Quinn Emanuel Urquhart & Sullivan, LLP, 25 March 2021
The growth of NFTs in art has been fueled by its unique attributes. NFTs can allow artists to better monetize their work by selling NFTs directly online without middlemen. Access to a readily accessible online resale market could also mean that works gain value quickly. And unlike the traditional U.S. art market, artists may benefit from the rise in value of their work by incorporating commission requirements in the smart contracts that accompany NFTs (for example, the SuperRare NFT marketplace requires that creators receive a 10% commission when artwork continues to trade on the secondary market).
Some hope that NFTs will open up a new revenue source for artists, including underrepresented artists, either by allowing artists who traditionally do not sell in galleries to sell directly to buyers online, or by allowing artists to sell something in addition to their tangible works. For example, an artist could sell an NFT of the digital image of a painting or sculpture to one buyer, while selling the physical work to another buyer, allowing the artist an additional opportunity to profit from the work.
NFTs are not without potential negatives. As the market for NFTs has exploded, and as buyers have shown an appetite for bragging rights regarding ownership of the NFT associated with popular or even iconic works, some artists have complained that their work has been tokenized into an NFT without their permission. Many NFTs being offered for sale have also been based on other popular works, such as comic book characters, and some have questioned the extent to which the minter of the NFT has profited off the underlying work without the permission of the underlying artist or copyright holder. Many have criticized NFTs for the massive amount of electricity consumed by the blockchain system.
While artists and others debate these concerns, the markets for NFTs have been expanding and rising in price dramatically, particularly in recent months, with well-known artists and musicians, tech leaders, and auction houses participating the market. Christie’s sale of a digital collage consisting of 5,000 works by the artist known as Beeple (aka Mark Winklemann) was Christie’s first sale of an NFT, and ranks as highest price ever for an artwork that exists only digitally. (It also marked the first time Christie’s accepted Ether cryptocurrency as payment.)