Buyers of artwork usually expect to own the original piece and proudly display it in their homes or at a gallery or loan it to a museum. However, there is a growing market of "cryptoart". Cryptoart is sold as a non-fungible token (NFT). The art is purely a digital asset and there is no physical work of art to be admired (or damaged or stolen).
Copies of the cryptoart can be shared online by others. But these copies do not devalue the cryptoart since only a buyer of an NFT will own the “artist’s original” and have the artist’s authentication.
Notable artists selling their works as NFTs are Grimes – the Canadian musician – who has recently earnt £4.3m selling her art in this way. UK artists are also adopting this sales model. Trevor Jones, a Scottish artist, has said even when creating physical paintings he intends to digitise them and sell them as NFTs.
For artists the benefit of NFTs is that they can be set up so that the artist is paid every time the NFT is sold giving rise to an ongoing revenue stream.
How do you authenticate these digital artworks? NFTs are the digital authentication certificate. Marketplaces selling NFTs upload the artist’s work and create the NFT. The artwork is usually sold at auction and the buyer is purchasing the NFT. Buyers usually purchase using the cryptocurrency ethereum. The ethereum network records the NFT sale on its blockchain. This acts as the register and permanent record of the owner of the NFT.
Artists use companies such as Verisart who can certify NFTs so the artist can be recognised in the NFT market. In addition this gives buyers comfort that they are purchasing from the artist rather than from a fraudster or a lesser known artist masquerading as a more celebrated artist.
We have previously written about the difficulties tax authorities around the world are experiencing in determining the location of such intangible assets for tax purposes and individuals purchasing NFTs should be aware that their tax treatment is far from settled.