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Insights Into Blockchain Tokens And Crypto Art's Effect On The Art Market – Technology – United States – Mondaq News Alerts



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Despite some early flirtations with blockchain technology.1 it was not until
early 2021 that the art market finally sank its teeth into the
complex digital world of blockchain technology. Even though
non -fungible” tokens, “NFTs”
for short, have gained notoriety in the press, how they are defined
can be a surprisingly thorny question to answer and still appears
to be understood only by a relative few. However, answering this
question is essential in order to spot the potential legal issues
associated with NFT transactions. Therefore, this article
begins by addressing what an NFT is.

By now, most readers are likely familiar with the concept of
cryptocurrency, which is comprised of “fungible” tokens
bought and sold using blockchain technology and tracked on a
digital ledger.2 Cryptocurrency
tokens are fungible in that each is readily exchangeable with
another, both having an inherently equal value, the same way that a
one-dollar bill is readily exchangeable with another one-dollar
bill. For example, one Bitcoin for one Bitcoin;
one ETH for one ETH.

By 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 unlike cryptocurrency in that
they are “non -fungible,” i.e., not readily
exchangeable with one another for equal value. Rather,
each NFT is a token that points to a unique underlying
asset, such as a digital artwork, a YouTube video, a song, or even,
in some cases, a physical asset. An NFT may be
conceptualized as an expression of ownership over that unique
underlying asset.

Many critics have wondered aloud at what the benefit of buying
an NFT might be, especially when ownership of
an NFT does not necessarily convey the traditional bundle
of ownership rights over the unique underlying asset. The perceived
problem is encapsulated in the following description of
an NFT as “a publicly available token
that links to a work. For example, for a digital
picture, the token may be a unique number and a link to a copy of
the picture, hosted on a service such as the InterPlanetary File
System (IPFS). The token itself is visible to all, as is the work
to which it points, so anyone else can look at
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 might access and view the digital
asset.

Irrespective of any criticisms, the past year has proven there
is a true market demand for NFTs and that big-money buyers are
coming to the table. In 2021, the market for NFTs exploded,
with approximately $10.7 billion traded in the third quarter of
2021, up from a staggering $2.3 billion sold in the first quarter
and $2.4 billion worth of NFTs traded in the second
quarter.4 It
remains to be seen whether the majority of these buyers are
speculators, long-term investors, collectors, or hobbyists simply
looking to get into the experience. There are clear experiential
and sociological benefits associated with participating in
the NFT market, including supporting artists and other
content creators, taking part in a new digital movement and
community, and acquiring the bragging rights associated
with NFT ownership on the internet. As Jonathan Zittrain
and Will Marks put it, “[A]n essential part of NFTs’
value is that they don’t convey anything
resembling traditional ownership.”5

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

The full article can be read here.

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

Footnotes

1 Margaret Carrigan, Major Ebsworth Collection
Sale at Christie’s Marks the First Blockchain-Recorded
Auction
, THE ART NEWSPAPER (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 core function is to record the sale of
unique internet tokens that need not point
to anything at all and yet are independently
accorded value because they’re commonly understood to be
currency.” See infra note 3. Blockchain
technology results in the sale execution being permanently stored
electronically in a way that cannot be modified by anyone. For
example, many NFTs are purchased via marketplaces for
“ETH,” which is the abbreviation for the cryptocurrency
called Ether (the name is a synonym for “vapor”). 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 through different
marketplaces that use blockchain technology to execute the
purchases and 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 the “InterPlanetary File
System.”

4 Jamie Crawley, NFT Trading Volume Surges 700% to
$10.7B in Q3
, COINDESK (Oct. 5, 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 & Georges Lederman, A Digital
Art Gold Rush? – The Regulators Are
Watching
, WITHERS WORLDWIDE (Apr. 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
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