NFT Overview

Collins dictionary called “NFT” the “Word of the Year” for 2021.

Beeple’s “Everydays: The first 5000 days” sold for $69 million dollars in 2021.

• Brand NFTS, think Metaverse

• NFT gaming (Play to Earn games)

• Fractional NFTs - fractional art ownership

• NFT TV - funding the production of a film or series

• Music NFTs - improve revenue for artists

• NFTs are a way to make digital content unique & give it a history

• Using a dollar to talk about fungibility - indistinct, interchangeable, etc.

• NFTs provide proof of ownership and it guarantees scarcity. The scarcity is really the key part. If you want to sell something that exists only digitally, the problem is that all things digital can be infinitely copied. NFTs don’t stop the copying. But they allow you to distinguish the copies from this one, notional “original.” And they prove, through the ledger, that you own it.

• DJ 3LAU (DJ Blaow) earned $11.6m in 24 hours

• Spotify revenue is not great for new artists

• Is it a fad?

• The future of the metaverse?

• Selling digitial art predominant current use case

• Possible music, TV, & movie industry disruptor

• The gist of “web3” is all owning & getting paid for content creations.

• It goes beyond copyright for one of a kind digital assets. The digital ledger records the asset history & its creator. (praa·vuh·nuhns). A permanent, unalterable chain of custody.

• Collector items with verifiable scarcity

• A perfect vehicle for verifying the authenticity of collectibles

• In 2020, NFT sales were $825m

• In 2021, NFT sales were $17.7b

• Brands adopting - Nike bought a virtual shoe company that creates “shoe NFTs”

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• NFL super bowl tickets

• The National Football League has announced new opportunities for fans to receive virtual commemorative tickets in the form of non-fungible tokens (NFTs) to celebrate Super Bowl LVI in Los Angeles on February 13, 2022.

• The National Football League (NFL) and Ticketmaster are expanding their non-fungible token (NFT) ticketing initiative and will offer free commemorative digital tickets to fans who attend one of 100 selected games in the 2022 season.

• VC investments in blockchain startups skyrocketed 600% in 2021 to almost $15 billion. The growth of cryptocurrencies and blockchain technology in 2021 also attracted significant investments in the sector as venture capitalists continued to pump more money into the space.

• Others say “$25b”

• People spent $40b on NFT marketplaces in 2021

• Actual licensing terms? what ownership you have legally? Intellectual property law. Artist retains the copyright and reproduction rights…

• Rampant copyright infringement is an ongoing problem in the space.

• Securities law

  • Current NFTs probably are not

  • NFTs which give you a share of future profits

A widely accepted definition of “securities” stems from a 1946 Supreme Court decision, S.E.C. v. W.J. Howey Co.[2]  There, the Court explained that, while the Securities Act of 1933 does not offer a singular definition of security, the definition includes terms like “investment contract” or “certificate of interest or participation in any profit-sharing agreement.”[3]  The term “investment contract,” in turn, was not defined by the Securities Act, but the Court relied on its historical use to deduce the following meaning: “[A]n investment contract . . . means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the effects of the promoter or a third party.”[4]  The Court specified that it was “immaterial whether the shares . . . are evidenced by formal certificates or by nominal interests” in the enterprise.[5]

The SEC has issued a Framework for implementing the Howey investment contract analysis on to digital assets.[6]  The Framework explains that digital assets may be investment contracts where users (1) exchange some form of currency or consideration for the digital asset; (2) engage in a “common enterprise” through the digital asset; and (3) have reasonable expectations of profit derived from others’ efforts.  As to the last factor, the Framework lists several different characteristics of digital assets that could make them more likely to be investment contracts.  No individual factor is determinative, but generally, the more these factors are present with regard to a digital asset, the more likely it is that the asset would be an investment contract.  For example, one listed characteristic is that a digital asset is “not fully functional at the time of the offer or sale,” and purchasers would reasonably expect a sponsor, promoter, or other third party (often referred to as an “Active Participant”) to “further develop the functionality” of the asset.[7]  Another listed characteristic is that the digital asset is “transferable or traded on or through a secondary market or platform, or is expected to be in the future.”[8]  As discussed in a previous Securities Litigation Insider blog post, based on Howey and the Framework, the SEC has taken the position that cryptocurrencies may constitute investment contracts.[9] 

• Money laundering by purchasing your own NFTs

McDonalds

Nike

Christie’s

Gucci

Marvel

Wayne Gretzsky

• Beeples Everydays: The first 5000 days sold for $69m in early 2021. graphic artist Beeple becoming the third most expensive living artist to sell at auction. So some art gets its value from displaying its labor. Beeple’s work is an insane performance of labor.

