In this article published in the Winter 2020 edition of the Art & Cultural Heritage Law Newsletter from the American Bar Association Section of International Law, G. Elaine Wood and Brad Dragoon discuss the future of purchasing fine art with cryptocurrencies, its risks, and considerations for the future.
While blockchain ledgers may provide welcome transparency in the art industry seeking to confirm the authenticity of pieces and to verify the identify of counterparties in high value transactions, it is unlikely that Bitcoin will become the preferred medium of exchange in the near future. This is primarily because virtual currency does not yet function as a stable store of value or as a reference to set prices. Due to the relative stability of fiat currencies such as the Euro or US Dollar, pricing indices can be established and critical metrics like price inflation monitored.
Dealers and auctioneers involved in the transfer of high-value fine art must first understand the risks involved in using any medium of exchange. While virtual currencies provide access to a central ledger, coin wallets can still be tied to shell companies or proxies acting on behalf of unknown ultimate beneficiaries. As with any other currency, sellers should be aware of common red flags such as the use of offshore entities or intermediaries (including lawyers) to stand in for the real parties in interest during the bidding and acquisition process. Due diligence into potential buyers and sellers also should include an analysis of source of wealth and source funds.
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