FOUR LESSONS OF CRYPTOART

Sebastian Posth
7 min readJun 6, 2021

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This post is a section taken from a presentation that I gave on the 26th of May 2021 at the Unversity of Hagen with the title: “The Digital Sovereign in the Age of Cryptography”. See the full post on my website: https://posth.me/the-digital-sovereign-in-the-age-of-cryptography/

If you had spent the last few months on a desert island, you wouldn’t believe it. But for some months now, the crypto world has been discussing art. A real hype has arisen around the tokens of the Ethereum blockchain, which are used in the so-called cryptoart and have recently been traded in the auction houses and galleries of the world.

You may remember that four years ago, there also was a lot of buzz around the topic of NFTs — triggered at that time by colourful cat pictures. Around the turn of the year 2017/2018, auctions of tokens assigned to cryptokitties were sometimes responsible for 10% of the total trading volume on the Ethereum blockchain. Some NFTs were sold for up to USD 200,000 — bargains by today’s standards.

The First Lesson of Cyptoart

Let’s take a closer look at how the whole thing actually works. For this purpose, we will visit the currently largest and best-known marketplace for NFTs called: Opensea. Opensea is not only an auction platform, but also a digital gallery. This means that all sold NFTs are listed on the platform and can potentially be resold. Above, you can see the Cryptokittie linked to the NFT I own.

So the first lesson of cryptoart is to understand that the artwork on the one hand and the token on the other are two different things. In the public discussion, this distinction is often ignored. The NFT is not the work of art, but only — and how could it be otherwise — the non-fungible token, an identification number in a smart contract. The artwork represents this identification number. And since the ID is unique, it must also be the artwork that stands in for the token. On the platforms, the work is described in more or less detail by properties, attributes or metadata that — in this case — distinguishes my cat from other cryptokitties.

The Second Lesson of Cyptoart

Further down on the website, you will find the complete transaction history of the NFT: from the creation of the token, to the listing on the auction platform, to the transfer of the NFT to my personal wallet after the successful auction — all steps are transparently documented.

The listing details also include the address of the smart contract on the Ethereum blockchain and the identification code of the individual token stored in the smart contract. Clicking on the link takes you to the explorer of the Ethereum blockchain.

There, you can examine the smart contract and find out who owns the NFT, for example. In this case, the address you see here is my personal wallet address, the ID of one of my public keys of my Ethereum wallet. If I now publicly acknowledge this wallet address, it can be cryptographically verified that I authorised the payment for the purchase of the cat token by signing it with my private key. This signature was included in the list of transactions of a block — as described before — and this block was recorded in the blockchain. As long as I now have control over my private key and do not transfer the token to a third person through another signature, I am in possession of the token.

The second lesson of Cryptart is to understand that I have become the holder of the token through the signature of a third party, but that this possession only lasts as long as I have the power of disposal over the token and as long as I do not transfer it through my signature. Possession is defined in the German Civil Code (BGB) as actual control of a thing (“tatsächliche Sachherrschaft”), which is acquired through “actual domination over a thing” (“tatsächliche Gewalt über eine Sache”).

But is the possession of a token on the blockchain subject to property law, at all? Can the control of a token be called ownership, considering the fact that a holder will lose this ownership when he factually and cryptographically loses control of the token! Does it therefore make any sense at all to speak of “possession” and “ownership” in a legal sense, or is this not rather a new legal category that is emerging there, based on technical factuality? These are the relevant questions that the community will have to address in the coming weeks and months.

The Third Lesson of Cyptoart

Here is an example of another artwork on another platform: Superrare. Through the history of the bids you can see how desperately I tried to bid for the NFT. But the current holder did not want to sign the token over to me. It is interesting that the technology for the auction, the payment and the transfer of the token are not exclusively bound to the respective platform, but are provided by the blockchain. The fragile bunny is therefore listed on several NFT auction platforms, and every bid and every transaction is visible on all platforms at the same time. The payment of the artists takes place — at least in principle — directly and immediately, peer-to-peer between buyer and artist.

All the information needed to list the NFT, i.e. metadata, licence information, sales commissions, is either stored in the smart contract of the token itself or linked in it. In this example, the link in the smart contract leads to metadata stored on IPFS, the Interplanetary Filesystem, a decentralised hosting platform for any kind of data or files. This is also where the URL to the actual artwork can be found, which in this case is also stored on IPFS and can be downloaded from there. It may come as a surprise to see the artwork presented here in high resolution without any technical hurdles or restrictions.

So the third lesson of crypotart is to understand that it is not the digital artwork that is the rare collectible, but the NFT. As with fungible tokens, the value of the NFT is generated by the limitation of the total quantity of digital tokens. On the perceptual level of the artwork, on the other hand, this scarcity is referred to by the fact that it is ubiquitous. The cryptoart of the 21st century is meant to be seen and shared. Its value is generated precisely through the public display of the artwork — in digital and physical museums and galleries. With the token on the blockchain, its holder acquires “bragging rights”, so to speak, and the more publicly and prominently the artwork is seen, the more exclusive the possession of the corresponding token.

SuperRare Museum on Decentraland

From an economic perspective, the legitimate question arises as to whether the model established in the visual and fine arts of the scarcity of non-fungible tokens with simultaneous public distribution of the digital artwork is also suitable in economic terms for the media formats of those industries that do not aim at collector’s items but at a mass market. This is because the value of the content of the entertainment or information industries is not generated by the free, public provision of the actual content, but rather by the restriction of the possibilities of use of a content before the actual licensing.

The Fourth Lesson of Cyptoart

And this is where the fourth lesson of Cryptoart immediately follows: Even though an controller of a token on the blockchain may brag about the corresponding artwork, the possession of the NFT does not mean that he has thereby automatically acquired all rights to the artwork! From a structural point of view, we are dealing with two different domains or legal systems: a technical one, which cryptographically establishes the actual possession of the token, and a copyright one, which is regulated by a licence agreement. From a technical point of view, no one is usually prevented from using digital artworks on the digital auction platforms in every conceivable way. But of course, copyright also applies to the artworks that represent a token. What the holder of the NFT is allowed to do with the corresponding artwork is also traditionally regulated by a licence agreement. This is drawn up by the creator of the artwork himself or by the auction platform and is at best linked in the metadata of the NFT. How this important link between the artwork and its terms of use can be established in cryptoart is the subject of discussions and proposals for the first standards in the community, but in practice they have not yet become uniformly accepted.

NFT vs. artwork

So how do I reliably find out what I am allowed to do with a digital work? This question arises completely independently of whether a digital content has been assigned an NFT or not. ‘How can I use a digital work?’ is, so to speak, the cardinal question of copyright law that arises again and again in digital times when politics, law and technology reinvent and readjust themselves.

Currently, the question is gaining importance due to the new European Directive on Copyright … Read further: https://posth.me/the-digital-sovereign-in-the-age-of-cryptography/

Twitter: Sebastian Posth

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Sebastian Posth

Building Liccium Trust Engine @liccium – digitally sign your original creative works — director @iscc_foundation , convenor ISO/CD 24138