• Pak is another NFT artist

• Banksy

• For those who are more sceptical about adding New Media works to their investment portfolio, this opens up the possibility of certifying proper ownership over the work and claiming genuine “scarcity”. This reassurance could help digital artists break into a market that relies on originality and authenticity.

• Wait, can’t you just copy and paste a piece of Digital Art and claim ownership? Technically yes, but the argument for NFTs is that they enable artists to verify originality. You could download a picture of the Mona Lisa on your device, but the painting that hangs in the Louvre is still worth millions. In the art world, owning the real thing still holds value.

• All you need to do is place money from your illegal side-hustle into a delegitimate business, counterfeit art collection, or more recently, ludicrously overpriced digital art.

  So instead of paying the taxman you pounce on the latest and greatest NFT craze. You buy an NFT from yourself — if you can believe that — for whatever price you set.

  If you have $1 million in illegal money, you would spend $1 million on your own NFT.

• It could possibly be even easier to move dirty funds around because it is tied to a decentralized currency and the fact that there are no physical artworks to have to transport or store in off-shore tax haven warehouses.

• For these reasons, the NFT scene is likely to attract the attention of regulators and tax authorities, according to both. Mr. Whale stated he has no doubts that governments will end up cracking down on this trend, adding, “While there are a number of NFT exchanges without KYC/AML regulations, this will definitely change in the future.”

• Artists - can unlock a new way to fund your work

• Buyers - a way to support the artists you love

• Collectors - NFTs can work like any other speculative asset, where you buy it and hope that the value of it goes up one day, so you can sell it for a profit.

• Connecting NFTs to real world objects with clear legal support

• The NFT isn’t necessarily the artwork itself, but it can function as a digital certificate of authenticity for the work. The NFT allows a creator to name a rightful owner of a file, giving them the rights to present, access or resell it. 

when you say NFT you’re referring to an entry on the blockchain. However, the actual media, like the picture, GIF, or flagrant flaunting of copyright law is very rarely actually stored on the blockchain — it’d be too expensive to do that.

Sometimes the media the NFT points to is stored on a cloud service, which isn’t exactly decentralized. Since this has come up as an issue, with people worried that their NFT proving they watched the Lions lose could go poof if one company goes under or changes their URL scheme, many in the NFT space have been turning to decentralized storage solutions like the InterPlanetary File System that use torrent-like technology. It’s not bulletproof, but it’s better than having your million-dollar JPG stored on Google Photos.

• NFT marketplaces, after all, are far more inclusive of newcomers than the art establishment, and there are plenty of platforms where artists are able to connect with buyers directly.

• The direct-to-user nature of NFT sales means that artists can get real-time feedback from the market on their work. For emerging artists who are looking to build up a base of support from local and international collectors. The opportunity to adjust to the market can save vital time and resources and pocket profits without the need for a middleman.

• opportunities NFTs can create for underrepresented groups such as women artists, giving them a platform for direct audience engagement. This helps them break the glass ceiling in a market that has long overlooked and undervalued their work. 

• NFTs are “giving me complete ownership of my digital work for the first time,” he said. “So it’s incredibly liberating and empowering.”

• NFTs are particularly revolutionary for digital artists, whose work has long been overlooked because it is easily replicable and difficult to monetize.

• Decentralization means artists don’t need to flock to art hub cities. And the elimination of middlemen encourages artists to elevate one another rather than schmooze insiders at cocktail parties.

• Bored Apes and CryptoPunks

Registering an NFT on the blockchain

• a $4 sale in 2014

• jokey, memes, punk attitude

• anarchic spirit and unrefined aesthetic has defined crypto art

There is a massive oversupply, collector saturation and self-dealing in the [NFT] industry. No one will buy the thousand+ NFTs each of us have bought. There will be no liquidity on the way down. Make sure you do your research.

• A quarter of the galleries from Artsy’s survey reported that they plan to sell NFTs in 2022, which is a 150% increase from the number that said they actually sold them in 2021. There are encouraging signs for artists, too: Of the galleries that are already selling NFTs, 58% said they are interested in seeking ways to provide artists with smart contracts that grant royalties for the resale of their work.

• A big part of the dialogue between the gallery and the collector is: How do you present the work?

• just over a tenth of the 873 respondents said that they had sold NFTs in the last year. Artsy’s survey also suggests that the value of most NFTs sold in galleries may be more modest than the headlines suggest: Of those that sold NFTs, only 5% of galleries said the works’ prices totaled over $250,000. The majority (51%) of galleries sold less than $5,000 worth of NFTs.

• While the gallery has been helping (or “hand-holding”) its regular collectors through the intricacies of purchasing NFTs, there was also movement in the other direction, she explained: “Verso gives us an opportunity to engage with collectors from the crypto side that we would like to convert into more traditional art collectors. In theory, it’s no different from client development, trying to learn exactly what they like and what they may want.