23 April 2021

NFTs, Obviously – Part 1

By Amalyah Keshet, Senior Consultant

Stock and Crypto Market Values. Photo by Maxim Hopman on Unsplash

Considering the flood of attention, volumes of verbiage, and mountains of money that NFTs (non-fungible tokens) have produced recently in the art world, it would be inconceivable to ignore the subject at present.  To make sense of it all is another matter altogether. We’ve had a go at breaking it down and the relevance to artists, heritage organisations and those thinking about investing.

To start, actually, it’s not new news: in 2018, 49% of an Andy Warhol silkscreen, 14 Small Electric Chairs, was auctioned off in shares, with 51 percent of the painting “remaining under the control of its current owner…,” by Dadiani Fine Art in London, in partnership with blockchain platform Maecenas Fine Art, for cryptocurrencies including Bitcoin and Ethereum. [i] But It’s impossible to wave aside the current NFT phenomenon as just lucrative hype, as there will be carry-on effects in terms of the technology involved, and that may be the point.

Simply put, a non-fungible token is “a unique digital serial number that certifies the authenticity and ownership history of an associated object. That information, along with other data, is recorded on a blockchain. This is a ledger, or immutable record, that resides on a decentralized network of computers world-wide. The blockchain technology underpins Bitcoin and Ethereum, the leading cryptocurrencies. Any of the ledger’s millions of users can instantly verify that the information is accurate and complete.”[ii] The Verge put together a very readable FAQ for those who want the basics, you can read it by clicking here.

The upside is that NFTs provide a way for digital artists to monetise their works.  Digital works (think music tracks) can be infinitely duplicated and streamed, meaning that musicians make next to nothing if they can’t do live concerts and sell t-shirts. This may be the tool they (and digital artists) were lacking until now. Think of it this way: the prevailing claim is that investing in art via the blockchain will fundamentally change the art market, using NFTs to provide “an immutable, traceable record of every transaction, making it easier for collectors to trace and verify pieces.”  That might translate to permanent and traceable royalty records, for example, or traceable provenance records.    By attaching an NFT, which is simply an encoded metadata tag that can include “smart contracts” or terms and conditions, to a digital artwork, one can establish, collect, and record a percentage of resale profits for the digital artist – an economic privilege which does not exist in the US or many other countries, but which the UK and the many countries in the EU have. While currently aimed at the high-end luxury and investment market, it seems that the idea of an unmodifiable permanent record on a decentralised blockchain is the interesting element for digital art, musicians, collections management, and for libraries.  It also questions the role of art dealers in this market, since in principle anyone can create an NFT for a digital work and market it themselves.  NFT buyers do not actually own the digital artwork they invest in, but only the NFT, which is the metadata proving origin and authenticity.  Shares to an NFT can be sold, creating multiple potential part-owners (investors).  A relatively clear explanation of the technology and some of the inherent problems with it can be found in a recent article, published in TechnoLlama – click here to view it.

Inevitably, complications have popped up to tarnish the excitement, and that leads us to copyright. The most lucid analysis we’ve found so far of NFTs and copyright is that by Ioanna Latoura of the University of Nottingham, definitely worth quoting at length:

“It is wrongly assumed by many, that ownership of an NFT equals to copyright ownership or a proprietary right over the original actual asset. The reality is that an NFT is proof of owning a unique digital version of an asset, rather than the asset itself. …In an ideal world, the copyright owner of an artwork would also be the creator of its NFT. But, as one would expect, infringers find their way around in the digital sphere and more IP-related problems are created. In fact, apart from unauthorised copying of the digital files of the artwork, there is a new stream of alleged infringers, that ‘mint’ NFTs based upon copied artwork without permission, which they put up for sale. This can be a real problem, as the decentralisation, encryption and anonymity features that are inherent in blockchain ecosystems, may make it difficult to ascertain who the copyright holder is…

When thinking about the core of NFT creation, an NFT is neither the actual original work nor a copy of the work, but only a tokenised version [metadata] of it, which does not incorporate the full work into the blockchain, but….contains only a URL linked to it. As a result, NFT ‘minting’ does not involve copyright infringement, as it is not equivalent to uploading, and thus, communicating to the public, an infringing copy of the original work that the NFT represents.

This view is supported by some commentators, who interestingly argue that any potential false authorship claims included in the NFT’s metadata … may result in infringing the moral right of attribution, rather than economic rights in the work.”[iii]  The article isn’t long, I promise, and well worth reading in its entirety.

