The convergence of blockchain technology and creative intellectual property through a non-fungible token (“NFT”) is having a mainstream moment. Media stories abound with reports of artwork, tweets, and other digital media selling for millions of dollars on blockchain marketplaces when they are represented by an NFT. In addition to addressing how NFTs are linked to sales of digital media, we take a look at the practical intellectual property considerations that can arise when buying or selling the creative works that the NFTs are attached to.

To understand how creative works become tied to NFTs, one has to understand how an NFT functions. First, an NFT refers to unique crypto tokens that are managed on the blockchain. A blockchain acts as the decentralized ledger that tracks the ownership and transaction history of each unique NFT. The main difference between NFTs and other traditional cryptocurrency like Bitcoin is interchangeability (or lack thereof). One bitcoin in a digital wallet is interchangeable for another bitcoin in a different wallet because each bitcoin has the same value and use. NFTs, on the other hand, are coded to have unique IDs and other metadata that no other token can replicate. This gives NFTs the attributes of originality and scarcity that make them so attractive when coupled with digital media.

NFTs are written with software code (called smart contracts) that governs actions such as verifying the ownership and managing the transferability of the NFTs. Like any software application, NFTs can be programmed beyond the basics of ownership and transferability to also include a variety of other applications and functionality, including linking the NFT to another digital asset. For example, a smart contract could be written to automatically allocate a portion of the amounts paid for any subsequent sale of the NFT back to the original owner, thus giving the owner an ability to realize the benefits of the secondary marketplace (see the proposed EIP-2981 standard for handling royalty payments for ERC-721 tokens).

Thus, when someone makes – or “mints” – an NFT, they are writing the underlying smart contract code that governs the qualities of the NFT and adding those qualities to the relevant blockchain on which the NFT is managed. Many blockchains can be used to manage NFTs, including Ethereum (with its long-established ERC-721 and ERC-1155 smart contract standards), FLOW, and Wax, but the process is largely the same with each. Notably, certain NFT marketplaces only function with certain blockchains, and so the choice of which blockchain to use for an NFT can have real commercial implications for the seller. NFTs could have applications beyond being used to transact in content, including supply chain management of physical goods and secured finance transactions. However, this post focuses only on NFTs when sold in connection with related content.

NFTs Govern Ownership of the Token, Not the Underlying IP Rights

Ownership of an NFT as a unique token – versus ownership of the content that such NFT may be associated with – is a critical distinction. When someone purchases an NFT tied to a piece of content, they have not automatically purchased the underlying intellectual property rights in such piece of content. Under Section 106 of the U.S. Copyright Act, a copyright owner has certain exclusive rights to reproduce, prepare derivative works of, perform, display, and distribute the copyrighted work. As a general rule, the purchase of a piece of art does not transfer all copyright in such work to the buyer. For example, when someone buys a painting at an art gallery for their home, they are acquiring the physical painting itself, which they can display, but not the underlying rights to reproduce, make derivative works of, or distribute copies of such painting. 

In reality, the underlying copyright only transfers if the copyright’s owner evidences in writing that they intend to transfer those rights alongside the copy of the work. Unless the NFT owner has received explicit permission from the seller, the NFT owner does not automatically acquire the legal right to take pictures of the creative work attached to the NFT and make T-shirts or postcards for sale. Absent further documentation, the purchaser of an NFT acquires through that purchase an implied non-exclusive license to display the related media in their token wallet for personal purposes only, but does not own the underlying copyright in the content the NFT is associated with or the right to display that media on third-party products, websites, or platforms.

The question of “What rights are you buying?” when someone buys an NFT tied to a creative work is something that the parties can, and ideally should, contract around. For example, Dapper Labs, operator of the popular NBA Top Shot platform, has promulgated a template NFT License that NFT sellers can adopt to outline what rights are being licensed to the NFT buyer. The NFT License distinguishes the actual NFT token from the “art” associated with the NFT (the underlying image, music, sound, or combination thereof). The license clarifies that the buyer of the NFT receives (i) a personal license to use and display the art associated with the NFT, as well as (ii) a commercial license to make merchandise that displays that art associated with the NFT, a license subject to a $100,000 gross revenue per year limit.

