Addressing Forgery Issues in the Art Market: The Future of Art Trade with Blockchain Technology

The Growing Global Art Market and Secondary Sales Expansion

The global art market continues to expand year after year, with total transactions reaching approximately $65 billion in 2022 (according to the “Art Market Report 2022” by Art Basel and UBS).

Of particular interest is the secondary market, where collectors resell artworks. This sector accounts for over 50% of all art transactions, with a trading volume of about $35 billion in 2022.

The secondary market’s vitality stems from the perception of art as an investment that can generate further value after initial purchase. Crafts and artworks are attracting attention as asset-building tools due to their potential to appreciate over time, thanks to their rarity and cultural significance.

This trend applies to Japanese traditional crafts as well, with platforms like ARTerrace, an e-commerce site dealing in traditional crafts and artworks, adding new value to this liquid market.

The “Forgery Problem” Lurking in the Art Market – A Deep Shadow and Its Impact

As the art market expands, the issue of forgeries has become increasingly apparent. According to FBI investigations, approximately 20% of artworks traded in the global art market are forgeries. This problem is particularly prevalent in high-value art and collectibles, creating a demand for reliable means to verify the authenticity and ownership of artworks.
Forgeries circulate in the market for various reasons, often exploiting collectors’ desire to own expensive pieces or their interest in rare artworks as investments. Forgers and individuals selling fake pieces capitalize on this collector psychology, skillfully introducing counterfeit works into the market. Particularly for pieces with high economic returns, forgery techniques have become so sophisticated that even experts struggle to discern authenticity.

The proliferation of forgeries has serious consequences for the entire market. First, the circulation of works with uncertain authenticity erodes collector confidence, diminishing the credibility of the entire art market. This risks devaluing legitimate pieces. Moreover, the abundance of forgeries in the market can distort the evaluation of specific artists or genres, potentially leading to long-term cultural losses.

The Function of Certificates – Limitations of Long-standing Methods

Traditionally, certificates of authenticity or appraisal documents have been the primary means of verifying artwork authenticity. These documents, issued by artists, galleries, or specialized appraisers, guarantee the genuineness of a piece. For instance, the Louvre Museum and major galleries provide certificates with artwork sales to assure collectors of authenticity.

However, the certificate system has significant limitations. Firstly, there’s a risk of certificate forgery. Additionally, certificates often rely on information from the time of issuance, failing to record subsequent trading history or ownership changes. The risk of loss or alteration of certificates makes it challenging to maintain their authenticity long-term.
Furthermore, in multiple market transactions, the chain of certificates may break, leading to unclear ownership history and potentially negatively impacting the artwork’s evaluation and value. Consequently, relying solely on certificates has been recognized as insufficient in solving the forgery problem.

Global Responses – Transformation through Blockchain Technology and NFT Implementation

To combat forgery issues, the art market has turned to technological innovation, with a focus on blockchain technology. This technology allows for recording artwork history and ownership in a digital ledger, providing transparent and immutable management. Offering far greater reliability and security than traditional certificates, it enables collectors to trade with confidence.

1. Tagsmart – Combining Digital Certificates with Physical Tags

UK-based Tagsmart offers an anti-forgery solution for physical artworks by combining digital certificates with physical tags. Tagsmart allows artists and galleries to attach individual tags to artworks and issue corresponding digital certificates. This ensures both physical and digital verification of authenticity and enables artwork history tracking.
Tagsmart’s distinctive technology features forgery-resistant tags that are directly applied to artworks or embedded within frames. These tags contain identifiable information (such as QR codes or NFC chips) linked to digital certificates, allowing owners to easily access artwork history and certificates.
Moreover, the digital certificate and physical tag can be updated each time the artwork is resold, recording the latest owner and transaction history. Tagsmart aims to eliminate forgery risks and enhance the value and reliability of artworks through this system.

2. Verisart – Blockchain-based Certificate Management

US-based Verisart provides a platform using blockchain technology to verify artwork authenticity. Verisart issues blockchain-based digital certificates for physical artworks, managing their history and ownership transparently and immutably.

Verisart allows artists and galleries to register digital certificates for artworks, which are then recorded on the blockchain. Each time an artwork enters the market, its transaction history and ownership information are recorded in the digital ledger, permanently preserved in an unalterable form.

Verisart excels in authenticating high-value artworks and collectibles, offering a system where artists can directly register certificates. This minimizes the risk of forgeries while providing collectors with a secure environment for art transactions. Verisart also adopts a hybrid approach combining physical and digital certificates, doubly ensuring artwork security.

