Crypto Art Business
Free Comb with Pagoda, 1986, is a mixed-media work on paper signed with Jean-Michel Basquiat’s oft-used pseudonym Lenny at the lower right. Bought in 2015 by a private buyer, the physical work together with an NFT representing it, were consigned as one lot for online public auction in April 2021 via the online OpenSea NFT marketplace. The lot comprised three elements for sale: the NFT; ‘reproduction and IP rights that will be sold to the highest bidder in perpetuity’; and the option to ‘deconstruct’ (destroy) the original physical work (a curious act of vandalism intended to render the NFT ‘the only remaining form’ of Basquiat’s original).
The auction never occurred. The lot was withdrawn following intervention on behalf of Basquiat’s estate, whose agent declared: ‘The estate of Jean-Michel Basquiat owns the copyright in the artwork referenced. No license or rights were conveyed to the seller and the NFT has subsequently been removed from sale.’
An increasing volume of NFT crypto art has been bought recently – some for extraordinarily high prices (Salerooms AM466) – by those with the wherewithal to invest in the development of a crypto art marketplace: payment is usually made using a
cryptocurrency such as Ether (native currency of the open-source Ethereum blockchain). A key attraction for crypto art investors is uniqueness: of a crypto art file, its NFT digital access key/code, and digital storage in a highly secure blockchain.
For centuries the art market has been governed by capitalist market economics, where relative rates of supply and demand, scarcity and abundance, drive sale prices. Throughout art history artists have, whether as a requirement of patrons and commissioners or of their own volition, made unique or limited numbers of physical artworks which are signed or otherwise authenticated. In these ways artists have provided fuel for an art market into which crypto art is now rapidly establishing itself as a new digital asset.
Moreover, for market economies to operate efficiently and effectively they need laws giving owners of capital assets widely enforceable property/ownership rights. Such laws may also correspondingly constrain or regulate a property owner’s disposal of capital assets including, in the case of physical artwork ownership: taxation of capital gains, re-sale profits, market value by inheritors, imports; tax exemption of gifts to state charities; payment to artists or their estates of resale royalties; restrictions on exports; anti-money laundering measures. Whether such
constraints and regulations equally apply to owners of digital assets, such as crypto art, are likely to be key considerations for would-be and/or existing owners expecting to gain benefits from disposal in future.
Import and export regulations applicable to dealings with physical artworks are unlikely to apply to crypto art, which may currently be moved digitally across the internet without restrictions. A country’s tax laws may currently or in future bite on tax-residents whose disposal of crypto art generates, say, capital gains, resale profits, or market value for inheritors. And it is likely that national and international anti-money laundering regulations (applicable to each art transaction over around $10,000) may apply to crypto art trading.
Artists’ resale rights currently apply to transactions made in the EU, UK and around 40 other countries (not yet in US or China), but royalties to artists are payable only on resales of physical artwork, not on crypto art trading. This is understandable because national and international copyright laws (operating almost worldwide) automatically give artists exclusive legal control over uses of their original works – including the making of digital or physical copies.
This means that the artist/author of digital artwork represented by an NFT would be the exclusive owner of copyright in that digital image (for life plus 70 years). And if an owner of such an NFT wanted to make digital copies of the underlying digital artwork for commercial trading purposes, prior permission would be required from the original artist-copyright owner. It is unlikely that artists selling crypto art would also explicitly include – in contracts of sale with buyers – transfer of their ownership of copyright in their physical and/or digital artwork. It is more likely that artists selling their crypto art would also grant to a buyer a licence/permission to make and trade digital or physical copies, and perhaps only on condition that a royalty share of sale prices is paid to the artist. A recent incident serves to illustrate.
Morons, 2006, is a limited edition of 500 prints by Banksy featuring the epigram ‘I can’t believe you morons actually buy this shit’. In December 2020 a Pest Control-authenticated print (ie an artwork officially authorised by the artist), edition number 325, was bought at public auction for $33,000. The print’s owner minted an NFT of the image, which was consigned for public auction sale in March 2021 via the OpenSea marketplace, where it was bought in cryptocurrency for the equivalent of just north of $840,000.
The remarkable jump of 25 times the print’s market value within three months was almost certainly influenced by the posting of a video, the day before the auction, on the Twitter account of a collective self-named BurntBanksy. The video shows ‘an authentic Banksy art burning ceremony’: a covid-type-masked celebrant stands in front of an easel on which print #325 sits, briefly explaining the reason for its then being set alight and slowly burning to ashes: ‘If you were to have the NFT and the physical piece, the value would be primarily in the physical piece. By removing the physical piece from existence and only having the NFT, we can ensure that the NFT, due to the smart contract ability of the blockchain, will ensure that no one can alter the piece and it is the true piece that exists in the world. By doing this, the value of the physical piece will then be moved onto the NFT.’
Unlike Basquiat’s estate the following month, Banksy’s agents did not intervene to halt the Morons NFT auction sale, despite the fact that the artist arguably had grounds to contend that his intellectual property rights had been violated by the BurntBanksy collective’s activities. For example, making/minting an NFT of Banksy’s original artwork without his express prior permission or licence, then trading the NFT commercially, might arguably be breaches of Banksy’s copyright in the
physical/analogue image of Morons. Furthermore, burning Banksy’s physical print #325, and posting a video of that execution to be viewed thousands of times worldwide, might arguably be a breach of his statutory moral right not to have his work suffer derogatory treatment.
No legal actions appear to have been taken by Banksy, who has merely disassociated himself from these events, presumably letting Morons speak for itself: ‘I can’t believe you morons actually buy this shit’. Crypto artists and buyers take care.
© Henry Lydiate 2021