To be clear, the NFT License is merely a suggested contract that buyers and sellers can use as they deem appropriate. For example, when the YellowHeart platform facilitated the sale of a new Kings of Leon album as an NFT, the terms of service of the YellowHeart platform included some elements of the NFT License, but with significant modifications. The YellowHeart Terms of Service state that buying the NFT gives the buyer a right to display the art (defined as the album artwork and images) and included merchandise (defined to include the music files) associated with the NFT, for as long as the buyer owns the NFT and only for personal purposes. The commercial license element of the NFT License was not included, and the YellowHeart terms include a host of clauses restricting commercial activity related to the creative works behind the NFT, such as prohibiting the use of the related art or included merchandise in third-party products or within movies or other media.

NFTs Do Not Inherently Authenticate IP Rights

Many market participants claim that NFTs can be used to prove authenticity. In fact, NFTs can authenticate ownership of a token itself, as well as the unique history of how such token was developed and linked to a creative work — on the public blockchains, anyone can see an owner’s wallet address and its linked metadata, as such information is available as a public record. However, a simple NFT by itself cannot help with matching the creator or owner of an NFT to a real person in the physical world, nor does it validate that the creator of the NFT has the underlying rights to tie that NFT to any specific creative work.

Counterfeiting is an issue associated with NFT artworks. Collectors can be easily left wondering whether some digital art they spent thousands of dollars on is a real Banksy work or merely a knockoff. To solve this issue, some platforms use an old-fashioned method to verify the identities of creators on their platform: manual verification. For example, SuperRare requires artists wishing to post their digital work for sale on its platform to first submit an application that requires information such as name, email, selection of artworks, social network presence, etc. Through this, SuperRare can ensure that collectors receive authentic artworks from reputable artists who have appropriate rights in the underlying art.

Other NFT marketplaces attempt to avoid the counterfeiting issue with broad disclaimers. For example, if a user attempts to buy a listing via the AtomicAssets marketplace, they encounter the following notice, which the user must accept to move forward with the purchase: “Anyone can create AtomicAssets NFTs and freely choose attributes such as name and image, including fake versions of existing NFTs or stolen intellectual property. Before buying an NFT, always do your own research about the collection and double check the collection name to ensure that you are buying genuine NFTs.”

Where Is the Creative Work Actually Stored?

In order to link an NFT with a digital creative work, the NFT needs to carry unique information about such digital work within its smart contract. One way to do this is to store the entire data for the video or song within the actual NFT code. This is often called “on-chain storage.” However, on-chain storage is impractical on most blockchains, since transfers on the chain incur a transaction fee based on the size of the token. Including the entire data for a large file into the NFT code would result in costly and time-consuming transfers. New technologies could resolve this issue, such as by developing secondary layers that allow for larger data sizes to be more easily transferred. However, as of the date of this article, that technology is still largely at the development stage.

In the meantime, the alternative way to link the NFT to the data for the creative work is to store such data off the chain, such as on a standard web server. The NFT then points to the address at which the digital asset is hosted online (in an ERC-721-compliant smart contract on Ethereum, that pointing happens via the TokenURI function). While simply pointing the NFT to the asset off-chain cuts down on monetary and time costs associated with transferring the NFT, the hosted content is now back to being centrally stored rather than being immutably stored on the blockchain.

This raises a legal question: Who has the legal obligation to host off-chain data for the associated creative works? NFT sales contracts or the terms of service for NFT marketplaces rarely specify whether the seller has a legal obligation to host the data in a way so that a specific NFT will always be retrievable by the owner. Absent such contract commitments, a buyer often has no guarantee that the URL or other web address will not be changed or be taken offline. This risk can defeat the whole purpose of using an NFT to secure immutability of the digital assets in the first place.