Other good discussions of NFTs and copyright can be found here:

Blockchain technology as a tool for recording and tracing authenticity and ownership, “smart contracts” and royalty information, will be interesting to the cultural heritage sector:  museum registrars, collection managers, IT departments, as well as anyone involved in tracing art fraud or theft.  The catch is that the NTFs can in practice be separated from the digital item to which they are tied, undermining their worth. A creator can change the original digital work even after sale. One crypto artist recently “pulled the rug” – the original images – out from under some NFTs to highlight the flaw by replacing them, ironically one assumes, with images of antique carpets.  Another artist recounted finding that several examples of her glitch art had been minted as NFTs without her consent.[iv]  As if that weren’t enough, a robot (assisted by a human artist) produced a digital work tokenized with an NFT, which sold on a blockchain. This one “may also have been the first NFT sale of an artwork produced in part by artificial intelligence”.[v]

No surprise of course that an attempt has already been made to tokenize public domain works from three or four museums’ open collections, including the Rijksmuseum’s and the Birmingham Museums collection.  The attempt didn’t get far, but you can find the story here. The perpetrators have pivoted to the claim that what they really intend is to create animated versions of famous paintings – new digital files that could indeed be sold through NFT technology.

So, if anyone can “mint” or create an NFT and auction it off on the crypto market, then what is the role of the traditional auction houses in this story? They have certainly been hustling for centre stage.  In an interview with CNBC, Sotheby’s chief executive said the auction house would be “selling one-of-one works of art but also what are called open editions in the NFT world, where many people can buy tokens for the same work…One of the interesting things about NFTs is…this thing has the potential to bypass a lot of the traditional gatekeepers and vetting processes of the physical art world. That’s something that’s really exciting as it develops.”[vi]  Exciting, or the end of business?

Crypto purists claim that Christie’s much-publicised Beeple sale wasn’t an NFT sale at all: “It’s absurdity at level of implementation…They sold a JPEG. This was a $69 million marketing stunt.”[vii]

And let’s not forget the issue of NFTs’ huge carbon footprint, a problem with all energy-intensive blockchain transactions.  This means there are environmental repercussions to take into consideration, by artists as well as museums. 

In conclusion-in-the-meantime, one can at least say that metadata, of all things, has never enjoyed so much hot publicity.  (The Economist called NFTs “frothy.”[viii])  It also seems newspapers feel that “metadata” selling for $69million just doesn’t sound sexy, but calling it “NFT art” will do the trick.  One story from Art Daily, with the head-spinning headline “Unique first time launch of NFT-based digitally reinvented real-world artwork to be auctioned” is a fortification-by-double-espresso-demanding piece about “…two series of 5 digitally reinvented artworks inspired by 17th century Delftware. Using lifelike digital twins created with cutting-edge 3D digitization technology and creatively adapting them in ways that wouldn’t be possible physically…Dubbed digital twin art, the artform is both indistinguishable from reality but at the same time free of real-world limitations. ….The original artwork remains on sale as well, marking the first ever split of digital vs. physical ownership of the same artwork.”[ix] Much to contemplate there.

Here are some additional articles for those fascinated with the subject:

Interested in finding out more about NFTs and copyright? Read part 2 of “NFTs, obviously” by Amalyah Keshet by clicking here. For part 3, click here.

[i] https://www.forbes.com/sites/billybambrough/2018/06/07/andy-warhol-art-to-be-sold-via-blockchain-for-cryptocurrency-including-bitcoin/

[ii] https://www.wsj.com/articles/nfts-the-method-to-the-madness-of-a-69-million-art-sale-11616164200 

[iii] https://ipkitten.blogspot.com/2021/03/guest-post-copyright-nfts-of-digital.html

[iv] https://hyperallergic.com/629328/reports-of-stolen-art-on-nft-marketplace-raise-issues-for-crypto-collectors/

[v] https://www.nytimes.com/2021/03/25/arts/sophia-robot-nft.html

[vi] https://www.theartnewspaper.com/news/sotheby-s-gets-in-on-nft-fever-with-a-collaboration-with-pak    

[vii] https://news.artnet.com/market/beeple-everydays-controversy-nft-or-not-1952124

[viii] https://www.economist.com/finance-and-economics/2021/03/18/non-fungible-tokens-are-useful-innovative-and-frothy

[ix] https://artdaily.com/news/134070/Unique-first-time-launch-of-NFT-based-digitally-reinvented-real-world-artwork-to-be-auctioned

© Naomi Korn Associates, 2021. Some Rights Reserved. The text is licensed for use under a Creative Commons Attribution Share Alike Licence (CC BY SA)

Disclaimer: The contents of this blog post are based on the assessment of Naomi Korn Associates Ltd at the time in which the resource was created (April 2021). The contents should not be considered legal advice. If such legal advice is required, the opinion of a suitably qualified legal professional should be sought.

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