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© Indic Pacific Legal Research LLP.

For articles published in VISUAL LEGAL ANALYTICA, you may refer to the editorial guidelines for more information.

NFT’s And Art: Looking beyond the hype



Introduction

The relationship between plagiarism and art can be said to date back to the Roman Empire in 300 B.C, wherein the Roman elites were fascinated by the wealth and culture of Greek cities and demanded works of art which had semblance to Greek culture[1]. To match this demand Greek and Roman artists started making plaster moulds of famous Greek statues filling them with bronze and shipping them to Roman cities where they could be replicated in marble[2]. In the years that followed, things such as relics and artifacts also fell prey to the malpractice of forgery and plagiarism which lead to an increase in the rigour of authentication that was carried out to test the veracity of such art works[3]. In recent times however, the quality of these forged artworks has become so good that at times even esteemed auction houses such as Christie’s and Sotheby’s were unable to identify the real from the fake. One of such incidents took place in the 2000’s when both the auction houses received the same painting, Paul Gaugin’s Vase de Fleurs[4], an expert was later employed who was able to identify the real Gaugin from the forgery. In fact, now after an increase of such incidents Sotheby’s have hired an in-house art forgery expert who scrutinises the paintings before they are listed for auction[5]. Another important example with respect to plagiarism and paintings is the Mona Lisa, which has at least a dozen well-made copies and only the one which is displayed at the Louvre is quoted to be the original one[6]. Moreover, while the original Mona Lisa is actually valued at $834 million, a first-rate copy of the Mona Lisa was recently sold at an auction for $3.4 million[7].


The above quoted examples highlight two very crucial points, the first being that forgery in the world of art has been a common a practice but when it comes to physical art esteemed auctioneer’s like Sotheby’s have set up an internal mechanism to combat this malpractice[8]. The second point being that the monumental disparity in prices of the fake and the real Mona Lisa highlights the importance of ‘authenticity’ in the evaluation of art. A duo of researchers at Yale University Newman and Bloom in their research concluded that the value of art stems from the creative performance and the degree of physical contact with the original artist[9]. In other words, the artwork would be of a lesser value if it is identified as a forgery because then not only it would have no degree of physical contact with the original artist, but it wouldn’t have been created by the original artist in the first place[10].


Digital art even though being a relatively recent form of art in comparison to physical art, was also plagued by the same infirmities of plagiarism and forgery and unlike in physical art where methods have been developed to tell apart the real from fake, such a thing was almost impossible with respect to digital art unless the artist was able to procure a copyright in relation to the said art[11]. However, NFT’s have sparked a major revolution in the field of digital art and have resulted in exponential growth in the digital art market. As of September 2022, the NFT market has risen to $841 million.


The inherent design structure of an NFT being minted on a blockchain based on a distributed ledger (DLT), gives it the characteristics of being timestamped, immutable and traceable have turned it into a valid of certification. In the case of digital art, the NFT is essentially being linked to that digital art and being used as a certificate validating the purchase of an online asset. Not only does this act as a certificate of ownership but also offers traceability because each NFT transaction is recorded on the DLT and now a customer who is buying the NFT can conduct their own due diligence by surveying the ledger and verifying the provenance of the digital art they want to purchase[12]. For the digital artists it also provides other benefits like royalty sharing via smart contracts, access to larger markets and reduction of intermediaries. Royalty sharing is essentially enabled through smart contracts which enable to automatic pay outs to the author on secondary sale of the NFT[13]. The royalty sharing requirements are encoded into a smart contract on the blockchain and are executed automatically when a transaction takes place[14]. NFT’s have also enabled the formulation of NFT marketplaces which are breaking the glass wall between famous and budding artists. Earlier only established artists would have had the opportunity to display their art in galleries and command an audience, and the smaller artists were limited to their social media accounts or other lesser visible platforms to display their art. But now with the help of these online marketplaces the middlemen which were needed to display an artists art work have been cut off and any art work is essentially the exhibited to the innumerable customers who log into these online market places.


Issues with the present regime

Despite all the new avenues that an NFT has opened for digital artists and the advantages that it provides, not all is merry in the land of NFT’s and there are still some grouses which the current structure of NFT’s seems unable to resolve. Firstly, NFT is often mistaken by its buyers as a certificate of ownership or a certificate of copyright transfer which is certainly not true in every case. In a usual smart contract involving an NFT just the right of personal use of that NFT is transferred and 100% ownership and other intellectual property rights remain with the original creator of the NFT, in fact such contracts are pari materia to when one buys a physical artwork[15][16]. A decentralised organisation called Spice DAO fell prey to this error when they bid $3 million on the NFT of the best-seller novel ‘Dune’, they were unaware that they had just purchased a digital copy of the book and not the rights to the book itself[17].