Some technology solutions attempt to solve this off-chain storage problem, such as the InterPlanetary File System (“IPFS”). At a high level, IPFS breaks up data for any image or other file into hashes — also called content identifiers or CIDs. The data for a specific piece of content is stored in chunks on decentralized nodes. No single web server hosts that content, so the content is still available and retrievable if a single node goes down.

Applications of NFTs Beyond Art

Buying and selling creative works is merely one application of NFT technology. NFTs appear to offer great promise in other spaces, such as a proxy for memberships or tickets to physical events. For example, Unlock offers users the opportunity to purchase an NFT with a key to unlock memberships to an ad-free version of the Forbes website. Other applications tie NFTs to physical items. For example, the Austrian Postal Service launched Crypto Stamp, a project through which it has issued physical stamps carrying private keys tied to some amount of ETH and digital versions of such physical stamps. This maintains the utility of the physical stamp, while also allowing collectors to include the stamp in their digital collections (permanently, if they want), and owners can easily trade the Crypto Stamps on NFT marketplaces.

While the world of NFTs is a fast-moving space, participants should be aware of some fundamental legal issues. First, a buyer of an NFT does not automatically receive all the intellectual property rights underlying the work associated with the NFT being acquired. The terms in the license agreement associated with the sale will usually determine a buyer’s specific intellectual property rights. 

The law is still not settled on what exactly is acquired absent any such express intellectual property license or assignment grant. Second, buyers and sellers of an NFT should pay close attention to how the underlying media is being stored, and who has the obligation of storing the media associated with an NFT. Last but not least, despite all the uncertainties for NFTs, participants in this rapidly evolving area can expect to see more and more creative applications of NFTs beyond the current use, which is mainly for collectibles.

Ghaith Mahmood is a partner at Latham & Watkins, handling a full spectrum of IP and technology matters.

Jordan Naftalis is an associate in the Century City office of Latham & Watkins and a member of the Corporate Department. 

Wenqian (Veronica) Ye is an associate in the Los Angeles office of Latham & Watkins. 

On March 11, Beeple, a computer science graduate whose real name is Mike Winkelmann, auctioned a piece of crypto art at Christie’s for $69 million. The winning bidder is now named in a digital record that confers ownership. This record, called a nonfungible token – or “NFT” – is stored in a shared global database. This database is decentralized using blockchain, so that no single individual or company controls the database. As long as the specific blockchain survives in the world, anyone can read or access it, and no one can change it.

But “ownership” of crypto art confers no actual rights, other than being able to say that you ‘own’ the work. You do not own the copyright, you do not get a physical print, and anyone can look at the image on the web. There is merely a record in a public database saying that you ‘own’ the work – really, it says you own the work at a specific URL. So, why would anyone buy crypto art – let alone spend millions on what is essentially a link to a JPEG file?

Art is inherently social

It might be helpful to think about crypto art in the context of why people buy original works of art. Some people buy art for their homes, hoping to incorporate it into their living spaces for pleasure and inspiration. But art also plays many important social roles. The art in your home communicates your interests and tastes. Artworks can spark conversation, whether they are in museums or homes. People form communities around their passion for the arts, whether it is through museums and galleries, or magazines and websites. Buying work supports the artists and the arts.

Then there are collectors. People get into collecting all sorts of things – model trains, commemorative plates, rare vinyl LPs, sports memorabilia – and, like other collectors, art collectors are passionate about trying to hunt down those rare pieces. Perhaps the most visible form of art collecting today, and the one that drives so much public discussion about art, is the art purchased for millions of dollars – the pieces by Picasso and Damien Hirst traded by the ultrawealthy. This is still social: Whether they are at Sotheby’s auctions or museum board dinners, wealthy art collectors mingle, meet and talk about who bought what.

Finally, I think many people buy art strictly as an investment, hoping that it will appreciate in value.

