Legal and tax reform avenues are emerging to better take into account the specificity of NTFs in terms of works of art.
It is a former gold foundry, located at the gates of Paris, in the commune of Ivry-sur-Seine (94). In this commune in the Val-de-Marne, a department known for its active urban art policy, the French artist Pascal Boyart has erected a monumental work, a fresco which required 5 months of work. The subject of him: a modern reinterpretation of the Sistine Chapel. The work covers almost 100 m² and consists of more than 400 characters. The main fresco is 8 meters long.
Cryptocurrency sponsorship for the Sistine Chapel in Ivry-sur-Seine
In this commune of the Val-de-Marne, where the big names of the Street art left its mark on the departmental panorama, the creation of this monumental fresco was made possible by a sponsorship in cryptocurrencies (Bitcoins-BTC and Ether ETH) of 20,000 euros. “Michel Angele was able to paint the Sistine Chapel thanks to the patronage of Pope Julius II. Today we had the opportunity to write history thanks to this patronage of the crypto community for this modern chapel”, clarified the artist. This sponsorship operation entitled the donors non-fungible token (NTF) these crypto-assets that have gradually established themselves in the art market to seduce artists, dealers and institutional players. NFTs correspond to lines of computer code that refer to virtual works. Blockchain technology guarantees its authenticity and traceability. The NFTs attributed to the twelve clients represent parts of the work in digital version. These patrons, including the founder of the tricolor start-up Ledger, Thomas France or the great NFT collector WhaleShark, therefore have digital versions of the fresco, the physical version of which is not intended for sale. The Underground of the Sistine Chapel also corresponds to 404 NFTs, all unique editions and representing one of the characters of the Last Judgment.
NFT, a response to the ephemeral nature of urban art
The artist is not at his first attempt. Faced with the often ephemeral nature of his works, a problem that runs through urban art, the artist imagined giving them a second life by “tokenizing them in the form of NFTs on the Ethereum blockchain, which transforms them into unique digital collectibles. and long-lasting,” he explains. Born illegally, urban art has a rather particular statute, since in the absence of the consent of the owner of the walls, the works that appear there are in reality constitutive of the crime of deterioration of the property. Under Article 322-1 of the Penal Code, these inscriptions, signs and drawings are punishable by a fine of 3,750 euros and a community service penalty when the result is only minor damage. If urban art appears in the biggest contemporary art fairs, if its greatest artists enjoy worldwide fame, this part of illegality remains. As a result, high-quality frescoes can be canceled without the artist being able to object. “My murals are often erased, ironed, tagged after a few weeks. Or even worse: censored! This was especially the case with Liberty Leading the People 2019 which was canceled after three weeks at the request of the Paris Police Headquarters and the 19th century Mayorand arrondissement”, sums up Pascal Boyart.
The new possibilities offered by cryptocurrencies
The artist initially imagined monetizing his frescoes painted on the street using the new possibilities offered by cryptocurrencies. Thanks to the QR codes affixed to his murals, he was able to receive more than 1.21 bitcoins in two years of unauthorized murals, from 2017 to 2019. The support of these multiple donors has encouraged him to continue on this path. In January 2019, the artist staged a scavenger hunt for $1,000 in bitcoin contained in a riddle hidden in a mural: Liberty Leading the People 2019. Then Pascal Boyart became interested in digital collectibles created by the Ethereum standard ERC721. “These NFTs make it possible to introduce scarcity into the digital world, which gives real value to the virtual,” he sums up. But he is faced with a major problem, in addition to the potentially ephemeral nature of his physical artworks of him, the artist therefore does not see how to “associate a physical artwork with a digital collectible. These two objects not being connected in any way, one could take on more value than the other. We had to find a way to make my frescoes immutable by giving them a concrete value, he continues. Thanks to NFTs, the problem of associating the physical object and the digital object is solved because the mural work has a limited duration, while the digital collector’s item is imperishable! This allows all those who support me (donors, collectors, patrons, etc.) to be able to collect my mural works even if they physically no longer exist and to give them a second life”.