Molly White who’s a software engineer very succinctly elaborates on the issue and explains that when someone buys an NFT, “They've paid to have their wallet address etched into a database alongside a pointer to something. I wouldn't say they really ‘own’ anything at all.[18]” However, in certain cases NFT’s do transfer the ownership and the copyright only if the owner has programmed them to for example, in the case of Nike where they sold an NFT of virtual sneakers for $130,000[19]. Hence, unless the underlying conditions of an NFT specifically state that about the rights which are being assigned to the purchaser of such NFT, the customer shouldn’t assume otherwise.


There still persists an active risk of fraud even after the creator of a digital artwork mints an NFT assigned to it. Theoretically multiple blockchains such as Solana, Binance Smart Chain, Cardano, Tezos etc allow for NFT’s to be minted on them and one can also mint an NFT again on the very same blockchain. This leaves room for scamsters to mint digital artworks of other creators and then presenting them on marketplaces as their own. Even though marketplaces like opensea.io and rarible on their websites promise to reduce fake NFT’s being uploaded, however, whether that promise translates to practice is a completely different story. An artist by the name of Aja Trier claims to have her art stolen and published 86,000 times and listed Opensea,io, these counterfeit NFT’s were only removed after she was able to garner social media traction about the issue. Opensea.io in their own report stated that over 80% of the artwork which was listed on their marketplace was either plagiarised or spam. Opensea.io in an attempt to reduce plagiarised artwork on their website limited the number of free listings that an artist can do on their platform but later had to take down this reform due to backlash by the artists. In the case of another digital artist Mary Campbell, she had her art minted into an NFT and listed on Rarible (which is a digital marketplace) by an unknown person[20].


An important detail in her case was that she had not minted a NFT of any of her artwork while this incident took place. The said person took a screenshot of her art created an NFT assigned to it and listed it for bidding at a starting price of $1200. The said person was later identified, and the listing was taken down. Campbell also reported the incident to Rarible but did not hear back from them. It can be inferred from the aforesaid cases, that these marketplaces are failing to undertake the requisite due diligence measures to verify the authenticity of the digital artwork which they list for sale. And from the cases of Aja Trier and Mary Campbell it is also highlighted that these marketplaces act dumb towards the concerns of digital artists and unlike art distributors or auctioneers instead of conducting the required authenticity checks before listing the digital artwork, have made the process of authentication an extrinsic task. They essentially leave it for the artist themselves to follow up on the authentication process in case a contingency arises[21]. Moreover, artists like Mary Campbell who are oblivious to such NFT marketplaces are more at risk of being exploited.


And lastly the most major issue with respect to NFT’s is the legal ambiguities surrounding the technology. In many countries the tax liability in relation to income generated from digital assets has not been set and they are yet to come up with guidelines. Another issue is the legal validity of blockchain and smart contracts, for example in a country like India the validity of blockchain still hangs in the balance after the Supreme Court judgment which overturned the RBI order banning the use of crypto currency by Banks[22]. Furthermore, the Finance Ministry of India also made a statement that it is not planning a complete ban on cryptocurrencies and will allow windows for people to conduct experiments[23]. The law in countries like India and Indonesia is also silent on authentication and settlement of contracts which are a formulation of computer code[24]. The legal enforceability of smart contracts is also brought into question as they need to adapt to current legal contract frameworks across many jurisdictions[25]. Blockchain and smart contracts are the fundamental technologies which are needed to enable NFT’s to function the fact that there is legal uncertainties present in relation to them, casts of a big cloud over the future of NFT’s themselves.


Conclusion

Despite the aforesaid concerns it can’t be denied that the forthcoming of NFT’s has managed to turn a leaf for the digital artists and provided with a new source of income which they could never have imagined before. NFT’s have accomplished in provided much needed regulation and authentication to an otherwise unregulated art space and lead to the rise of a completely novel digital marketplace. Nevertheless, there is still major ground left to cover. The main reason why NFT’s were said to be beneficial for the world digital arts was their ability to provide time stamped, immutable and traceable data, but as has been clearly enumerated in the examples presented in this reflection paper, such attributes are failing to provide ‘authenticity’ to the digital artwork due to the inefficiencies of the NFT marketplaces. Hence, it becomes extremely crucial for those digital marketplaces that they bring in rigorous security measures to curb the spread of fake digital artwork on their platform, so that the nascent trust in realm of digital art can be maintained and nurtured. This trust would not only have to be fostered in relation to digital artists but also in relation to the consumers of such digital art. The platforms should also ensure the consumers clarity on the kind of rights that would accompany an NFT purchase, so that they don’t feel cheated and as a consequence demotivated to participate in the market again. A fledgling market can only flourish if all its stakeholders have something to gain by participating in it, which is why all its participants should strive towards creating a fair market, as this would help in achieving the twin of objective of kindling newfound demand and having a higher chance of obtaining legal sanction.