Is crypto art really that different?

If you look at the reasons people buy art, only one of them – buying art for your home – has to do with the physical work. Every other reason for buying art that I listed could apply to crypto art. You can build your own virtual gallery online and share it with other people online. You can convey your tastes and interests through your virtual gallery and support artists by buying their work. You can participate in a community: Some crypto artists, who have felt excluded by the mainstream art world, say they have found more support in the crypto community and can now earn a living making art.

While Beeple’s big sale made headlines, most crypto art sales are much more affordable, in the tens or hundreds of dollars. This supports a much larger community than just a select few artists. And some resale values have gone up

Value as a social construct

Aside from the visual pleasure of physical objects, nearly all the value that art offers is, in some way, a social construct. This does not mean that art is interchangeable, or that the historical significance and technical skill of a Rembrandt is imaginary. It means that the value we place on these attributes is a choice. When someone pays $90 million for a metal balloon animal made by Jeff Koons, it is hard to believe that the work has that much “intrinsic” value. Even if the materials and craftsmanship are quite good, surely some of those millions are simply buying the right to say “I bought a Koons. And I spent a lot of money on it.” If you just want an artfully made metal balloon animal, there are cheaper ways to get one.

Conversely, the conceptual art tradition has long separated the object itself from the value of the work. Maurizio Cattelan sold a banana taped to a wall for six figures, twice; the value of the work was not in the banana or in the duct tape, nor in the way that the two were attached, but in the story and drama around the work. Again, the buyers were not really buying a banana, they were buying the right to say they “owned” this artwork. Depending on your point of view, crypto art could be the ultimate manifestation of conceptual art’s separation of the work of art from any physical object. It is pure conceptual abstraction, applied to ownership.

On the other hand, crypto art could be seen as reducing art to the purest form of buying and selling for conspicuous consumption. In Victor Pelevin’s satirical novel “Homo Zapiens,” the main character visits an art exhibition where only the names and sale prices of the works are shown. When he says he does not understand – where are the paintings themselves? – it becomes clear that this is not the point. Buying and selling is more important than the art. This story was satire. But crypto art takes this one step further. If the point of ownership is to be able to say you own the work, why bother with anything but a receipt?

Manufacturing scarcity

It still seems hard to get used to the idea of spending money for nothing tangible. Would anyone pay money for NFTs that say they “own” the Brooklyn Bridge or the whole of the Earth or the concept of love? People can create all the NFTs they want about anything, over and over again. I could make my own NFT claiming that I own the Mona Lisa, and record it to the blockchain, and no one could stop me. But I think this misses the point.

In crypto art, there is an implicit contract that what you are buying is unique. The artist makes only one of these tokens, and the one right you get when you buy crypto art is to say that you own that work. No one else can. Note, though, that this is not a legal right, nor is there any enforcement other than social mores. Nonetheless, the value comes from the artist creating scarcity.

This is the same thing that has happened in the art world ever since photographers and printmakers had to figure out how to sell their work. In the world of photography, a limited-edition print is considered more valuable than an unlimited edition; the fewer prints in the edition, the more valuable they are. Knowing that you have one of a few prints personally made and signed by the artist gives you an emotional connection to the artist that a mass-produced print does not.

This connection could be even weaker in digital art. But what you are buying is still, in part, a connection with the artist. Artists sometimes publicly tweet their thanks to their crypto art patrons, which may strengthen this emotional connection.

A bubble bound to burst?

Personally, I want to buy only art I can hang on my walls, so I have no interest in buying crypto art. There are also environmental costs. Certain blockchains used for crypto art are really bad for the climate, because they require computations that consume staggering amounts of energy. That said, if buying it right now gives you pleasure – and you enjoy sharing what you have bought and the community around it and you are using a more environmentally friendly blockchain – that is great.

