The 2016 documentary “Sour Grapes” chronicles how wine investor Rudy Kurniawan duped wine connoisseurs and other investors into buying fake bottles of what he said were rare and expensive wines. He could fool them thanks to the difficulty in confirming the authenticity of vintage wine.
Validating high-end collectibles including wine, watches, cars and art can be tough because chains of ownership must be verified each time an object is sold, and past owners often want to remain anonymous. That’s presuming what you’re buying is genuine and not a genuine fake.
Codex Protocol, or Codex, sees blockchain technology as an ideal, real-world solution to this fundamental problem in the arts and collectibles market. Of the 30 presenting companies at Hack.Summit this week, Codex was the only company serving a business need rather than creating a platform or tools for developers.
“If you think about us as engineers, whenever there’s a new shiny technology the first instinct that we have is to build stuff that solves our own problems,” said Ed Roman, Hack.Summit moderator. “What these guys are doing [with Codex] is being empathetic to an entire other industry and solving problems for them.”
Codex doesn’t want to replace the work being done by traditional auction houses such as Sotheby’s and Christie’s to authenticate the validity of a painting being sold for $10 million, explained Codex CTO John Forrest.
“Because they have such a great reputation, they’re able to bring a market of people willing to buy an expensive piece of art,” he said. “If you were trying to sell a $10 million piece of art on your own, you don’t have the same clout as a Sotheby’s, so it likely wouldn’t sell for the same price.”
“This is a market where everyone would like a system of record, but no one is willing to give up privacy,” Codex CEO Mark Lurie said.
Instead, Codex wants to help those businesses streamline their own authentication processes by creating a distributed database containing the transaction history of high-end arts and collectibles.
The Privacy Problem
Why hasn’t a registry system been developed before for the $2 trillion art and collectibles market?
“This is a market where everyone would like a system of record, but no one is willing to give up privacy,” Codex CEO Mark Lurie said. “Individuals don’t want to give out their personal information, and intermediaries don’t want to give up client lists to a central authority. Blockchain lets us build applications that keeps the owners private while preserving the identity of the items themselves as they transfer across owners over time.”
To attract businesses and consumers, Codex is following CryptoKitties’ lead by focusing on the user experience. “How do we abstract some complexities away such that we can get people like our grandparents, who are typically going to be closer to the art community and may have collections of their own?” Forrest asked. “We have to appeal to that audience if we are going to succeed as a business.”
Decentralize as Needed
Although most blockchains prize decentralization, Codex says it must centralize, at least for now, some parts of its platform in order to simplify the user experience.
CryptoKitties “centralized some core aspects and have a ton of users because of it,” Forrest added. “At Codex, we still think the ownership part is important to decentralize and over time we’ll build an ecosystem so more and more parts are decentralized. But in order to get more users early on, we need to centralize some things such that it’s easier to use.”
Today, Codex uses application programming interfaces (APIs) to index relevant events rather than “talking” directly to the blockchain.
“The key question is why are you decentralizing?” Lurie said. “What is it you need to decentralize? … Decentralize that. Then the rest, do what’s pragmatic.”
Codex has partnered with a consortium of stakeholders in the arts and collectibles space that facilitate $6 billion in sales from 10 million items sold at more than 5,000 auction houses.
Laurie said he envisions outside developers creating applications for lending, insurance, and connecting physical items to digital records. He added that Codex might work on developing them, too, but for now the company is focused on the bidding and buying process where people can purchase “everything from Rolexes to Picassos.”