NFTs – a flash in the pan or a sign of things to come?

Posted on: March 9, 2021 by

Blockchain technology by TLC-kios, CC0 1.0 via Creative CommonsAnother week, another acronym for the art world. In the past year or so, whilst many AMPs (art market professionals) have grappled with getting to KYC (know your customer) in compliance with new AML (anti money-laundering) rules, they have also been faced with moving from the bustling world of art fairs and high street galleries to online trading. As trading platforms have entered the digital sphere, so too, it seems, has the art itself.

NFTs are the new buzz word. Their explosion onto the art market can hardly have escaped the notice of anyone with more than a passing interest in the trade. High profile sales of these assets have been splashed across the art press front pages on an almost daily basis in the past couple of weeks.

For the uninitiated, NFTs, or non-fungible tokens essentially act as digital tokens or trading cards which represent unique content, most notably digital art. Music, text and any other data could also be traded in this way. It is the non-fungibility (i.e. uniqueness) which distinguishes these tokens from other forms of cryptocurrency  which are mutually interchangeable – bitcoin, for example, one unit of bitcoin being identical to any other. Trading takes place within the blockchain (a digital database often referred to as a ‘distributed ledger’) through so-called ‘smart’ contracts so that every aspect of the token’s creation, provenance and trading is securely recorded in a publicly available form. An added advantage of the smart contract is the ability to automatically remit a resale royalty back to the creator. This almost looks like an automated form of the Artist’s Resale Right which has been remunerating artists for sales of their works on the secondary market in some circumstances and in some countries for decades (and, incidentally, is one of the EU-derived IP rights retained by the UK following Brexit).

The recent spate of NFT art sales started with the auction by Christie’s of a work called ‘Everydays: the first 5000 days’ by digital artist, Beeple – a digital collage of 5000 individual works created by Beeple every day since May 2007. Bidding opened at US $100 on 25 February and closes in a couple of days (11 March): It now stands at US$ 8,750,000 (and counting). Canadian musician and artist Grimes was quick to jump on the bandwagon, announcing on Twitter on 28 February the sale of a collection of her works through NFTs which apparently netted her a cool $5.8 million within 20 minutes.

Things notched up another gear last week when a financial trading company called Injective Protocol, in a headline-grabbing stunt, took a Banksy screenprint which they had purchased last year, torched it on camera and created a new NFT version which they traded on a platform called OpenSea (according to its website, the world’s largest digital marketplace for crypto collectibles and NFTs). It is reported this morning that the new work went for US $382,336, more than four times the price the group paid for the original print. The stunt is rich in symbolism: there was undoubtedly a nod to the infamous self-destructing Banksy sold by Sotheby’s in 2018, and it seems no coincidence that the work selected by the group to convert to crypto-form was Banksy’s ‘Morons (White)’, 2006 – take a look here if you’re not familiar with the work. In the YouTube video of the torching, the destruction of the original is explained as a necessary step to ensure that “no one can alter the piece”, it is “the true piece that exists in the world” and that the value of the piece will now reside in the NFT. Moving swiftly on from such prosaic matters, we then learn that the goal of the group is to inspire both technology enthusiasts and artists to explore a new medium of expression.

Where to start with the legal issues these developments raise? On one level, as is generally the way, the law will find a means of mapping centuries’ old principles onto new situations. The old friends might have new outfits, but they’re the same old friends underneath. The well-worn rules of contract law will govern transactional aspects of NFT trades and copyright law will provide a steer on the protection of NFT artworks and the rights of their creators. That is not to say that once we peel off the layers, we won’t be faced with difficult questions on each new set of facts. Who is the author of the digital art, for copyright purposes? If AI is involved, there might not be a straightforward answer. Is the resulting work sufficiently original to qualify for copyright protection? Will the smart contract process prove infallible? How can we be sure that all the right parties will be joined to the relevant contracts – for example, where a work results from the efforts of joint authors?

The Banksy story raises further, perhaps more fundamental and discomfiting questions. Firstly, what of the moral rights of artists, their right to safeguard the integrity of their works? In some countries (notably, not the UK) these extend to a right to prevent destruction. One wonders whether such matters were considered in the planning of the torching stunt. Does the group have plans for future destructions, to create more ‘unique’ digital works in place of the original tangible versions? Will this become a new craze? Certainly, there’s nothing in copyright law to stop the copying of a mere idea or a technique. Given the profits reaped from sale of the NFT version of Banksy’s Morons, copy-cat stunts seem highly likely.

The financialisation of art over the past few decades has been well documented and much discussed. ‘Value’ and ‘price’ have never meant the same thing in the art world, but the rise of the NFT seems to enmesh these two worlds of art and finance together more closely than ever before. Whether this will have a fundamental and lasting effect on the creation of and trade in art over coming decades remains to be seen.

Image: Blockchain technology by TLC-kios, CC0 1.0 via Creative Commons