If you are buying it for some future reward, however, that is risky. Will people care about your personal virtual gallery in the future? Will you care? Will crypto art even be a thing in a few years? As an investment, it seems inconceivable that the higher prices reflect true value, in the sense of these works having higher resale value in the long term. As in the traditional art world, there are a lot more works being sold than could ever possibly be considered significant in a generation’s time. 

And, in the crypto world, we are seeing highly volatile prices, a sudden frenzy of interest, and huge sums being paid for things that seem, on the surface, not to have the slightest bit of value at all, such as the $2.5 million bid to “own” Jack Dorsey’s first tweet or even the $1,000 bid on a photo of a cease-and-desist letter about NFTs

Much of this energy seems to be driven by price speculation. It is also worth noting that the winner of the Beetle auction seems to be heavily invested in the success of crypto art. The cryptocurrencies that drive crypto art are often considered highly speculative. I have no doubt that, right now, there is a big NFT bubble.

Aaron Hertzmann is an Affiliate Faculty of Computer Science at the University of Washington. (the article was initially published by The Conversation)

Late last month, Grimes sold some animations she made with her brother Mac on a website called Nifty Gateway. While some of them were one-offs, others were limited editions of a few hundred – and they were all snapped up in about 20 minutes, with the musician earning more than $6 million in the process. Despite the steep price tags, anybody can watch or (with a simple right-click) save a copy of Grimes’ artwork. The eager buyers, on the other hand, got something more than a copy of the files themselves: they received a special kind of tradable certificate called a non-fungible token – or “NFT.” In other words, what they were really paying for was an aura of authenticity – and the ability to one day sell that aura of authenticity to somebody else. 

In this way, NFTs are a cultural answer to creating technical scarcity on the internet. They are making inroads into the realms of high artrock music and even new mass-markets of virtual NBA trading cards, and in the process, they are also making certain people rich.

How NFTs work

NFTs are digital certificates that authenticate a claim of ownership to an asset and allow it to be transferred or sold. The certificates are secured with blockchain technology similar to what underpins Bitcoin and other cryptocurrencies. (A blockchain is a decentralized alternative to a central database. Blockchains usually store information in encrypted form across a peer-to-peer network, which makes them very difficult to hack or tamper with. This in turn makes them useful for keeping important records.)

The key difference between NFTs and cryptocurrencies? Currencies allow for fungible trade, which means anyone can create Bitcoins that can be exchanged for other Bitcoins. However, NFTs are by definition non-fungible, and thus, are deployed as individual chains of ownership to track a specific asset. In other words, NFTs are designed to uniquely restrict and represent a unique claim on an asset. And that is precisely where things get weird: often, NFTs are used to claim “ownership” of a digital asset that is otherwise completely copiable, paste-able and shareable, such as a movie, JPEG, or other digital file.

So, what is an authentic original digital copy?

Online, it is hard to say what authenticity and ownership really mean. Internet culture and the internet itself have been driven by copying, pasting, and remixing to engender new forms of authentic creative work. At a technical level, the internet is a system for efficiently and openly taking a string of ones and zeroes from this computer and making them accessible on that computer somewhere else. Content available online is typically what economists call “non-rivalrous goods,” which means that one person watching or sharing or remixing a file does not in any way impede other people from the doing the same.

Constant sharing adds up to a near-infinite array of material to view, share, copy or remix into something new, creating the economies of abundance on which online culture thrives. TikTok, for instance, is entirely built around reimagining common audio loops with seemingly endless but unique accompanying visual rituals, which are, themselves, mimicked in seemingly endless variations. Meanwhile, on Twitter, tweets are only valuable to the extent they are retweeted. Fake news only exists insofar as Facebook’s algorithm decides sharing it will increase engagement via driving more sharing. (And memes only become viral by virtue of mass-sharing.)

The life and longevity of digital content has depended on its ability to spread. The internet’s pioneering cyber-libertarians had a motto to describe this: information wants to be free. Attempts to stop information spreading online have historically required breaking aspects of technology (like encryption) or legal regimes like copyright law. NFTs, however, bring code and culture together to create a form of control that does not rely on the law or sabotaging existing systems. They create a unique kind of “authenticity” in an otherwise shareable world.

