Visions and Reality - Can blockchain allow us to rethink the creative industries?

www.nesta.org.uk/blog/visions-and-reality-can-blockchain-allow-us-rethink-creative-industries/
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Visions and Reality - Can blockchain allow us to rethink the creative industries?

A magic bullet? A libertarian dream? A database?

What is blockchain?

In digital money there is a fundamental problem, how do you know that someone has the right to spend the money they are offering as payment, particularly if (as often happens in financial transactions) you don’t know them. One way to solve this is what happens in the banking system - you have a centralised authority that tracks transactions and verifies a person has the money that they claim, before allowing payment. The digital cryptocurrency Bitcoin has a different approach. Instead, there is a record of transactions ‘the Blockchain’ which all Bitcoin users can access a copy of to verify someone has the money they claim, and then broadcast to other users to confirm that, indeed, the person has the money and can validly spend it.[1] The transactions which are processed in batches called ‘blocks’ are then allowed to happen and the blockchain record of who owns which Bitcoin updated accordingly.

This raises another challenge, what is to prevent a clever attacker exploiting this decentralisation by creating many fake identities (“digital sock puppets”) that falsely verify he/she has certain Bitcoins allowing the attacker to fraudulently spend Bitcoins and undermine the currency? Bitcoin solves this problem in an ingenious way. Before a block of transactions is added to the chain as approved transactions a maths problem, which requires a lot of computer power, needs to be solved in a process called mining (effectively it is a brute-force search for a number which has a certain property). To systematically falsify the record of who has which Bitcoins an attacker has to solve the maths problems faster than everyone else, and not just once, but again and again.[2] To be able to do this the attacker would though have to control most of the computing power of the network working on the problems which should be very expensive/difficult. This helps ensure the accuracy of the transactions record and the integrity of the currency.[3]

This is though only at first glance about money. At a deeper level the blockchain is just an agreed record of what has happened; in the original case of Bitcoin, a record of Bitcoin transactions, but the same concept can be applied to other things too. It is this idea of a secure, decentralised, record of information which is being pursued around the world by many trying to capitalise on this development, both as a means to create new forms of money and as a new way to record information.

Bitcoin mining

Bitcoin mining (Photograph Marko Ahtisaari)

The issues it is hoped blockchain might address in the creative industries

There are a series of issues in the creative industries value chain that it is hoped that the blockchain and some of its extensions might solve.

  1. Proving authorship and authenticity: In art sales, knowing whether what is on sale was actually produced by the artist and that the seller has the right to sell it is very important in encouraging purchases and preventing the selling of forgeries. In music the records of who played on which track affects who ultimately gets paid and the intellectual property/status associated with creating work, however these records have historically not always been complete. Tracking of supply chains with blockchain is already taking place, for example De Beers have developed a blockchain to track diamonds and Provenance have used it in tracking clothing.[4]
  2. The creation of digital scarcity A contributing factor to value in art is often the rarity value of a desirable object with restricted availability. In principle, analogous to the way that the blockchain prevents the creation of fake bitcoins that someone does not own, this could be used to ensure that a finite number of digital works are produced, limiting the supply. Although purely digital art work has been produced for some time[5], it arguably has not gone completely mainstream. One reason for this is that it has not been easy to guarantee that the work is a unique original or one of a potentially unlimited number of digital copies.
  3. Ensuring payments can be made more quickly and flexibly As tracking rights and when payment is due when work is reproduced or resold is not straightforward there are a number of bodies in the creative industries which manage this on behalf of artists.[6] It is hoped that an agreed public record of rights would bring greater integrity to the data used in this process. In addition, by combining this data with so-called smart contracts (contracts which can be executed automatically when certain conditions are satisfied e.g. pay artist £x when their work is used), the blockchain might enable micropayments to be made faster and flexibly when work is used, such as when a track is played.[7] The Ethereum blockchain was built to have richer functionality than Bitcoin for payment and other activities, and is widely used to develop smart contracts and other applications.[8] Collection societies and others are investigating whether blockchain can be used to manage payments more effectively.
  4. Increasing access to finance and liquidity (and changing what finance means) Another blockchain-related innovation is that it provides a new way to raise finance by issuing digital tokens (which correspond to entries in a particular blockchain) in return for conventional money, so called initial coin offerings (ICOs) and the prospect of rising value if the token is widely used. Although only a few years old, ICOs have grown rapidly in popularity. There are estimates that ICOs have raised over $3.5 billion in Europe alone in 2018. This rate of growth may however reduce due to concerns about fraudulent ICOs and the likelihood of increased regulation.[9] Unlike conventional crowdfunding which already happens for creative projects such as computer games and films, the tokens are usually tradable via online exchanges.[10] This additional liquidity which means that the ICO process has similarities both with conventional crowdfunding and with issuing equity that may be attractive to investors.[11] Works of art, by and large, are also not cleanly divisible e.g. one could split up a picture into lots of different pieces but it would not retain its value, however blockchains in principle allow one to issue currency that can be linked to the value of the underlying asset, allowing people to part-own a picture and benefit from resales according to pre-specified rules. It is not immediately clear that these arrangements work more efficiently than other forms of financialisation, and the technology is still developing, but it could provide new ways to finance art creation. Another aspect is that it might allow more sophisticated conditions to be attached to raising finance/payment enabling new relationships between the artist and the funders.

