In the past months, digital artworks sold through Non-Fungible Tokens (“NFTs”), also referred to as “crypto-art”, have become one of the most influential trends in the mainstream art world. This movement, which was certainly spurred by the pandemic and the necessity to buy online, recently peaked in terms of public attention and pricing in the auction of Beeple’s (né Mike Winkelmann) “EVERYDAYS: THE FIRST 5000 DAYS” (“EVERYDAYS”) by Christie’s in March 2021. The collage consisting of 5,000 single images fetched $69.3 million and was the auction house’s the first sale of a purely digital artwork backed by an NFT. Also for the first time, payment for a lot was possible in the form of the cryptocurrency Ether.
The description of Beeple’s collage on the webpage of the online auction indicated that “This work is unique.” Interestingly enough, the 5,000 works included in EVERYDAYS are also uploaded on Beeple’s website and can at any time be freely accessed by anyone with an internet connection.[6] Against this background, the question arises: Why are investors willing to pay incredible sums for a freely accessible work consisting of ‘only’ digital images?
Voices have been raised suggesting that it is not the artistic quality of the work that plays the decisive role in such sales. As Mary Schneider Enriquez, curator at the Harvard Museum, pointed out in an interview with the Harvard Gazette: “It seems to me that this is about money, and it’s about ownership, more than it is about a form of art in the spheres of which I, as a curator, have been trained to think about a work of art and its care.” But how can value be created for a publicly available and infinitely multipliable asset?
To understand the current market dynamic, the basic underlying technology of NFTs needs explaining. Moreover, given the quick rise in popularity and complex nature of NFTs, many legal issues remain unexplored and therefore provide for insecurity of market participants. The article shall lay the groundwork for future debates on this emerging phenomenon and invite practitioners and academics to become familiar with the remaining technological and legal challenges.
What are NFTs?
NFTs are blockchain-based tokens, i.e. digitally transferable assets which represent an underlying value. They differ significantly from currency-tokens, which can be used for cryptocurrencies such as bitcoin, since NFTs are unique (hence: ‘non-fungible’) and cannot be divided, merged or replicated. Conversely, fungible tokens used for cryptocurrencies are interchangeable. Like dollar bills, bitcoins can be exchanged one for another and as long as the number of bitcoins corresponds, the transferors will still be in the same financial and proprietary situation as before. NFTs on the other hand are individual and distinguishable crypto items, that represent other assets – not only digital artworks but for example also tangible items such as automobiles or real estate – perpetually through their incorporation into a blockchain.
NFTs fulfill the function of entries into a digital public register, which is constituted by the blockchain, allowing for an immutable record of transfers. In this constellation, NFTs represent their underlying asset and include the necessary information to unambiguously identify the holder of the corresponding rights, in a transparent manner and for everyone to see. Hence, when trading a certificate of ownership, e.g. of a digital baseball card with a unique value, one can make sure that the transaction is recorded on a public ledger.
Moreover, due to the structure of NFT-compatible blockchains, metadata can be added to the tokens. This may include legal responsibilities, a bit of text describing the underlying asset, or even a small image. The artwork itself however is usually not stored on the blockchain, but “off-chain”, since “on-chain”-storage capacities are limited and including information of a digital file can cause exhaustive costs during the NFT-creation process.
Interestingly enough, the NFT technology also allows for establishing conditions for resale of art on the secondary market. By means of smart contracts, such self-executing contracts (following a series of automated “if, then” rules), artists can declare themselves beneficiaries of any future sale, writing the percentage they consider appropriate into the contract, without having to rely on legal enforcement for asserting their claims.
What accounts for the central feature for NFTs’ success in digital art sales is the aspect of scarcity they attribute to each work, which in the eyes of an investor is crucial. For in principle, a digital artwork, being represented in a digital file, is in theory infinitely reproducible through copying or sharing.
Информация по комментариям в разработке