A series of murals transformed into NFTs
This reflection led the artist to create his first two NFTs, which together form a complete fresco titled Dad, what is money?, the first real and ephemeral work to be tokenized into a digital collectible… In addition, this work has symbolic value because it is the first mural with a Bitcoin QR code to receive donations. The original fresco was made in November 2017 in the XIXand arrondissement of Paris, at the intersection of rue Riquet and rue d’Aubervilliers. It is still visible, even if the QR code has been deleted. This fresco was followed by many others, such as for example Rembrandt corneredin 2018, on the rue Riquet bridge, 75019 Paris Where is it Delacroix against the ECB. Made in August 2018 at L’Aérosol, 75018 Paris, today the fresco no longer exists, etc. Same observation for the desperate made in 2019 rue Orderer in Paris. The fresco of Thoughts of the Scarlet Goblin was produced in 2019 on rue Montmorency in Paris and The Raft of the Medusa in 2020 on the roof of the former gold foundry, in Ivry-sur-Seine.
What regulation for NFTs in the arts sector?
The growth of crypto-assets in the art sector is spectacular. The NFT market reached $250 million in 2020, growing 29% year-on-year. The art segment accounts for 24% of the market share, with a growth of 280% between 2019 and 2020, it is particularly efficient. Christie’s sold more than $150 million worth of NFT works in 2021. In this market, sale prices are reaching unprecedented levels. Recall that in March 2021 the work of an American graphic designer known as Beeple rose to 69 million dollars, upsetting the balance in the art world and making an unknown the third most expensive living artist after Jeff Koons and David Hockney. This record has surprised and revealed the importance assumed by these little-known assets in a market weakened by the cancellations of international fairs and exhibitions, under the influence of the health crisis. However, digital assets in the field of art raise a number of specific issues, in particular as regards the economic rights attached to a work of art and their tax regime.
The conclusions of the CSLPA
The Superior Council of Literary and Artistic Property (CSPLA) has launched a mission aimed at identifying, analyzing and evaluating this phenomenon in its various legal aspects under the prism of literary and artistic property and in the interest of the various stakeholders and its market. The mission reached its conclusions last July. In concrete terms, the acquisition of an NFT corresponds to the acquisition of a token registered on the blockchain and associated with a smart contract which links to a digital file, explains the mission. In law, the NTF “remains very difficult to qualify precisely. It is not entirely comparable to a token as defined by the Monetary and Financial Code, although certain characteristics justify its assimilation for the purposes of applying fiscal or financial regulations, nor, except in exceptional cases, to a work of art pursuant to of the art. Intellectual Property Code, s smart contract not being able, in the state of observable technical capabilities, to contain the underlying file in the blockchain at a reasonable cost, nor with a certificate of authenticity, in the absence of any third party verifier of the authenticity of the associated file or of its authorship”, considers the mission. He proposes to consider it as a deed of ownership on the token registered in the blockchain, to which other rights on the digital file to which it points can be associated, the object, nature and entity of which vary according to the will of its issuer expressed by the technical choices and possibly legal related to smart contracts.
NTF in the cultural sector
For the mission, these crypto-assets present many use cases, which constitute an opportunity for the cultural sector as a whole. To take full advantage of it, however, a number of sensitive legal and technical points need to be clarified, particularly in the field of intellectual property. From a legal point of view, the NFT phenomenon indeed raises new questions relating to intellectual property, the ownership of rights, their management methods, the applicability of the resale right and its possible automation by smart contracts, the application of this technology to public collections which are characterized by their inalienability, the applicable financial and tax framework, the status of the platforms and the possible applicability of consumer law to their activity. As far as intellectual property is concerned, it clearly appears that the purchaser of an NFT is not necessarily the owner of the economic rights connected to the digital file associated with it, except for the contractual transfer or licensing of the rights. That means he can’t first not to carry out any act of exploitation of this work or to prohibit third parties from carrying out such acts, concludes the mission. For the CSLPA, the creation of an NTF does not preclude the application of the resale right, if the legal conditions defined by the Intellectual Property Code apply. The JNFs do not operate in a legal vacuum. By default, the protected files they point to remain subject to copyright and related rights. Barring exceptions, JNFs are therefore not automatically transferred with all rights associated with such files.