Cryptographic Art and NFTs: Reflections on NFTs as a Mechanism for Distributing Artworks

Author: Xiyu, The Path of the Metaverse

This article provides a broad overview of the recently emerged field of "crypto art," including the use of "non-fungible tokens" (NFTs) as a mechanism for distributing digital art.

Limited Edition Tokens

NFTs, or the tokens I will refer to, can be understood as unique digital objects that can be collected and transferred from one user to another within cryptocurrency networks. Under the umbrella of crypto art, they typically represent a media file, a piece of software, or some artistic concept. These can be released to collectors in limited quantities, accompanied by cryptographic signatures that can be traced directly back to the artist's origin.

All of this is very similar to signed inkjet prints made from digital media. For example, consider an artist selling limited edition prints that represent some of their digital artworks. The artist chooses an arbitrary edition size (1, 5, 50, etc.), commits to not distributing more than this number, and signs each print, as if to say, "This item is special." If the work is highly valued, others may seek to purchase and own it, and perhaps the item will eventually be acquired and managed in private and public collections.

Yazid's incubation form on Hic et Nunc (https://hicetnunc.art/yazid)

However, the objects that have been coveted and built around over the years are not merely prints of media or images, but rather signed artifacts distributed by the artist in limited capacities. A concrete example is Ansel Adams' signed photographs, which can sell for hundreds of thousands of dollars at auction, while unsigned photographs of the same image sell for only a fraction of that cost. Jack Rusher elaborates on this in his own article about crypto art.

Scarcity and Abundance

An interesting aspect of crypto art and a common target of ridicule is that collectors are acquiring abundant artworks available on the internet, which can be freely accessed in full resolution for viewing and downloading.

It can be observed that the economic value of art has historically been tied to the scarcity of its medium. Crypto art proposes a different paradigm, separating the signature (the artist's signed token) from the artistic media (images, photos, animations, concepts). This allows the former to maintain scarcity and unique transferability, while the latter remains abundant and widely used.

Signatures and Artistic Media in Limited Edition Tokens

While this is a polarized paradigm, it is not entirely novel; similar ideas exist in the distribution and acquisition of conceptual works, such as Sol LeWitt's wall drawings. In these cases, what is "owned" and transferred (acquired by collectors, museums, institutions) may simply be a certificate of authenticity for the signed original. We can see crypto art in a similar way: the tokens that are distributed and traded are not files, but more akin to certificates of authenticity signed by the artist, each certificate conceptually linked to a specific media, artwork, or idea.

A common saying is that tokens impose "artificial scarcity"—though one could point out limited edition signed prints, which have the same artificial and arbitrary scarcity, especially if they are produced via inkjet printers and certified with pencil signatures. Prints can and often are forged and replicated, sometimes in ways that are indistinguishable from the original (see MSCHF's recent possible authentic copies of Andy Warhol's "Fairies"). In contrast, replicating a token contract, even if done by the artist, generates an entirely new identifier and "hash" (a string of numbers and bytes), and records a clearly distinguishable provenance and history on the blockchain. Of course, this does not mean that crypto art is immune to counterfeits—there are many fakes, and careful due diligence is still required. For example, poorly designed interfaces, similar tokens, and convincing artist impersonations can lead to regrettable purchases.

Alternative Options

These ideas may raise the question: Does art really need elements like scarcity, signature authentication, and ownership? The answer is no: many artists give away unsigned open edition prints, build public installations that cannot be owned, and release their works online for free viewing by all. However, due to the general lack of widespread support for arts nonprofits, public institutions, and government funding, most artists must seek alternative distribution and monetization models if they wish to sustain their artistic practice as a professional endeavor.

Some of these alternative options include Patreon, Etsy, Gumroad, Kickstarter, Shopify, etc. These have collectively helped artists sustain their practices, but there is no panacea; for many artists, income from platforms like Patreon is often insufficient to cover rent, let alone debts, family care, and other living expenses. More importantly, most of these platforms push digital artists toward physical media that may not always align with their skills and preferences—does it really make sense for a performance artist to open a print shop and sell physical and static representations of their work?

