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During economic crises, art gains popularity as an investment asset. However, those who now only think of the acquisition of classical paintings are mistaken. Recently, the hype surrounding the Coinbase trading bot and digital art as an investment has been in the news. 

The digital artwork entitled “Everyday – The First 5000 Days” by the artist Beeple (Mike Winkelmann) was sold for around 69 million US dollars. 

However, not only artworks in the narrower sense are sold as NFT. Twitter founder Jack Dorsey sold his first tweet for $2.9 million. 

How Do Art Law and NFT Fit Together?

Art law is a complex cross-section of many areas of law. The application of general laws in this area requires a basic understanding of art and the specifics of the art trade. Indeed, many legal norms applied in the field of art law were not created for art. 

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For example, the application of general property law regulations to the work of art, which is also subject to intellectual property, leads to a rather strange contradiction of values: Due to the intellectual interests of the artist, the owner may not paint over the work of art protected by copyright law, but may very well destroy it due to the acquisition of ownership under property law.

NFT art exists within a similarly complex framework. The acronym NFT stands for “Non-fungible Token.” A “token” is a string of 40 characters that typically contains information about the artist of the NFT work, the current owner, and the current traded price of the work. “Fungible” means that an item is interchangeable. 

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For example, a 50-euro bill can be easily exchanged for another 50-euro bill or five 10-euro bills. The value is constant in these examples. “Non-fungible,” on the other hand, means that something cannot be exchanged for another item. 

Picasso’s world-famous work “Guernica”, or Klimt’s “Kiss” can be given a price, but cannot possibly be exchanged. This principle applies equally to the NFT artwork.

An NFT is thus a certificate of ownership or authenticity and acts as a seal of approval in the trade of digital art. An NFT allows digital art creators to publish their work without having to worry about proof of authenticity, called “ownership” in copyright law, or proof of ownership. 

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Digital art creators, through the NFT, have the ability to generate original works and sell them to others without having to rely on the old art market. Art law, on the other hand, will still be needed in this area.

Lost in Digital Space

The medium on which a work of art is reproduced also affects the art law regulations applied to it. 

If one considers the aforementioned case of the destruction of the artwork by the owner, it becomes clear that the destruction of an NFT artwork stored on the medium of blockchain technology, which is known to be indestructible, must follow different legal regulations. 

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In the technically complex structure of the blockchain, multiple blocks of data are chronologically chained – each block references the data of the previous block and is filled with new transactions. 

In retrospect, the data in previous blocks cannot be changed. If a block is changed, it has a domino effect on all blocks that follow it, and the blockchain cannot be used any further. 

The conventional method of destroying a work of art by destroying the medium used behind it is therefore not an option in the case of NFT art.

Destroying NFTs

The destruction of an NFT is possible despite the indestructible blockchain, namely through the so-called “burn”, as the digital destruction of tokens is called. 

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A burn can be achieved, for example, by sending the NFT to a private digital address for which no one has a key. As a result, however, the NFT is not so much destroyed in the analog sense as lost in digital space. 

This kind of destruction cannot be equated with the real destruction of a work of art. A real, original work of art actually disappears from our world through its destruction.

If one has produced a print template based on the artwork before its destruction, art prints can be reproduced; however, these will never come close to the original. With the NFT artwork, however, it is the other way around at this point. What is the print in analog art is an image file (such as a JPEG) or a short GIF video sequence in NFT art. 

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The JPEG or GIF is converted into an NFT using smart contract technology; this is also referred to as “minting.” 

If an NFT artwork is now banished into digital empty space by a burn, then the JPEG or GIF still exists because of this. This can be converted into a new original NFT artwork at any time – all that changes compared to the original NFT artwork is the date.

Since certain consequences are attached to the concept of originality in art law, print copies of original artworks are also regularly destroyed after a certain number of art prints have been printed, in order to ensure that they are limited. 

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However, artwork can never produce an original real work of art, but always only a reproduction. The JPEG or GIF template of an NFT artwork can produce new original digital NFT artwork any number of times, which would be visually indistinguishable from the first original. Unless you apply the old logic to the new art scene and destroy the digital templates as well.

Getting Rid of the Meta-Data

Even if you can strand an NFT artwork, just like any token, in the vastness of digital space, you will never get rid of the meta-data about its transaction history. This is because it is stored on the indestructible blockchain technology behind it. 

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It is precisely this circumstance that makes NFTs so interesting from a copyright perspective. The history of the legal relationships to an NFT can thus be traced back to its creation. In addition to the transfer of ownership, the transferred rights of use can also be stored directly in the NFT artwork. 

A participation of the author in resales, so-called “royalties”, can also be provided for, similar to resales on the art market, within the framework of the resale right under copyright law. 

These are also integrated directly into the NFT artwork as a condition. After a corresponding rule is programmed on the blockchain for resales, a resale without participation is no longer possible at all, and the NFT author receives his or her royalties paid out automatically.

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Incidentally, due to the immutability of the blockchain, the data protection principle of data minimization must also be observed in every transaction, including the transfer of an NFT artwork: As little personal data as possible is to be stored in the transaction. 

Deletion of names or other identifiable information is no longer possible after the fact, and must therefore be considered for the future.

As these brief legal reflections on possible digital issues show, art law seems to be no more made for the NFT world than the various legal norms applied in art law were originally made for art. 

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The NFT art scene will therefore continue to open up new art law issues that will need to be discussed in the coming years.

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