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By Jack Lu, CEO of Bounce Finance Â
The recent collapse of Silicon Valley and Signature Banks has made clear just how few safe havens there are for investors in the current market environment. Stocks, bonds, alternatives, and even cash have all shown signs of uncertainty in recent months. Amid continued global inflation and signs that major economies may be headed for recession, investors are finding it more and more challenging to identify promising opportunities. But there is one major asset class that has provided a refuge in recent decades.
Precious stones and metals, fine art, wine, high-end wearables, antiques, and other collectible items have outperformed through recent cycles, acting as a hedge against both volatility and inflation. But thereâs a problem: the marketplace for these assets is largely opaque, illiquid, and closed off to those who lack significant means, time, and personal connections.
It doesnât have to be that way. With the arrival of blockchain technology, it is now possible to create marketplaces for real-world collectibles that are both open and safe for everyone.Â
A 2020 Deloitte report branded collectibles an âintegralâ part of wealth. But these often-unique items and the dealers and auction houses where they trade can be difficult to access for the average person â and not just for financial or geographical reasons. To flatter their core client base, these institutions often make viewings and sales invitation-only, buying and selling within a closed group of those already in the know.
Change has been challenging. In recent years, secondary markets and online dealers have gone a long way to broadening the potential buyer base. Unfortunately, repeated instances of fraud, bid-rigging, and other illicit activities have made these marketplaces hazardous to navigate, especially for the newcomer.
The Real Deal: The Authentication ProblemÂ
Itâs no surprise, then, that one of the of the most significant challenges facing todayâs luxury collectibles sector is authentication. Counterfeiters have become increasingly sophisticated in their techniques, producing high-quality replicas that are difficult to distinguish from the real thing. And when it comes to unique, limited edition, or vintage items, there may be no standard reference point for comparison, making it virtually impossible to be sure if something is genuine or not.Â
Authentication of collectibles also requires considerable expertise and a deep understanding of their history, design, and production methods. In fashion, art, wine, or jewelry, it can be tough to spot the subtle details that differentiate a genuine item from a fake one.Â
Such expertise comes at a cost. Traditionally, auction houses and high-end dealers have played an authenticating role in the market, employing experts to ensure the items being bought and sold are real. As such, they take a cut of the profits, often pushing them even further out of the financial reach of the average consumer.Â
Blockchain eliminates the need to have a human authenticator on hand each time an item trades, providing a secure record of an itemâs history, from production to purchase. For instance, a Louis Vuitton bag with a digital identity stored on-chain would allow people to quickly gain information about its history from manufacture and sale down to the present owner. And because blockchain records are decentralized and tamper-proof, counterfeiters would have a much more difficult time passing fake items off as genuine. Items registered in this way would effectively become real-world NFTs.
Fairness and Transparency in Collectibles Markets
Provenance isnât the only area where blockchainâs radical transparency can help. The decentralized internet can keep the entire sales process out in the open, benefiting those who are selling an item, as well as those who hope to buy it. Thatâs why decentralization and blockchain technology are so important for the platforms on which collectibles are sold.Â
Trust is essential in these markets. Participants must have confidence in the dealers and auctioneers that verify, value, and sell collectibles. Unfortunately, even the major players are not always worthy of that trust. In 2014, for instance, Christieâs was ordered to pay $100,000 to a customer after it was found to have sold a painting it knew to be counterfeit. Bidders may also fall victim to other forms of corruption: from predatory markups to the sale of stolen goods. Some auction houses have been known to plant fake buyers in audiences to artificially drive prices higher.
The bottom line is that because customers lack visibility into the authentication, valuation, and sale processes, they are completely dependent on the trustworthiness of a third party.Â
Going Once, Going Twice⊠Sold!Â
Blockchain technology can enable a secure, transparent auction process that eliminates the need for many of the intermediaries that have defined the process. This in turn can increase efficiency and expand access, thereby revolutionizing the buying and selling of collectibles in multiple ways.Â
Take the bidding process. In a decentralized auction, all bids and transactions are recorded on a public ledger that can be audited by anyone, making it hard for bidders to collude or engage in other forms of illegal activity. And since all data about the sale is protected by cryptography, it is much more difficult for hackers to intercept or manipulate bids.
With blockchain, anyone can initiate or participate in an auction at any time, without the intervention or control of a third party. NFT fractionalization opens up the possibility of partial ownership. How would you like to own one percent of a Picasso the same way you can own a few shares of Apple? All of this means ordinary people can invest in valuable collectibles instantly, at almost any price point.Â
Collectibles and other items commonly sold at auction have long been a refuge in times of economic uncertainty â to those with the means and connections. Now, with blockchains continuing to develop rapidly, there is no reason why they shouldnât be as accessible to ordinary people as cash, stocks, or bonds. With decentralized tech, we can make it happen.Â
Author Bio
Jack Lu is the CEO of Bounce Finance, a decentralized auction tech platform that provides complete solutions for launching and conducting a wide range of auction types with seamless on-chain settlements.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.