Paying for Art With Cryptocurrency
Art dealers have been asking me whether it is okay to accept cryptocurrencies such as bitcoin as payment for art sales. Everyone knows it is nigh on impossible to trace bitcoin to an owner and this is understood to be the position for most cryptocurrencies. It is this feature of ‘pseudonymity’ which makes crypto money attractive to people who wish to engage in illicit activity or avoid financial sanctions regimes. While every cryptocurrency transaction is immutably recorded on the blockchain to form what some call a ‘fingerprint’, no one can tell who the fingerprint belongs to. And therein lies the problem.
The art market is now subject to anti-money laundering regulation throughout Europe which means that for regulated art dealers to confidently meet their anti-money laundering obligations, they need to know that the person that they have done their ‘KYC’ checks on is paying for the artwork with their own funds. The usual way they do this is by checking the sender’s details on the wire transfer notes.
Recently, I bought bitcoin via an app on my phone. It was a scarily impressive process – checks (including the capture of an image of my driving license, as well as a selfie likeness test) were done via the app, my bank account was linked to my new wallet, and after some tech wizardry that took all of nine minutes, I had bought my little slice of a bitcoin. It couldn’t have been easier.
A couple of days ago I had an in-app chat with ‘support’. It went like this…
“Can I pay out of my wallet direct to a seller if they accept bitcoin?
“If you want to transfer BTC directly to someone, you can do that from your app”.
“Thanks, so if I want to transfer BTC to them do they need to also have a BTC wallet?
“They would need a bitcoin wallet but this wouldn’t need to be with us. They’d be able to see it as soon as it arrived with them!”
“Perfect. And would they be able to tell the payment came from my wallet?”
“They wouldn’t, wallets are anonymous with Bitcoin.”
The next thing I did was to ask a couple of super clever friends (who provide tech solutions and code for the leading businesses in the world and who also happen to be hobby cryptocurrency investors) about how to solve this so that art dealers can start accepting bitcoin with impunity.
They thought that in theory it could be done if art dealers define a limited and controlled process for accepting crypto payments. Dealers might be able to form an agreement with one or two crypto exchanges such as Coinbase, Binance etc. to communicate with them via an API and obtain confirmation of the identity of the wallet holder and that the wallet is linked to their personal bank account. The API would be necessary because it is impossible to imagine that an exchange would be interested in providing the information manually.
So, while there might be a number of technical and practical hurdles to overcome, including agreements between the art dealer and crypto exchange; the wallet holder and crypto exchange and a change to dealers’ terms and conditions of sale, tracing the payment back to the owner’s bank account is theoretically possible.
Will I be advising my clients to accept bitcoin? Not without running the idea past HMRC first!
Contact me for further advice on +44 7896 205533.