The things that improving these might enable:

  1. Encouraging creative markets to grow by increasing the supply and demand for creative content On the supply side people are more likely to be creative if it becomes easier to obtain remuneration from their work, or get its production financed, which might be facilitated an agreed record of rights in blockchain form, smart contracts and tokenisation. On the demand side, in the physical art market reducing the asymmetry of information between the buyer and seller through a common accessible record could act as a stimulus for sales. With digital art providing credible guarantees on the authenticity and limited availability of work could increase demand for it.
  2. Stimulating creative activity by enabling new relationships between consumers and artists Another stimulus to creativity is that blockchain could allow new relationships between consumers and artists to be built. As a recent example of this, the artist Jonas Lund has released a tokenised work in which by buying the work’s tokens the purchasers get the opportunity to vote on issues in his future art practice. At a platform level, Mat Dryhurst has also proposed tokenisation as a mechanism to potentially communitise existing platforms such as SoundCloud.[12]
  3. Stimulating creative activity by changing the traditional institutional gatekeepersThe idea that art is disintermediated from payment via traditional gatekeepers such as the gallery and curatorial system is a radical vision as, in principle, you end up bypassing the key mediators and tastemakers that, for centuries, have shaped the art that is produced and sold. This is striking because it could, perhaps, lead to exciting changes in the kinds of art that is made.

The issues technical, political and economic that mean these goals may be challenging to realise

There are certainly attractive aspects to these ideas, however there are practical issues (some technological, but others not) that mean executing some of them is not straightforward.

  1. Is decentralisation an end in itself? Producing a record of transactions/activity does not necessarily require a decentralised approach. There can be a single centralised authority who identifies the participants and centrally authenticates transactions/activity using a conventional database or some form of more centralised blockchain where users identities are known (a permissioned blockchain system - many of the blockchains that are deployed have this form). This means that the need for a decentralised record is not always apparent, indeed it may be less efficient than a conventional centralised approach. Perhaps a decentralised record is easier to get agreement on from a wide range of parties, as it is seen as more independent. There is also a view that decentralised solutions are better as they avoid the tendency for centralisation in a single platform that we have seen elsewhere in the internet. A decentralised approach may also be better able to encourage a plurality of views consistent with creativity. The extent to which all this is true in practice remains to be seen. Some of the parties that it is proposed could be disintermediated also provide other important services like marketing which affect the chances of work reaching audiences.
  2. Can the volume of transactions be processed fast enough? There are limitations to the speed with which existing blockchain systems can process transactions.[13] This means that the systems currently in use may not scale to meet transaction volumes. There are also trade-offs with levels of decentralisation, with permissioned networks being much faster. The volume of music plays or video views is far higher than the number of transactions that the Bitcoin blockchain currently processes. When the game Cryptokitties where people can buy, sell and breed unique digital cats, secured by Ethereum, became popular it was found to affect the speed of processing on the Ethereum network.[14] However given the amount of work going into this topic it is conceivable that there could be progress on the speed of transaction processing in future. For example in recent years Microsoft, Fujitsu and Samsung among many others have announced work on speeding up the process.[15]
  3. Can you connect the art to the chain? To ensure you have authenticity, you need to find a way to connect the art to the blockchain’s immutable record. One distinction is between digital and physical objects. The consensus seems to be is that it is easier to attach a digital object to the blockchain than a physical one, which may imply we are more likely to see the technology adopted for digital creative outputs than physical ones, at least in the short-term. To get the most benefit you also need to get as many people as possible adopting and using the proposed blockchain register, which may not be easy particularly as rights issues can be international. Alternatively you may need compatibility between blockchains tracking different things.
  4. How do you deal with legacy data/history? A record of who played on what track or painted/or sold which picture does not always exist. Even when it does, the corresponding information can be held by multiple parties on an inconsistent basis. These holders are not necessarily be incentivised to share this data and unite it in a single agreed record.This is not to say it is impossible that the historic rights data could be integrated, but achieving this is at least as much of a political challenge as a technological one. It may though be easier to solve the rights issues going forward which is why Benji Rogers has proposed the, by comparison, newer field of immersive content as a way to get blockchain standards for data collection and authenticity adopted initially.[16]
  5. Solving all of the above does not necessarily change underlying characteristics of supply and demand in markets for artistic work Even if the attribution of a work is unambiguous, and its uniqueness ensured, speed and flexibility of payment enhanced, and the gatekeepers changed, this may not change other characteristics of the markets for artistic work. Many people want to become musicians and artists so competition is fierce, and the public’s demand for this work is not necessarily affected by greater ease and automation of payment. Also artistic markets often have social feedback effects where people are influenced by each others purchasing decisions, resulting in much higher levels of interest in specific artists, than if purchases were made independently. [17] This means that even if all the issues above are resolved it probably won’t result in a bonanza for all, but it could improve things for some. It may also allow markets for new kinds of creative content to develop, which in a sense Cryptokitties is an early example of.