What’s next?

Nearly 40 years ago, Canadian science-fiction writer William Gibson famously described cyberspace as a “consensual hallucination” in which billions of users agreed that the online world was real. NFTs take this to the next level: they are a consensual hallucination that this string of ones and zeroes is different and more authentic than that (identical) string of ones and zeroes. NFTs work by reintroducing a mutual hallucination of scarcity into a world of abundance. And there is no shortage of buyers: the NFT market is already worth hundreds of millions of dollars. Beeple’s 5000 Days’ NFT collection sold for $69.346 million in a Christie’s auction on Thursday. Even humble sports trading cards will never be the same.

The real function of NFTs is to create a clear delineation between ordinary creators and consumers of online content, and those privileged enough to be paid to produce content or claim to own “authentic” work. The internet decentralized content creation, but NFTs are trying to recentralize the distribution of culture. NFTs facilitate the exchange of fungible money for non-fungible authenticity. It is a well-known move that occurs in all sorts of industries, and one with a long history in, well … art history.

How the culture-code of NFTs will evolve is anyone’s guess, but at the moment, it is opening a lot of new ways to make new money change hands. At first take, it might seem that this presents artists everywhere with a recourse to get paid for their otherwise copy-paste-able work. Yet, creating normative rules around paying for content online has not so far gone smoothly: think of the lackluster payments musicians receive from streaming services like Spotify.

NFTs have also been criticized for their profligate energy consumption, because they depend on a lot of computer power to encrypt their tokens. According to the online calculator at CryptoArt, the computations required to create NFTs for each of Grimes’ animations would have used enough electricity to boil a kettle 1.5 million times – and resulted in around 70 tons of CO₂ emissions. (It is unlikely that the cost for future generations was not priced into the current market value, or any appreciation as tokens cryptographically change hands.)

Other than their tons of CO₂ emissions, what is real about NFTs is how their creation of technical scarcity enables a new cultural agreement about how something can be authentic and who controls that authenticity. NFTs create new forms of hierarchy, power, and exclusion on the wider web, and in doing so, they have already created a new type of haves and have-nots.

Luke Heemsbergen is a PhD candidate in Media and Politics at Deakin University. (This article was initially published by The Conversation)

A blockchain company has bought a piece of Banksy artwork and burnt it. But instead of destroying the value of the art, they claim to have made it more valuable, because it was sold as a piece of blockchain art. The company behind the stunt, called Injective Protocol, bought the screen print from a New York gallery. They then live-streamed its burning on the Twitter account BurntBanksy. But why would anyone buy a piece of art just to burn it? Understanding the answer requires us to delve into the tricky world of blockchain or “NFT” art. It blends the niche subculture of cryptocurrencies with long running philosophical questions about the nature of art. No wonder people have difficulty explaining it all.

At its simplest, a NFT artwork is made up of two things. First, a piece of art, usually digital, but sometimes physical. Second there is a digital token representing the art, also created by the artist. 

Non-fungible tokens

In the past, artists might have provided a signature or the gallery a certificate to authenticate an artwork. This is a method of verification or proof to show this really was a painting by, say, Matisse or Klimt. In 2008 the creator of Bitcoin, Satoshi Nakamoto, introduced a new method of verification known as the blockchain. Blockchains were historically used to record financial transactions, but they are pretty malleable. These days, you can find everything from collectable games to new methods of finance – all living on blockchains. 

The most important feature of blockchain for art is that blockchains are impossible to change. An artist can provide a proof authenticating an artwork which can never be altered. This proof can then be sold at auction passing it from artist to collector, making blockchain art highly liquid.