Perhaps we could "just pay the artist," meaning "donate to them without expecting anything in return." This is a noble ideal, but so far it has not materialized, and most who tout this phrase do not regularly donate to artists themselves (ironically, they may be purchasing signed works from artists or commissioning them, thus engaging in a transaction expecting some return).

This is not to say we should abandon public funding; if systemic changes occur and governments around the world universally pay annual salaries to their artist citizens, we may not need any of these digital private funding art and creative markets. Beyond government reform, a more universal way to support artists could be through arts nonprofits—this is a common goal of crypto art. In its first year, Art Blocks' artists and collectors helped direct approximately $45 million to various nonprofits, many of which are art-related (including Rhizome's largest single donation in its 25-year history).

Ownership and Property

A common point of confusion lies in copyright and intellectual property ownership. Just like purchasing a signed print, buying a signed token does not transfer copyright or licensing. Unless otherwise stated, copyright and licensing remain the property of the artist or anyone licensed to distribute that content. Different tokens may carry different licenses; some are effective as CCO in the public domain, others may be free for non-commercial use, and some attempt to bind copyright to the token holder (licenses that have not been tested in court).

It goes without saying that purchasing a token does not make you the "owner" of any specific media file that the token may represent or point to. As mentioned, that media can be abundantly accessed online, and anyone can "right-click save" the file. In fact, most tokens pointing to media files will use a technology called IPFS, which aims to preserve and distribute files across as many computers as possible to mitigate reliance on central points of failure.

Gpitombo's generative artwork Bougainvillea on fxhash (https://fxhash.xyz/gentk/slug/bougainvillea-29)

However, perhaps ownership can be proposed around the "ownership of the artwork." This is only correct if we first acknowledge that conceptual art can be owned, just like LeWitt's works, and that these tokens can conceptually represent some degree of artistic significance, rather than merely being file pointers and digital collectibles. This is a contentious issue: some readers, artists, and collectors may reject the idea that conceptual art can or should be owned. The most popular crypto art markets are filled with flashy apes, bears, penguins, and nearly every other animal—often without any real attribution to artists—which does not help this case.

At the very least, it is generally accepted that collectors do indeed own the tokens themselves, and some may view them as the unique record in a distributed database, akin to being the sole owner of a domain name with the right to transfer and sell that digital property (notably, some NFTs are domain names, specifically for use within these blockchain protocols).

A Novel Distribution Mechanism

All of this necessitates a potential new mechanism for artists to distribute digital art and for appreciators to acquire and collect it. Note that I am generally referring to digital media—animation, generative art, photography, illustration, graphic design—I feel that these digital tokens are less suited for certifying, distributing, and transferring physical artworks (like oil paintings or sculptures).

In practice, the mechanisms of crypto art differ significantly from other online distribution platforms, with many advantages and disadvantages. On Hic et Nunc, an ecosystem built on the energy-efficient Tezos blockchain, artists can pay a small fee (e.g., 0.06 XTZ, approximately $0.24 at the time of writing) to "mint" their works on a public ledger with fixed edition sizes. Artists sign transactions using the private key of their crypto wallet, which allows the tokens to be traced back to them. Then, for each sale, the platform charges a 1% fee for its services.

Artists can set royalties on the tokens, typically between 5-25%, allowing them to earn a permanent income each time the token is traded on the platform's secondary market (and potentially appreciates). In some other markets, royalties can be allocated to multiple beneficiaries (for example, a percentage of royalties directed to nonprofits or OSS tools).

It is worth noting that many primary market sales on Tezos range from 1-50 XTZ, with prices often not much different from purchasing limited edition prints from your favorite artist. Mainstream reporting often focuses only on high-value and eye-catching sales, which can distort perceptions of the market.

