Cryptocurrencies, Explained: The Beginner’s Guide the Art World Needs Right Now
The art world isn’t exactly known for being at the forefront when it comes to embracing new technologies. Given its late-adopting habits, you might assume our industry would largely dodge the culture-consuming chatter about Bitcoin and other cryptocurrencies—and maybe this would even be a blessing in disguise, since just yesterday the price of Bitcoin dove by more than 20 percent.
But almost no space is safe forever, and a slew of recent news items proved that even the art mainstream is wading into the deep end of cryptocurrencies, however tentatively.
In the past two weeks alone, we saw the unwinding of a minor controversy around a supposed Richard Prince “ready-made” cryptocurrency (spoiler alert: THAT Richard Prince was never involved), the New York Times arts section delved into the digital-collectible crazes known as CryptoKitties and CryptoPunks, and Kodak even launched its own Bitcoin alternative called, you guessed it, KodakCoin.
Despite the avalanche of conversation and investment dollars plowing into cryptocurrencies, though, most people inside and outside the arts still find the technology confounding. Buzzwords like “mining” and “decentralization” get tossed around with the same reckless abandon as casual lies on a hookup app, but the actual meaning beneath the jargon remains elusive to most people (and understandably so!).
Since it looks like cryptocurrencies will remain a part of the art-industry debate for some time, I saturated myself in the minutiae so you don’t have to. And after coming up for air, I can say this: While there are still many, many questions about their adoption, implementation, and value, cryptocurrencies have the potential to transform multiple facets of the art world, from the authentication of digital works to the protection of transactions to the creation of new forms of cultural exchange.
Here’s my attempt at a highly approachable beginner’s guide to the technology. To begin, we have to take a step back from cryptocurrencies to wrestle with an even more foundational innovation called the blockchain.
Uh, I thought this was about cryptocurrencies. WTF is a blockchain?
Blockchains are often described as “decentralized (or distributed) digital ledgers,” a phrase which generally seems to be about as illuminating to the uninitiated as explaining acid jazz as “a live-instrument-based offshoot of the rare groove movement.”
So let’s start with the simplest aspect: the idea of a digital ledger.
In practice, this just means that a blockchain is an ongoing, digitized record of transactions. Crucially, this ledger is “append only,” meaning that past entries can never be removed. If something about an earlier transaction needs to be changed, a new entry gets added to reflect the alteration. For example, if I paid off a debt, the debt would not be erased from the ledger in a literal sense. Instead, a new entry would be written to zero out my balance.
The result is that a blockchain “ledger” only ever gets longer (or, to adopt the lingua franca of the crypto community, “higher”). All of the new transactions that happen over a set time period are grouped into a bundle, or “block.” And every time a new block gets created and properly verified (more on verification later), the new block gets added on top of the blocks of transactions that came before it.
But I’m a dealer. Why should I or my clients care about this?
I mean, have any of you ever encountered a situation where it would be valuable to see an artwork with a comprehensive, unbroken chain of title, especially one not just cobbled together from musty scraps of paper and age-addled secondhand recollections? Then read on!