Overview of Blockchain Tokens and the Effect of Crypto Art on the Art Market

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Despite some early flirtations with blockchain technology.1 it wasn’t until early 2021 that the art market finally sank its teeth into the complex digital world of blockchain technology. Although “no “fungibles”, “NFT” for short, have gained notoriety in the press, their definition can be a surprisingly tricky question to answer and still seems to be understood by only a few. However, answering this question is essential in order to spot potential legal issues associated with NFT transactions, this article begins by explaining what an NFT is.

By now, most readers are probably familiar with the concept of cryptocurrency, which includes “fungible” tokens bought and sold using blockchain technology and tracked on a digital ledger.2 Cryptocurrency tokens are fungible in the sense that each is easily exchangeable for another, both having inherently equal value, similar to how a one-dollar bill is easily exchangeable for another one-dollar bill. dollar. For example, a bitcoin for a bitcoin; one ETH for one ETH.

In contrast, NFTs are like cryptocurrency in that they are tokens bought and sold using blockchain technology and tracked on a digital ledger. However, they are different from cryptocurrency in that they are “no -fungible”, i.e. they are not easily exchangeable with each other for equal value. Rather, each NFT is a token that points to a single underlying asset, such as a digital work of art, a YouTube video, a song, or even, in some cases, a physical asset.An NFT can be conceptualized as an expression of ownership over that single underlying asset.

Many critics have wondered aloud what the benefit of buying an NFT might be, especially when ownership of an NFT does not necessarily convey the traditional set of ownership rights to the single underlying asset. . The perceived problem is encapsulated in the following description of an NFT as “a publicly available token that connections to a work. For example, for a digital image, the token might be a unique number and a link to a copy of the image, hosted on a service such as the Interplanetary File System (IPFS). The token itself is visible to everyone, as is the work it points to, so someone else can consult the work and download it” (emphasis added).3 The crux of this perceived value problem is that minting an NFT for a digital asset does not prevent others from accessing and viewing that digital asset in a way that may be very similar to how the owner of the NFT could access and view the digital asset.

Regardless of any criticism, the past year has proven that there is genuine market demand for NFTs and big buyers are coming to the table. In 2021, the NFT market exploded, with approximately $10.7 billion traded in Q3 2021, compared to $2.3 billion sold in Q1 and $2.4 billion worth of NFTs traded in Q2.4 It remains to be seen whether the majority of these buyers are speculators, long-term investors, collectors, or hobbyists just looking to get started. There are clear experiential and sociological benefits associated with participating in the NFT marketplace, including supporting artists and other content creators, participating in a new digital movement and community, and gaining the bragging rights associated with the NFT property on the Internet. As Jonathan Zittrain and Will Marks said, “[A]n an essential part of the value of NFTs is that they do not do pass on anything resembling traditional ownership. »5

While it was the $69 million Christie’s Beeple sale in March 2021 that seems to have caught the public’s attention, the NFT market has been around for quite some time.6

The full article can be read here.

This article was published in the PLI Current: The Journal of PLI Press, https://plus.pli.edu.

Footnotes

1 Marguerite Carrigan, Major sale of Ebsworth collection at Christie’s marks first blockchain-registered auction, THE JOURNAL OF ART (Oct. 11, 2018, https://www.theartnewspaper.com/2018/10/11/major-ebsworth-collection-sale-at-christies-marks-the-first-blockchain-recorded-auction
2 Jonathan Zittrain and Will Marks explain that cryptocurrency is just “blockchains whose main function is to record the sale of unique internet tokens that do not need to point to whatever not at all and yet they are given an independent value because they are generally understood as a currency.” See below note 3. Using Blockchain technology, the execution of the sale is permanently stored electronically in a way that cannot be changed by anyone. For example, many NFTs are purchased through marketplaces for “ETH”, which is short for the cryptocurrency called Ether (the name is synonymous with “steam”). Ether can be purchased from websites such as Coinbase. Once someone has Ether, they can then use crypto wallet websites (such as Metamask) to purchase NFTs and/or crypto art from various marketplaces that use blockchain technology to execute purchases and transactions. sales.
3 Jonathan Zittrain and Will Marks, what critics don’t understand about NFTs, The Atlantic (April 7, 2021), https://www.theatlantic.com/ideas/archive/2021/04/nfts-show-value-owning-unownable/618525/. “IPFS” stands for “Interplanetary File System”.
4Jamie Crawley, NFT Transaction Volume Grows 700% to $10.7 Billion in Q3, COINDESK (5 Oct 2020), https://www.coindesk.com/business/2021/10/05/nft-trading-volume-surges-700-to-107b-in-q3/.
5 Jonathan Zittrain and Will Marks, What Critics Don’t Understand About NFTs The Atlantic (April 7, 2021), https://www.theatlantic.com/ideas/archive/2021/04/nfts-show-value-owning-unownable/618525/.
6 Christopher N. LaVigne and Georges Lederman, A digital art gold rush? – Regulators watch, WITHERS WORLDWIDE (April 1, 2021), https://www.withersworldwide.com/en-gb/insight/a-digital-art-gold-rush-the-regulators-are-watching.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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