Tezos' fee structure is vastly different from the standards and norms of traditional art and creative markets, where galleries typically take a 40-60% cut from each sale, and artists often receive no royalties at all in the secondary market. This also far exceeds the fee structures of distribution channels like Bandcamp (14-21% fees), leading some artists to attempt to use Hic et Nunc as an alternative music distribution platform.

Experimental music distribution platform built on Hic et Nunc (hen.radio)

In some cases, artists in the field have been able to completely bypass these platforms and their services, building custom smart contracts and distributing directly to interested collectors in a peer-to-peer manner. Examples include Rhea Myers, Mitchell F. Chan, Sarah Friend, Deafbeef, Andrew Benson, and other artists (some of whom have been exploring blockchain-based art for years).

Borderless

An important aspect of crypto art is that it is somewhat borderless; it is important to note that individuals participating in cryptocurrency networks are still subject to the laws and regulations of their countries (e.g., paying taxes on crypto art income).

The distributed and global nature of platforms like Hic et Nunc allows crypto art to thrive worldwide, enabling artists and collectors to exchange artworks and value using a single shared currency, recorded on a shared ledger not supported by any specific jurisdiction. This is significant: not every artist prices their work in their local currency and market, but rather prices it in a globally shared market. It is difficult to measure the segmentation of artists by country, and it varies by platform, but some informal polls from Hic et Nunc can provide us with insights.

Unfortunately, this does not mean global equity: sales are often concentrated among artists from the West (often white males), which may be due to a range of reasons, including access to hardware and education, language and technical barriers, popularity on social media, discrimination, and the sales-centric network interfaces that continue to exacerbate inequality. Galleries, curators, record labels, and other channels are springing up to address some of these issues and open interfaces (pop twig, alterHEN, JPG), achieving varying degrees of success.

Platforms like Feral File take a different approach to these completely open markets by designating a curator for each exhibition and highlighting various artists and artworks, rather than amplifying the whims of potentially biased crowds.

Decentralized and Permissionless

It is worth noting that most crypto art is built on two unique properties of blockchains: these networks are decentralized and permissionless. That is, no single participant controls the shared ledger, and any user can record transactions as long as they pay a fee. This is a double-edged sword.

On one hand, it can help eliminate reliance on centralized services and intermediaries (PayPal, Instagram, auction houses) and give users greater ownership over the assets they are distributing and collecting. This has proven effective when Hic et Nunc itself was shut down in a fit of anger by its owners/developers, but the ecosystem, its assets, and its many branches were essentially unaffected. This is possible because distributed media and blockchain records were never owned by the owners from the start; rather, the burden of ownership and maintenance falls on its user community.

The benefits of decentralization can also be seen in the various competing markets on the same chain, such as Objkt.com, Versum.xyz, Fxhash.xyz, and other markets on Tezos, all operating on the same shared ledger, many indexing the same tokens. This allows users to purchase tokens on one market and, if they wish, sell them on another market, or even trade these tokens from one user to another in a peer-to-peer manner without relying on any specific website.

However, on the other side of this double-edged sword, a zero-audit system can lead to rampant spam, illegal content, "plagiarism," phishing, counterfeiting, and other issues. Open markets like Hic et Nunc and OpenSea are often forced to delist and remove content that violates their codes of conduct. This is akin to Google removing your website from its search results—your website still exists and operates normally, but it is not easily discoverable. The auditing and indexing on these platforms is a significant challenge, essentially a game of whack-a-mole, leading many users to prefer curated or established collections.

Not All Chains Are Created Equal

So far, I have primarily mentioned the Tezos blockchain in this discussion, as it has a thriving art community and a range of different markets. This chain is energy-efficient (comparable to any other typical online activity, like using Twitter or writing a blog post) and has extremely low transaction fees (a few cents, sometimes a fraction of a cent), making it a great core discussion point for the potential future of crypto art.