Conclusions

In a rapidly moving area, with so much hype, it is hard to distinguish which claims are technically possible and commercially/collectively viable. The technology Bitcoin has introduced has attractive characteristics, which may well be useful to the creative industries in future. It is also good that it has exposed assumptions about existing arrangments that might otherwise not be questioned and brought greater focus on these issues from a wider range of parties.

However, there are practical challenges, some are technological, some are political and some stem from the sector’s underlying economics which mean it is difficult to fully realise some of the visions that are out there. That does not mean it isn’t worth trying though and there’s only one way to find out. Not a magic bullet, but a catalyst for change.

Acknowledgments

Thanks go to Theo Bass, Chris Haley and Georgia Ward Dyer for their helpful comments on this article

This post has been influenced by,the events organised by Furtherfield, the Serpentine Gallery and DACs on blockchain in the creative industries at the Digital Catapult as part of the DAOWO summits series, and the Intellectual Property Office’s (IPO’s) Music 2025 project. In addition it has been influenced by a number of recent or forthcoming publications on blockchain in the creative industries:

  1. In practice, not everyone has a copy of the full blockchain, but may have a condensed version sufficient to use the currency.
  2. People are incentivised to mine bitcoins by a reward of a certain number of Bitcoins when they solve the problem. The reward and the difficulty of the problem is varied over time over time to deal with improvements in computer power, the number of participants and control the amount of Bitcoins in circulation. It is possible to use bitcoin without participating in mining.
  3. For more detail on this see: Nielsen, M. (2013), ‘How the Bitcoin protocol actually works?’ and Antonopoulos, A. (2014) ‘Mastering Bitcoin’, O’Reilly.
  4. Technology news (2018), ‘De Beers tracks diamonds through supply chain using blockchain’.
  5. Tribe, M. and Jana, R. (2006) ‘New Media Art’, Taschen.
  6. In music in the UK there are the performing rights societies (PRS) looking after the different rights for recording and performing and in art The Design and Artists Copyright Society (DACS).
  7. Arrangements of this form already exist with traditional escrow arrangements where 3rd parties release payments once certain conditions are satisfied.
  8. Digital Catapult (2018),’Blockchain in action’, finds that 66% of blockchain applications in the UK are developed with Ethereum.
  9. Haley, C. (2019), ‘ICOs, DAOs, WTFs’, Nesta.
  10. Mateos-Garcia, J. ‘(2015),‘What did we learn from looking at the UK video games kickstarter data’, Nesta.
  11. Haley, C. (2019), ‘On digital token offerings’, Nesta.
  12. Dryhurst, M. (2017), ‘Sound crowd: Tokenising and collectivising Soundcloud’.
  13. https://en.wikipedia.org/wiki/Bitcoin_scalability_problem
  14. BBC (2017), ‘CryptoKitties craze slows down transactions on Ethereum’
  15. Fujitsu (2017), ‘Fujitsu Speeds Up Transaction Processing on the Blockchain’, Reuters (2017), ‘Microsoft unveils technology to speed up blockchain and its adoption’. Ledger insights (2019) ‘Samsung tech to speed up Hyperledger Fabric’.
  16. Rogers, B. (2015) ‘How the Blockchain and VR Can Change the Music Industry’, Medium.
  17. Salganik, M., Dodds, P. and Watts, J. (2006), ‘Experimental study of inequality and unpredictability in an artificial cultural market’, Science.

Author

John Davies

John Davies

John Davies

Principal Data Scientist, Data Analytics Practice

John was a data scientist focusing on the digital and creative economy. He was interested in the interface of economics, digital technology and data.

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