IS THERE LIFE AFTER TECHNO DEATH?
A few years ago, the art market was rocked by the emergence of a marriage of cryptocurrencies and fine art. Some seemingly banal works were going for millions of dollars, and thousands of artists joined in the frenzy, which momentarily promised to become a internet market space where the traditional control exercised by galleries and high powered art dealers was about to be overthrown.
Alas, it didn’t work out that way. The market was run on vast computer complexes which powered cryptocurrencies like EFT and Bitcoin. To participate in this art trading platform, artists had to obtain and conduct transactions in the expensive and highly volatile cryptocurrencies. Artists were often left holding the bag, as it were. It is estimated that less than 5% of artists who released artworks in this virtual marketplace broke even.
Much of the artworks that turned a profit were works that were created in endless variations, meaning that the actual time spent being creative was minimal…. And it showed. A classic example of this was the creation of the wildly successful “Angry Ape” series of cartoonish characters.
An additional problem was that the relatively unregulated crypto platforms were ripe with corruption.
BIG BUCKS, BIG SCANDALLS
Many artists, as well as investors, took the plunge after an unknown ‘artist’ known as Beeple sold a collage NFT at Christie’s in New York in 2021 for a whopping $69 million (See image). The fact is that NFT art masks the shady reality of NFT and crypto currency platforms.
On multiple occasions cyber criminals were able to steal computer codes at the heart of crypto currency operations, nominally valued at millions and billions of dollars. Loose regulation and oversight has also allowed NFT traders and platform owners to play fast and loose with crypto assets. This was revealed in stark relief in 2022 with the collapse of FTX, a crypto trading floor, and its high flying head, Sam Bankman-Fried, when it was revealed that the company had “lost” more than $1 billion. In fact, Bankman-Fried was found guilty on March 28, 2024 of siphoning almost $11 billion from customer accounts in the trading firm Alameda Research and the crypto trading floor known as FTX. The money has yet to be recovered.
Even if the security issues at FTX and other crypto entities were fixed, government agencies and regulators in the US, UK and EU have begun to significantly tightened crypto trading regulations. The US Treasury Department has defined Bitcoin as a convertible currency with an equivalent value in real currency. More disheartening, artists active in this field could face IRS reporting, as the tax agency has ruled that cryto currencies like Bitcoin are defined as property for taxation purposes.
Bizarely, the US Treasury also now regards that anybody who engages in transactions using crypto is automatically a money services business (MSB). As such, an MSB is subject to the Bank Secrecy Act and must register with the U.S. Treasury and file reports on transactions over $10,000.
NFTS GET A SECOND CHANCE
There are still potential benefits to using NFTs and crypto currencies in the art world. An artist can use the Non Fungible Tokens (NFTs) of a physical work to verify a work of art as legitimate. Crypto serves as a ledger to keep track of and authenticate artworks. Moreover, under the NFT contract of sale used to accompany an artwork, the artist can be entitled to a set fee every time the work registered with a NFT changes hands.
OpenSea, one of the largest NFT marketplaces, has been developing packages specifically tailored to artists, allowing customers to set royalties for future sales ranging up to 10% per sale. For artists who wish to focus on creativity, there are even galleries emerging, such as Artxcode, which can handle all the back-office crypto work.
The question is, can NFTs become economically viable and financially practical for the arts community? The jury is still out.
Josh Martin
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