Smart Contracts Explained: What Artists Need to Know

Smart Contracts Explained: What Artists Need to Know

You are probably thinking right now: I’m an artist, I don’t want to deal with contracts – smart or otherwise. 

It would be great if artists could just focus on their art and not worry about anything else. However, the reality is in today’s market is that you need to understand how to market yourself. And understanding how blockchain works is a good starting point. 

One of the key components of figuring out how to make money with digital art is understanding what smart contracts are and how they work. 

What Is a Smart Contract?

But things have seen quite a revolution in the past few years, thanks to the emergence of blockchain. As the foundation of digital art security, the blockchain effectively eliminated the "trust issues" associated with third-party verification. It is now possible to store data in a decentralized database, allowing artists to track artwork's provenance securely and permanently. 

Arguably the single most impactful product of blockchain technology concerning the digital art industry is the smart contract. This provides artists with a secure way of verifying artwork provenance and having ownership rights over their work. Smart contracts are essentially digital agreements recorded on an immutable distributed ledger, ensuring they cannot be tampered with or changed. 

A smart contract is a computer protocol which works within the decentralized blockchain network to facilitate, verify, and enforce the negotiation and performance of a contract. It's essentially a digital agreement between two parties that uses cryptography to ensure it can't be manipulated or changed without both parties knowing about it. This guarantees that all information exchanged between the parties are verified and stored on the blockchain platform in an immutable way. 

Smart contractors provide visual artists with a secure platform to document their artwork provenance using digital records that can't be tampered with and are easily verifiable by any interested party. The thing about these digital documents is that they're also easily transferable from one party to another.

Why Do we Need Smart Contracts? 

At least in the traditional sense, the provenance of artwork is represented by a physical certificate of authenticity, ie a piece of paper. But it’s easy for it to get lost, misplaced, or destroyed. So while a certificate of authenticity has long been deemed as "acceptable" proof of work origin, blockchain technology has enabled an easier and more secure way to track art provenance. 

But why is there a need for a new form of tracking artwork provenance? The truth is artwork often changes hands without the knowledge of the artist who created it. As a result, there's no guarantee that the artwork is genuine or that its value has been maintained throughout its life. Accordingly, this leads to certain inherent issues with the two elements of invoice and certificate of authenticity:

1 - The invoice and certificate of authenticity are easily forged and can be difficult to validate.

2 - They don't guarantee that the artwork is indeed genuine or with its original value, especially when it changes hands without proper documentation. 

3 - These two are made of paper, which means they can be destroyed or lost. 

From a visual artist's perspective, the vulnerability of the provenance of artwork provides a challenge in the sense that it is difficult to protect and prove their works. It's long been a dilemma for visual artists to track and store their artwork-related data properly. 


A Smart Contract's Impact Towards Visual Artists in the Digital Age

The most challenging part of being a visual artist has to go through stiff competition, regardless of genre or niche. Add to this the problem of having to prove the authenticity and provenance of artwork just because they don't carry an established name or reputation. 

Artists carry the burden of reaching out to intermediaries, i.e., agents, galleries, and the like, for their works to be seen and appraised. The problem with this setup is that they're always at the mercy of intermediaries, who may or may not be genuine in their dealings and appraisals. 

This problem is what blockchain and smart contracts have addressed for visual artists as of late. With a decentralized database, it's now easier and more secure than ever to store data on artwork provenance and ownership rights. The consequence of this new setup is that virtual artists are no longer compelled to go through intermediaries just to prove authenticity or credibility. In essence, they've gained full control of their works, which wasn't available before the blockchain revolution. 

Use Cases of Smart Contracts in Digital Art

Arguably the most popular use case is auctioning artwork through a blockchain-based platform. Smart contracts are meant to guarantee the successful completion of auctions and the authenticity of the artwork being sold. But that's not the only use that makes sense. 

Increased Value of Digital Art: Smart contracts allow visual artwork to gain more value over time. Artists set up a system in which the artwork is sold on an 'auction-like' platform, where each bid triggers the smart contract code and increases the value of the artwork. 

In 2017, Jean-Michel Basquiat's masterwork 'Untitled' sold for an astronomical $110.5 million - a staggering increase from its original $20,900 price tag in 1984. It took three decades to achieve the value it currently holds, but with the help of smart contracts, digital artwork can reach that value much faster and more securely. 

Mediators Instead of Middlemen - Smart contracts offer a mediating service instead of the traditional middleman. This development was natural once traditional auction houses decided to foray into digital artwork sales. This led to the emergence of decentralized art marketplaces. Since the blockchain powers these platforms, the middleman's role is now reduced to simply mediating between buyers and sellers. The smart contract is the binding agreement between the two parties and ensures that payments are made securely. So, a virtual artist's rights are still protected while benefiting from a more secure platform. 

Copyright Protection: Copyright protection has always been an issue in the digital art industry. Smart contracts allow artists to track any derivative works created from their artwork to ensure they get paid what is due to them. This tracking system also allows visual artists to keep tabs on how their work is used throughout various platforms. 

Putting a Premium on Scarcity: Smart contracts work wonders for visual artists because every piece has a unique identifier. This identifier is impossible to replicate. As a result, an artwork deemed "scarce" by its smart contract will get a high value merely because nothing else like it exists. A prime example is David Hockney's iPad-drawn "The Arrival of Spring." The artist drew it on an iPad before downloading and transferring it to aluminum pallets. And because of the distinctiveness of the pieces, they managed to fetch a whopping $28,000 each!

A More Equitable Market

The end game here is a more equitable market for virtual artists. Smart contracts offer security and trust by eliminating third-party middlemen, and that alone is enough to revolutionize the industry. Artists are their own brokers, and there's little or even no more room for manipulation, discrimination, or price-gouging. Regardless of their fame (or lack thereof), every artist is on equal ground.