I do not believe Tezos is a perfect blockchain, but these two points make it worth considering as an option for crypto art, while Ethereum is working to improve its energy and scalability issues through proof of stake, sharding, and zero-knowledge rollups. Determining which chain is best for artists is complex; for example, while Ethereum's fees are currently prohibitively high, it supports many well-tested algorithmic stablecoins that can help mitigate short-term price fluctuations, and Ethereum's ecosystem and infrastructure are generally more developed than other chains (for example, enabling certain features to be implemented on Tezos may be more challenging).

Personally, I have been using and exploring many different blockchains, as they all offer different applications, areas of research, and their respective pros and cons (for example, Mina is in early development, and its focus on zero-knowledge proofs makes it a very interesting property and use case).

Not All Tokens Are Created Equal

It should also be understood that not all tokens are built on the same protocols and smart contracts. Some of them will use IPFS to host media, while others, like those on Art Blocks, may embed the entire media as software on the blockchain. Artist Deafbeef is an example of an artist directly using on-chain media and programmable smart contracts, such as Entropy, which is an artwork that "degrades" each time the token is transferred to a new owner.

Other Issues

It is also worth emphasizing some common criticisms of these systems, as they are certainly far from perfect and present various issues for artists:

• Energy: Ethereum is currently associated with high energy usage, directing artists to smaller and underdeveloped networks like Tezos (where energy use is negligible). This may change in 2022 with Ethereum's transition to proof of stake (PoS), which will reduce energy consumption by 99.95%.

• Fees: Ethereum's fees can be prohibitive, sometimes requiring hundreds of dollars to mint artworks. This often pushes actions toward alternative chains and sidechains like Tezos and Polygon (where fees are just a fraction of a dollar). Future versions of Ethereum may improve scalability, but this will take years to fully develop and mature.

• Risks: There are obvious risk factors for artists and collectors. Minted works may not sell, tokens may depreciate, and there are security risks associated with self-custody of private keys (i.e., if you accidentally share your private key online, you could lose all your funds).

• Quality: The complete lack of moderation on some platforms can lead to negative perceptions of the space, as most content minted on markets like OpenSea is of low quality, or even outright spam, pornography, and theft. Flashy avatars, profile pictures, and digital collectibles are often thrown into the vast crypto art mix, with their high sales often attracting mainstream attention.

• Speculation: The extremely high values in many of these markets are often driven by speculation, sometimes leading to FOMO purchases, bot trading, insider trading, and pump-and-dump schemes. Given the vast scale of these permissionless networks, it can sometimes be difficult to distinguish these scams from others.

• Volatility: Tokens can fluctuate significantly in value on a daily basis; users are often encouraged to take profits, hold stablecoins, and avoid holding any value they are not prepared to lose.

Looking Ahead

Given that the mainstream awareness of crypto art only emerged in 2021, it is indeed early days, and the space and technology are likely to continue to grow, evolve, and improve. This requires a range of efforts: better curators, critics, exhibitions, technological advancements, governance, and new trading models.

We are beginning to see these efforts take shape, with independent exhibitions like Digital (Miami, 2021) and Right Click + Save (Singapore, 2021) seriously showcasing this work, while more established artists, institutions, and curators are cautiously testing the waters, including MOMA, OÖ Kunst, ZKM, and Pace Gallery.

The Digital (2021), a pop-up exhibition and event for crypto and generative art during Miami Art Week

There is still a long way to go, as many of the token contracts and technical systems currently established in crypto art are quite primitive. I am particularly interested in the new opportunities for collaboration and automated revenue distribution through these programmable contracts, such as the aggregated sales in Transfer's Pieces of Me (2021).

This article is a fairly elementary discussion about crypto art; it aims to showcase the various interests and communities that have emerged from it and place them within a broader art-centered context. There are countless further discussion points regarding this technology—file storage, governance models, consensus mechanisms, zero-knowledge proofs, and more art that deserves emphasis, discussion, and critical analysis—but I will leave those for future articles.