of $64,400. Other recent events include the collapse of Terra, a “stablecoin” cryptocurrency supposedly pegged to the US dollar which had been valued at $2 trillion, and the $3.5 billion default of Three Arrows Capital, a crypto hedge fund. Closer to the art world, NFT prices have, according to Bloomberg, “…fallen off the cliff”.
Even if crypto prices recover, and who is to say they won’t, it is obvious that crypto assets are wildly volatile. And volatility is the last thing you want for long term infrastructure, which relies on stability and predictability. So how sensible is it for us to use the technology that supports the whole crypto phenomenon at the heart of Artclear’s business?
Coinbase Q2 2022 Financial Metrics
One Technology, Many Applications
The answer to this apparent conundrum lies in the distinction between a technology and its application. So-called “crypto assets” represent one application of blockchain, that tends to encourage speculation and unpredictable valuations. Artclear uses blockchain technology as a means to achieve the opposite effect – a stable and secure infrastructure for the art market.
Blockchains offer three core features that make them very useful to a business like Artclear, that wishes to provide infrastructure that people can rely on to manage and share data.
Firstly, they can be used to create and track any number of unique digital entities, called tokens – each “owned” by a single person and identified via a cryptographic key.
Secondly, within the blockchain protocols, the concept of “smart contracts” allows us to pre-programme the particular characteristics of a set of tokens. For example, with respect to when and how a token can be transferred.
The third key feature of blockchains is their “Censorship Resistance”. Since blockchains operate as peer-to-peer networks, it is practically impossible for anyone to modify the data stored on the blockchain without applying legitimate transactions that comply with the rules of the blockchain protocol or a specific token’s smart contract. As a result, blockchains offer an extremely secure method of storing data without anyone being in control of it.
Between them, these features add up to a programmable record-keeping system whose rules are public and whose records can only be changed in line with those rules.
Artclear's Use of Blockchain Technology
This is incredibly helpful for Artclear. Our business is based on securing critical facts about works of art, such as their authenticity or ownership, so that people can rely on them when making decisions about all kinds of transactions involving the artwork.
Without blockchain, we would need to build and maintain our own mechanisms to prove the integrity and provenance of the facts that are linked to the artworks in our system. Technically that would be achievable, although it would require a significant investment. It is also very powerful for us to be able to assure our clients that critical data about the valuable assets that they contribute to the Artclear network are securely under the control of the people that contributed them, overseen by the owners of the artworks.
However, blockchain on its own is only part of the solution. While it can prevent unauthorised changes to data that have been stored, that is only useful if the data are reliable to being with. Making sure this is the case is a fundamental part of Artclear’s business model, and we achieve it through creating unique fingerprints for each work of art, embedded into bespoke tokens, that link each data item from its source to the object to which it relates.
Blockchain: A Fundamental Business Tool
In conclusion, there is no contradiction in applying blockchain technology to long-term data management infrastructure. While recent events in the crypto industry have raised questions about the volatility of crypto assets, it is important to remember that blockchain technology has many applications beyond crypto. Artclear’s use of blockchain to create a stable and secure infrastructure for the art market highlights the versatility of this technology. By leveraging the unique features of blockchains to anchor real-world data, Artclear is building a reliable system for sharing data about works of art. We believe that Artclear represents the future of blockchain, demonstrating how this technology can be used to solve real-world problems and provide value beyond speculative investments.
This article was originally published in August 2022, but was updated in February 2023 to include the collapse of FTX.