3. ARTiFACTS – A System for Recording Artwork Provenance

ARTiFACTS is a platform for recording and managing the provenance of artworks. Provenance refers to the ownership history of an artwork, detailing its journey through various owners. As the value of an artwork is significantly influenced by its provenance, managing this information is crucial in reducing forgery risks.

ARTiFACTS utilizes blockchain technology to digitally manage artwork provenance. It allows transparent tracking of where an artwork was created, how it was traded, and who owns it. Information recorded on the blockchain is immutable, greatly enhancing the reliability of artwork transactions.

This system aims to reduce forgery risks by allowing artists, galleries, and auction houses to register artworks and clarify their origins. It’s particularly useful for high-value fine art and collectibles, serving as an important tool in ensuring transparency across the art market.

4. Prooftag – Unique Authentication with Bubble Tag Technology

Prooftag, a French company, offers physical anti-forgery technology for artworks. One of their technologies, called Bubble Tag, generates a unique bubble pattern on a label attached to each artwork, registering it as the piece’s certificate. The bubble pattern is randomly generated and impossible to replicate, making it effective in preventing forgeries and counterfeits.
The Bubble Tag is physically attached to the artwork as a label, with a corresponding digital certificate issued. Buyers and collectors can instantly verify the authenticity of the piece by checking the tag and can also confirm the corresponding digital certificate online.

Prooftag’s Bubble Tag is applied not only to fine art but also to expensive wines and luxury items. This technology not only prevents art forgeries but also provides an environment where owners can trade with confidence, gaining strong support especially for high-value collector’s items.

5. Blockchain Art Collective (BAC) – Merging Physical Artworks with Digital History

The Blockchain Art Collective (BAC) offers technology that merges physical artworks with digital histories by attaching specialized NFC tags to artworks, which connect to the artwork’s digital certificate. In BAC’s approach, a small NFC chip is attached to the physical artwork, and by scanning this chip with a smartphone, users can access the artwork’s history, ownership, and provenance information.

The NFC tag contains detailed information about the artwork, and scanning the tag allows verification against the digital certificate on the blockchain. Owners can prove the authenticity of the artwork and confirm its history. BAC’s technology is gaining attention as a secure alternative to physical certificates, particularly effective in preventing forgeries of expensive artworks and antiques.

Global Initiatives – Creating New Markets with NFTs and Blockchain

Initiatives using NFT and blockchain technology are being implemented worldwide, not just in the art and luxury goods markets. For example, in the UK, a market for selling works by young artists as NFTs is rapidly growing as a new sales method for contemporary art.

This allows emerging artists to access a global market and deliver their works to collectors worldwide without relying on traditional galleries or auction houses.
In the United States, NFTs are also being utilized in the Hollywood industry. Digital content such as movies and music are being sold as NFTs for ownership and distribution rights, bringing transparency to content transactions.
Copyright holders of films and music can now track where and how their works are being used, and secure profits from secondary use through smart contracts.

ARTerrace’s Innovative Approach – Authenticity Verification Using 3D Scanners and NFTs

ARTerrace provides a new authentication system to address the rampant forgery problem in the art market, utilizing innovative technology and thorough processes. Their approach, particularly using 3D scanner technology and NFTs (Non-Fungible Tokens), significantly improves accuracy and reliability compared to traditional authentication methods, greatly contributing to enhancing transparency in the art market.

Pre-verification Through Dialogue with Traditional Craft Artists and Studio Visits

The works handled by ARTerrace are created by carefully selected artists, including many works by traditional craft artists designated as Living National Treasures. ARTerrace engages in direct dialogue with all artists, visits their studios, and witnesses the creation process. This thorough pre-verification allows them to understand the artist’s individuality and techniques, grasping the background of artwork creation and establishing a state where there’s no room for forgeries.

Understanding the creation process deeply before the artwork is completed, ARTerrace digitizes the work through 3D scanning with full confidence in its authenticity. This method ensures that the sold artwork is completely recorded not only with physical proof but also with digital data, accurately preserving the work’s shape, texture, and details.