What collectors buy are “non-fungible” tokens (NFTs). Non-fungible means either one or a limited run is ever made. NFT tokens cannot be replicated. In some cases the art will be stored on the blockchain, but more commonly the NFT will reference an external artwork. While many people might not consider this “owning art”, it is clear many collectors do. The implication is NFT artworks are scarce and therefore valuable.

Newcomers to an NFT marketplace might be struck by the low quality of the artwork. With no barrier to entry, everyone is free to become a blockchain artist – and it shows. But this is a naïve reading of what is going on. Much blockchain art is sought after for reasons beyond aesthetics. For instance, many NFTs, such as Cryptopunks, are sought after because of their age, like blockchain antiques. The most expensive Cryptopunk sold for US$1,608,032(£1,161,481) and it is, on the surface, little more than crudely-drawn pixel art. Cryptopunks are the oldest NFTs and it is the data about them – their “metadata” – such as their longevity on the blockchain, that is desired. You have to look past the art and look at the medium to get what is going on. 

Other NFTs, such as the Nyan Cat meme which sold for $600,000, are already widely distributed memes. But they are prestigious specifically in their NFT form because the creator has “signed” the work on the blockchain.

Burning art

But why would someone want to destroy the original art? Well, this is what the BurntBanksy collective had to say about it: “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.”

To most, this probably sounds like gibberish. I suspect the collective are acting a little provocatively by inverting our usual preference for the physical over the digital. However, their argument follows perfect blockchain logic. They argue if we have a piece of art and an NFT, then most people will consider the former the “real” art. To invert this, they have decided to burn what many would consider a piece of art that is objectively valuable, a Banksy, and leave only the NFT. Unlike physical art that can be burnt or shredded or broken, an NFT is a digital token that lives on an immutable blockchain. It cannot be destroyed and should therefore, according to their logic, be perfectly safe from vandals – such as themselves.

With the “real” artwork gone the NFT now stands in for the real work. What they are hinting at, of course, is that this is a potential transition from “real” to NFT in general and their stunt highlights this. Intriguingly, their act also suggests they have themselves become artists. By burning the real piece, they transform it into the NFT-only piece. To see the value in NFTs, we have to look past the art itself and at the blockchain.

Finally, it is interesting that the collective decided to pick a Banksy piece of art to destroy, considering the artist shredded a piece of his own art live in 2018, immediately after it was sold at auction. Perhaps the work of these vandals is closer in spirit to the original artist than appears at first sight.

Paul J. Ennis is a Lecturer/Assistant Professor in Management Information Systems at University College Dublin.

Among some of the “most widely recognized works” of Damien Hirst come from a series a spot-centric paintings. A printed version of one of those colorful and dizzyingly grid-like works – which first appeared in the mid-1980s and have been produced almost every year since (as of 2012, Hirst said that he had been producing an average of 60 spot paintings a year) and which largely come with names “titles that are taken arbitrarily from the chemical company Sigma-Aldrich’s catalogue ‘Biochemicals for Research and Diagnostic Reagents,’ a book Hirst stumbled across in the early 1990’s” – is now the center of another largely controversial work. 

As it turns out, while 54-year old, British-born Hirst was busy creating a rainbow design to “pay tribute to the wonderful work [the United Kingdom’s National Health Service] staff are doing in hospitals around the country,” a group of American artists were crafting something of their own. Brooklyn-based creative collective MSCHF, which managed to purchase a limited print of Hirst’s $30,000 spot painting L-Isoleucine T-Butyl Ester, which Hirst created in 2018, decided to “indulge in a bit of creative destruction.” (The actual spot painting themselves usually sell for upwards of $1 million).

In other words, the group cut out each of the Damien Hirst-constructed spots –  88 in total – and sold them individually for $480 apiece, making a statement in the process, one that protests the treatment of artworks as “the archetypal value sink” with investors pooling together to buy art, which they then store and ultimately “flip [to another buyer or group of buyers] like a giant bill in a colorful currency arbitrage.” 

“Could there be a more tailor made [sic] vehicle for the affluent to store their wealth?,” MSCHF asks. 

