←Back to News

25 March 2022

NFTy News, or The Emperor’s New Code

by Amalyah Keshet

It seems that revisiting everyone’s favorite subject is unavoidable. Forays by museums into the NFT market continue, while revealing incidents of NFT theft, fakes, forgery, and lawsuits are populating the news. The new Seattle NFT Museum opened last month in the U.S., with exhibits and programming related to digital art. But we’re still debating questions like, have museums that dove into NFT sales last year to support depleted budgets succeeded?  What is the relationship between the crypto market and the art market?  

The British Museum recently announced it would be following up its previous Hokusai NFT project with a Turner one.  The details, such as they are, are illuminating in their obscurity: “Asked about the sales cut received by the British Museum, a spokeswoman says: ‘We partnered with LaCollection as the commercial terms were right for the British Museum and reflected the museum’s considerable contribution to the programme. While the royalty deal is confidential, the percentage of sales agreed is among the highest in our licensing portfolio…The British Museum preferred that exact figures were not disclosed. The business model could be seen as similar to that of a brand licensing deal… The upfront cost, to the museums at least, is zero.”  

Fair enough.  But the very next sentence notes that “Working with two ‘key people’ within The British Museum’s staff, the project is taking twenty percent of their time.”  Anyone who works in a museum realizes that represents a significant cost. Another  potential cost: “LaCollection has a five-year agreement with The British Museum on its entire collection, and a contract means The British Museum cannot sell NFTs of artwork that has already been put up for sale via its platform.” 

https://www.theartnewspaper.com/2022/02/09/the-british-museum-demeans-itself-by-selling-its-works-as-nftsand-will-probably-live-to-regret-it

In fact, as more legal and financial analysis emerges, NFTs, heralded as decentralized, immutable, democratizing and profitable for artists and for museums, reveal themselves  as little more than more of the same in the art world.  Do they actually support digital art, or does art feed the NFT market?  After all, “…minting an NFT places the value of the work on the NFT – not the actual piece itself …the way that NFT art is traded appears more like a currency than the art market. It seems to get flipped often – being bought to make a quick buck in what is a rapidly booming market. This is quite different from traditional art collecting, where work is usually bought to be kept and enjoyed” or at least stored somewhere as an asset, unseen, until the right opportunity brings it out for auction.  NFT marketplaces have cropped up to “curate” and facilitate sales, eliminating the idea of eliminating art market intermediaries. 

James Grimmelmann, Professor of Digital Law at Cornell Law School, has said that NFT marketplaces are facing the same old issue of how to fairly moderate online content at a massive scale:  “NFTs don’t solve this problem,” he said. “These platforms are just the latest to discover how hard that really is.”   https://news.trust.org/item/20220118122426-mv9tu/

Complicating the situation further, especially for museums, is the ability for artists to switch tokenized works of art; after all, an NFT merely points to a URL where the work is said to be  stored. Obviously, the content at that URL can change. The best metaphor I’ve encountered for answering the burning question “What is an NFT?” is: a receipt. A claim check. One buys groceries and is handed a receipt, but the groceries stay in the store.  Another: a treasure map, which indicates where to find a treasure, but is not the treasure itself. An NFT is simply a metadata file. This in turn clarifies the potential problems with owning a very expensive token: those groceries can be changed for different groceries at any time, or they can be moved; a treasure can be dug up and removed, or an image / artwork can be changed (a “rug pull”).  Much more about this here:

https://www.technollama.co.uk/the-interface-between-nfts-and-the-public-domain – which references:  Right Clicking All The NFTs:  https://www.youtube.com/watch?v=i_VsgT5gfMc  and an interview at https://ghuntley.com

And fakes? Inevitable. “Booming NFT art market plagued by ‘mind-blowing’ fraud”  “…artists worry that lax oversight is leading to a digital art world flooded with fakes.” “One platform flagged 90,000 potential NFT fakes in three months,” “Art world is divided on whether NFTs help or hurt artists.”  Because an NFT is only a metadata file, on some platforms anyone can upload an image, mint an NFT linked to it, and sell it – no proof of ownership or authorship of the original image required.  NFTs are often said to be a great way to record authenticity, but it is the authenticity of the minting of the NFT that is recorded.  Not the authenticity of the item it links to.    https://www.reuters.com/article/usa-tech-art-idUKL8N2TM0VV

Nevertheless, could the relevant role of NFTs for museums be as a new way of “crowd-funding” planned exhibitions or programs, finding investors who would have a stake in the success of the exhibition, publication, or program — meaning an interest in increasing the resale value of their NFT asset? 

It seems some museums are trying: “Italian museums to sell digital copies of masterpieces by Leonardo, Caravaggio and Modigliani.  Replicas of works from four institutions, including the Uffizi, will be sold as NFTs,” according to a recent announcement.  Apparently, the museums’ 50% share is intended for “conservation efforts.”  However, the “works” are actually being sold as framed digital reproductions, along with an NFT “authenticating” the deal on a blockchain platform (i.e. a receipt). In other words, a sort of limited edition digital display copy, with all the hardware and software included, even an exact replica frame. Of course, since the works of art in question are in the public domain, assumably anyone could do that.  For the same reason, “the copyright of the image will remain with the museums, meaning that collectors cannot repurpose the DAWs for commercial gain such as merchandising them” is a statement that begs examination. In addition, on the project’s London exhibition website, the six paintings are catalogued as “conceived” in the year of their creation, and “digitized in 2021”  — implying rather oddly that these famous masterpieces were never actualized until now?

