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According to this article, some very expensive art pieces are going to be auctioned, and "the auction will be conducted on the Ethereum blockchain. A smart contract will determine the final price for Warhol’s painting".

If I understand correctly, the smart contract collects the money from all bids, calculates the maximum bid, keeps the money from that bid, and returns all other money to the losing bidders (is that correct?).

What I do not understand is the final paragraph: "At a recent convention in London, the co-founder of blockchain identify company Codex Protocol, Jess Houlgrave, stated that over 40 percent of all art pieces on the market are fraudulent. In this regard, blockchain’s benefits immediately come to mind – specifically the maintenance of traceable records on a public database that art collectors can view to verify their pieces."

How can the blockchain say anything about a certain fungible piece of art? How can the blockchain prevents the owner of a real artwork from replacing it with a fake artwork and selling the fake as real?

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You are right about the inherent challenge of using a blockchain to attest to something in the physical world. This is sometimes called the onboarding problem.

As Jaime pointed out, onboarding problems are often addressed with a witness and some form of certification. A blockchain cannot examine the art or use sorcery to deem it real but it can record that the witness signed a transaction. In this mode of thinking it is about constructing a process that generates a convincing origin story, change of ownership process and history (provenance and lineage).

If I understand correctly, many art purchasers wish to remain anonymous and Ethereum can help with that.

Once a certificate of authenticity and a process of establishing ownership exists, the fact of this can be publicized. All that is needed is the knowledge that "Two Cats" by John Doe is registered at 0x1234... much like a motor vehicle is known to be registered somewhere. A buyer would insist that the transfer of ownership is recorded. Buyer and seller could be known by only their Ethereum addresses which are anonymous if handled with care.

Such a solution does not completely eliminate the possibility of a forgery but it reduces the benefit of doing so considerably. Suppose one has the authentic painting and a certificate of ownership. One can commission a forgery and deliver it along with a falsified certificate of ownership, but only be significantly devaluing the original. Conversely, the ability to offer a strong, anonymously transferable assurance of authenticity might help this type of asset appreciate in value.

Hope it helps.

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This usually done through external services that verify the authenticity of the art piece. Is like a notary that gives you a stamp, that you publish on the network. This stamp can be used to crosscheck with the public record and verify that the seller is the actual holder of an authentic piece.

Note that you really do not need blockchain for this, but also there is no particular reason also for not doing it with blockchain.

Yet there is an advantage, if the third party publish the public record that verifies ownership, it cannot change it later to mislead people.

Finally, notice that this imply that in first instance people trust the third party.

Hope this helps

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