(Veteran art dealer Michael Findlay touched on this (albeit from a slightly different angle) in his book, The Value Of Art: Money, Power, Beauty, in which he said that many artworks, particularly Hirst’s largely-mechanically-created spin paintings “come, like Starbucks coffee, in three sizes,” making them “more or less interchangeable and sold as branded items . . . rather than as unique works of art,” and thus, turning them into “commodities in the artist’s brand, or his signature, has replaced the artist’s hand as the foremost signifier of a work’s value and meaning” and “the strength of the artist’s name alone determines the value of the work”). 

MSCHF – which is heavily funded (it has raised “more than $11.5 million in outside investments since the fall of 2019”) and known for its “news-making stunts that straddle the lines of conceptual art, contemporary design, and internet gaggery,” according to Artnet – sold off the 88 individual 3.5-inch-wide spots within a matter of hours, while the ravaged canvas, itself, complete with 88 holes, is being auctioned off. The current bid on MSCHF’s site is $144,250. 

Reflecting on the art statement-turned-sale, the Telegraph states that MSCHF “decided to deface the work to illustrate their distaste for the commodification of art,” and in doing so, the group has made headlines across the world. Despite the widespread media attention, element of MSCHF’s venture has gone undiscussed: VARA. 

image via MSCHF

relatively obscure federal law, the Visual Artists Rights Act of 1990 (“VARA”) provides certain artists – such as those behind single or limited edition paintings, drawings, prints, photographs, or sculptures – with the right to sue of their “moral rights” in a work are violated. 

In other words, the law enables artists to prevent the destruction of a work of art if it is of “recognized stature” and allows artists to control the use of their name in connection with alterations of their works (and the sale of altered works), among other things, even after they have sold their creations. While copyright and physical ownership are property rights that can be freely transferred, moral rights stay with the artist no matter what. 

Unlike trademark-bearing products and most copyright-protected works, which, once they are sold by the rights holder’s, his/her rights to sue on infringement grounds are extinguished, VARA provides artists with an interesting remedy. 

Hardly a sweeping catch-all that protects all artworks and their creators, VARA “applies only to a restricted category of visual artworks, extends only limited rights, and is subject to loopholes, exclusions, and waiver provisions that substantially erode its powers,” according to former National Endowment for the Art general counsel Cynthia Esworthy. One instance that fits neatly within the bounds of VARA, per Esworthy? “You are a well-known painter. You discover that a company that has purchased one of your canvasses is advertising one-inch square portions of it so that buyers can ‘own an original painting’ by you.”

Sounds a bit familiar, doesn’t it. 

No mention has been made (to date, at least) that Hirst – who is famous “for pushing the boundaries of art, himself,” as Art Critique puts it – has any intention to take on MSCHF over its sale of the “single spots cut from Damien Hirst Spot Painting ‘L-Isoleucine T-Butyl Ester,’” as they describe the individual pieces of art on VARA grounds. However, if he were, he would have to establish that his print is of “recognized stature” and that MSCHF’s cut-and-sale of the work is “prejudicial to his honor or reputation.” 

If he could prove that, he would be looking at damages under VARA that consists of actual damages or statutory damages ranging from $300 to $30,000 per work that can be increased up to $150,000 per work for willful violations. Although, it likely would not be about the money for Hirst, who has routinely been labeled as the most commercially successful artist in the world.

As for whether MSCHF’s potentially transformative – and thus, fair – use of Hirst’s original work is relevant in a VARA setting, it might be. Cathay Smith asserted in her 2019 paper, “Creative Destruction: Copyright’s Fair Use Doctrine and the Moral Right of Integrity,” that while VARA “includes language explicitly making the right of integrity” – which applies when “separated panels of a single work of art are sold,” for instance – “’[s]ubject to’ copyright’s fair use doctrine, there have been no decisions in the U.S. interpreting how the doctrine might apply to a moral right of integrity claim.”