 

References

[1] Department of Greek and Roman Art, ‘Roman Copies of Greek Statues | Essay | The Metropolitan Museum of Art | Heilbrunn Timeline of Art History’ (The Met’s Heilbrunn Timeline of Art History)<https://www.metmuseum.org/toah/hd/rogr/hd_rogr.htm> accessed 7 November 2022. [2] Id. [3] T. Lenain, Art Forgery The History of a Modern Obsession (Reaktion Books, 1st ed., 2011). [4] G. Newman, P. Bloom, 'Art and Authenticity: The Importance of Originals in Judgments of Value' (2011) Journal of Experimental Psychology <https://doi.org/10.1037/a0026035>. [5] S. Subramanian, 'How to spot a perfect fake: the world’s top art forgery detective' (The Guardian, 2018) <https://www.theguardian.com/news/2018/jun/15/how-to-spot-aperfect-fake-the-worlds-top-art-forgery-detective> accessed October 7, 2022. [6] ‘Forgery - Forgery in the Visual Arts’ (Britannica) <https://www.britannica.com/art/forgery-art/Forgery-in-the-visual-arts> accessed 7 November 2022. [7] Graison Dangor, ‘Fake “Mona Lisa” Sells For $3.4 Million' (Forbes, 18 June 2021) <https://www.forbes.com/sites/graisondangor/2021/06/18/fake-mona-lisa-sells-for-34-million/> accessed 7 November 2022. [8] ‘Sotheby’s Hires Scientist, Addressing Art Market Wariness of Forgeries Post-Knoedler’, (Observer, 8 December 2016) <https://observer.com/2016/12/sothebys-hire-proves-art-world-is-serious-about-preventing-forgery-post-knoedler/> accessed October 7, 2022. [9] Id. [10] Id. [11] ‘Are NFTs Worth the Hype?’ (The Economist, 3 February 2022) <https://www.economist.com/films/2022/02/03/are-nfts-worth-the-hype?gclid=Cj0KCQjwk5ibBhDqARIsACzmgLRLGsk8T0DrlDJXAgbojo2CI9LmYI99kCgZSyo68Mm7KIeI4eG8ekgaAmW3EALw_wcB&gclsrc=aw.ds> accessed 7 November 2022. [12] A. D. Popescu, 'Non-Fungible Tokens (NFT)—Innovation beyond the craze. 5th International Conference on innovation in Business, Economics & Marketing Research' (ResearchGate, 2021). <https://www.researchgate.net/profile/Andrei-DragosPopescu/publication/353973149_Non-Fungible_Tokens_NFT>. [13] Alex W Gomezz, ‘NFT Royalties: What Are They and How Do They Work?’ (Cyber Scrilla) <https://cyberscrilla.com/nft-royalties-what-are-they-and-how-do-they-work/> accessed 7 November 2022. [14] Id. [15] Robert Goulder, ‘NFTs: The Basics And How To Tax Them’ (Forbes, 15 July 2022) <https://www.forbes.com/sites/taxnotes/2022/07/15/nfts-the-basics-and-how-to-tax-them/> accessed 7 November 2022. [16] Rishubh Agarwal, ‘NFTs: A Boon for Independent Artists or an “Ecological Nightmare Pyramid Scheme”’, (IPR Law India - Indian IP Law Resources, 24 February 2022) <https://iprlawindia.org/nfts-a-boon-for-independent-artists-or-an-ecological-nightmare-pyramid-scheme/>. [17] Baisakhi Mishra, ‘NFT Group Bought Dune for $3.04 Million Thinking It Was the Copyright’, (TechStory, 18 January 2022) <https://techstory.in/nft-group-bought-dune-for-3-04-million/>. [18] Eric Ravenscraft, ‘NFTs Don’t Work the Way You Might Think They Do’ (Wired) <https://www.wired.com/story/nfts-dont-work-the-way-you-think-they-do/> accessed 7 November 2022. [19] Daniel Van Boom, ‘These Nike NFT “Cryptokicks” Sneakers Sold For $130K’ (CNET) <https://www.cnet.com/personal-finance/crypto/these-nike-nft-cryptokicks-sneakers-sold-for-130k/> accessed 7 November 2022. [20] Madelyn Alexander, ‘Digital Art Fraud Made Easy with NFTs’, (The Alabamian, 7 February 2022), <https://www.thealabamian.com/digital-art-fraud-made-easy-with-nfts/> accessed 7 November 2022. [21] Will Gottsegen, ‘NFT Forgeries Aren’t Going Away’ (Coindesk, 20 December 2021) <https://www.coindesk.com/layer2/2021/12/20/nft-forgeries-arent-going-away/> accessed 7 November 2022. [22] 2020 SCC Online SC 275 [23] ‘Non-Fungible Tokens: Examining Its Legal Validity in India’ (NLUJ Law Review, 18 June 2021) <http://www.nlujlawreview.in/non-fungible-tokens-examining-its-legal-validity-in-india/>. [24] Asia Law Journal, ‘NFT Regulations in India and Indonesia’ (Law.asia, 1 December 2021) <https://law.asia/nft-regulations-india/> accessed 7 November 2022. [25] M. Giancaspro, 'Is a ‘smart contract’ really a smart idea? Insights from a legal perspective' (2017) 33(6) Computer Law & Security Review, 825–835.

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