A very good two-part discussion of how and why museums need to cope with NFTs was produced by the Art + Technology Lab at LACMA (the Los Angeles County Museum of Art). In a previous post, I mentioned artist Nancy Baker Cahill’s project Contract Killers, based on a contract drawn up by art law expert Sarah Conley Odenkirk. Odenkirk’s contribution to the LACMA discussion is particularly illuminating. From Part 2

“…it is crucial that there is a greater understanding of what “smart contracts” are and are not. I submit that the term “smart contract” is a dangerous misnomer that creates a false sense of security for the marketplace. I would like to see this corrected, and propose that a more appropriate term is “armature,” which properly indicates that the code comprising NFTs provides the barest of foundational structures containing simple descriptions and reflexive “if-then” directions, rather than any nuanced or complex contractual terms.”

“…The code that comprises the average NFT really just indicates the title, the creator or minter of the NFT (which, by the way might not be the true owner or rights holder for the content being minted), how many NFTs with the same content will be created… So, your current standard NFT is really quite limited both in content and function. …Any real discussion of rights, licenses, or obligations must be established in a separate written document…” 

As Cahill points out, probably the most interesting function NFT metadata might facilitate is an artist’s resale royalty – or, as she points out, a resale royalty for whoever minted the NFT. However, it will have to be “…actually enforceable. Currently, there are several ways to get around resale royalties for NFTs, ranging from transacting on compatible but separate marketplaces which won’t recognize the payment of the resale royalties to transacting the financial portion of a sale off-chain to avoid triggering automatic payments.”       https://unframed.lacma.org/2021/08/30/nfts-and-museum-part-2-legal-issues-acquisitions

Another fascinating discussion was hosted recently by the Museum of Contemporary Art Denver, with blockchain expert Amy Whittaker, Assistant Professor of Visual Arts Administration  at New York University. The four-part series (still accessible online), NFTs: Putting the fun in non-fungible tokenswas sponsored by Sotheby’s; not surprisingly it is impressively produced and puts a positive spin on the subject while covering a lot of territory.  

Lastly, the World Intellectual Property Organization (WIPO) has published a very good look at NFTs and copyright by Andres Guadamuz, Senior Lecturer in Intellectual Property Law, University of Sussex. The article provides both NFT “basics,” including a handy illustration of what an NFT actually looks like (i.e., metadata), and some major copyright and authenticity issues which are most decidedly of interest to museums, archives, and libraries:    

“Could NFTs be used in…digital rights management? In some way, all NFTs could be seen as a form of registration, insofar as blockchain could operate as an immutable record of ownership claims, acting as a means of verifying or determining authenticity. But this idea quickly runs into practical problems, not least, the fact that anyone with sufficient technical knowledge and the appropriate tools can generate their own token, and this token can include any information that is entered by the author. This means that anyone can make erroneous ownership claims, and write them into the blockchain.”

The full article is highly recommended reading.  

One last cautionary tale. Last July, the Institute of Contemporary Art in Miami announced that a trustee had donated a work by Larva Labs, Crypto Punk #5293. It hasn’t been displayed yet, and the artistic directordoesn’t know when it will.  “…you have to make sure you have a very secure [cryptocurrency] wallet, that the vendor we use for security will exist in perpetuity. Because all of these vendors are so new, you want to be crossing your t’s and dotting your i’s. Even opening a blockchain “wallet” in the first place requires a Board resolution, which requires a meeting of many very busy stakeholders.”  Another thing for museum administrators to keep in mind.  

http://darksidenft.com/nft-collectors-and-museums-have-a-novel-problem-how-do-you-deal-with-art-that-an-artist-can-change-at-will-artnet-news/

*  n.b.  credit goes to Bendor Grosvenor for the inspired phrase “The emperor’s new code.”  

Blog image – Copyright Amy Kurzweil. Used with permission of the artist.

—————————————————————————

More good reads:

Artists and anti-money-laundering regulations:  

https://www.theartnewspaper.com/2021/05/26/artists-will-not-be-subject-to-anti-money-laundering-regulations-uk-treasury-says

A look at NFTs from the insurance angle: definitely enlightening from a collections management perspective.  https://robfreeman.com/nft-insurance/

It was inevitable (Picasso): 
https://www.washingtonpost.com/business/picasso-heirs-launch-digital-art-piece-to-ride-crypto-wave/2022/01/26/2608d7de-7e8b-11ec-8cc8-b696564ba796_story.html

Buyer beware: “authenticity” is dependent on the seller being who they say they are. https://www.theguardian.com/technology/2021/sep/01/collector-buys-fake-banksy-nft-for-244000

https://www.theartnewspaper.com/2021/11/23/artists-claim-art-wars-sold-nfts-linked-to-their-art-for-millions-allegedly-without-their-permission