Detailed Digitization Using 3D Scanner Technology

Traditionally, authentication of artworks and crafts often relied on visual inspection and certificates, leaving a risk of forgeries entering the market. In contrast, ARTerrace uses proprietary 3D scanner technology to digitize artworks with high precision. This technology records the shape, texture, and minute details of the surface of the work in detail, capturing nuances that might be overlooked in conventional authentication.
Particularly for handcrafted works, which embed the artist’s unique techniques and characteristics, this meticulous digitization completely protects the work’s uniqueness. Even for works by Living National Treasures, accurately capturing every detail eliminates the physical risk of forgery, strongly proving that each work is one of a kind.

Guaranteeing Authenticity and Ownership with Ethereum-based NFTs

The data digitized by 3D scanners is recorded on the blockchain as Ethereum-based NFTs. NFTs serve as digital certificates, guaranteeing the authenticity, ownership, and transaction history of the work in an immutable form.
This completely eliminates the risks of forgery and loss common with paper-based certificates, enhancing transparency through digitization.

NFTs on the blockchain are tamper-proof, ensuring that transaction histories and ownership never become opaque. Buyers and collectors can always verify the past history of a work, with digital records guaranteeing who owned it at what point.
As the NFT is automatically updated with each transaction, accurately recording ownership changes, buyers can participate in transactions with peace of mind.

Proving Authenticity in the Secondary Market – Establishing Transaction Reliability with New Technology

In the secondary market, the authenticity of artworks is crucial. When collectors resell works among themselves, without a means to prove that a work is genuine, trust in transactions can be lost. Therefore, the secondary market requires a system that accurately evaluates the value of artworks and crafts and eliminates the risk of forgeries.

The secondary distribution system provided by ARTerrace offers the most robust countermeasure against forgery issues, based on three pillars: deep trust relationships with traditional craft artists, high-precision digitization using the latest technology, and Ethereum-based NFTs. All works are guaranteed authentic before sale, with accurately recorded data from 3D scans and NFTs transparently managing ownership and transaction history.

Moving forward, ARTerrace will continue to incorporate cutting-edge technologies to enhance transparency and reliability in the art market. While preserving Japanese traditional crafts, they will evolve as a new art trading platform that eliminates forgery risks and ensures the secure transfer of artworks to future generations.

A New Art Market Born from Technology and Tradition

The issue of forgeries remains a serious challenge for art markets worldwide. To address this, various businesses are introducing innovative technologies to improve transparency and reliability in the art market. In particular, technologies such as Web3, blockchain, NFTs, and 3D scanners are gaining attention. These digital technologies are becoming increasingly popular as means to guarantee the authenticity of artworks and crafts and manage ownership transparently and immutably.
In the past, the art market relied on certificates and appraisal documents to guarantee the authenticity of works, but these carried risks of forgery and loss. However, with the introduction of NFTs based on blockchain technology and detailed digital data from 3D scanners, the risk of forgeries has been significantly reduced, creating an environment where collectors and buyers can participate in transactions with confidence.

This technological innovation not only eliminates the risk of forgeries but also opens up new possibilities for preserving the value of artworks through digital technology and passing them on to future generations. The traditional art market is becoming more transparent and reliable, creating new value in the global market.
In the future, the art market is expected to continue seeing a fusion of technology and tradition, providing a more trustworthy trading environment for artists, collectors, galleries, and auction houses. This evolution promises to reshape the landscape of art commerce, making it more accessible, secure, and globally connected than ever before.
As we move forward, the integration of these advanced technologies with traditional art practices will likely lead to new forms of artistic expression and appreciation. It may also open up opportunities for smaller artists and collectors to participate in the global art market on a more level playing field.

The use of blockchain and NFTs in the art world goes beyond just preventing forgeries. It also has the potential to revolutionize how art is created, shared, and monetized. For instance, artists can now easily create limited edition digital artworks, or attach digital experiences to physical pieces, enhancing the overall value and engagement with their work.
Moreover, these technologies are fostering a new era of transparency in art provenance. Collectors can now trace the entire history of an artwork from its creation through every sale and exhibition, adding a new layer of storytelling and value to each piece.
As the art world continues to embrace these technological advancements, we can expect to see even more innovative solutions emerge. From virtual reality art galleries to AI-assisted authentication processes, the future of the art market is bound to be as creative and dynamic as the artworks it showcases.

In conclusion, while the challenge of forgeries has long plagued the art world, the advent of new technologies is providing robust solutions. Platforms like ARTerrace are at the forefront of this revolution, combining respect for traditional craftsmanship with cutting-edge digital solutions. As these technologies continue to evolve and gain widespread adoption, we can look forward to a future where the authenticity and value of artworks are more secure than ever before, fostering a thriving, trustworthy global art market.