29.01.2018

Cryptocurrencies in online auction may change art investing

400Online auctioneer Paddle8 is trying a new tack: merging with The Native, a Swiss technology and e-commerce company, and adopting the use of blockchain, the technology that underpins virtual currencies like Bitcoin, reports the New York Times.

Paddle8 announced on Tuesday that it had taken an investment from The Native, creating what the two say is a partnership meant to adapt online art sales — and potentially more — to an age of wealthy millennials well versed in virtual currencies.

Paddle8 says the move is a step toward restructuring the art market for a younger generation that is increasingly investing in cryptocurrency. The co-founder of Paddle8, Alexander Gilkes, told the New York Times that the move will “better align [us] with a new generation of collectors”. Cameron Winklevoss, a longtime advisor for the company, added that cryptocurrency can be a “key to increasing transparency in markets around the world, including the art market”. He and his twin brother Tyler have heavily invested in digital currency, holding an estimated 120,000 bitcoins. Last week's crash saw their portfolio's value drop by nearly $1bn, according to Fortune magazine.

“There is such opacity within the art market,” Gilkes says. “There’s also an abundance of fraud and misrepresented goods, which leads to mistrust between buyers and sellers.” Historically, the strength of an auction house’s brand helped to solve the issues of fraud and provenance. But a blockchain solution, in theory, could solve those same issues while delivering even greater transparency.

Gilkes also believes that blockchain-based technologies have the potential to make auction operations more efficient. “Today, authentication is very manual,” he says. Paddle8’s blockchain service could free specialists, at Paddle8 and at partner galleries, to dedicate their time to curation, rather than authentication.

Drawing on The Native’s Blockchain Lab division, in the coming months the companies will launch Paddle8 Lab to help acclimate the online art and luxury markets to blockchain-based currencies like Bitcoin. Under the new partnership, The Native, based in Lausanne and headed by Sergey Skaterschikov, will take a 15% stake in Paddle8, paying $8.8m, and the option to acquire an additional 36% for around $25.6m.

The popularity of blockchain currencies has been growing despite—or because of, depending on your perspective—the fact that they are not backed by any national governments or central banks. Supporters of the virtual currencies argue they provide fraud prevention and improved asset and identity tracking. But the US Securities and Exchange Commission warned investors this month the risks of of illegal trading in the cryptocurrency market, and the increasing scrutiny of regulators was behind a major crash in Bitcoin's value last week.






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