NFTs and the Law of the Blockchain

The blockchain has changed how art is made, sold and financed, as well as where it circulates, and who its custodians are. Whether it ultimately redefines the traditional ecosystem and economy of art remains to be seen. But it raises one central question: how can today’s experiments with smart contracts help to foster creator-centric economies? 

This conversation brings together three pioneers of art, technology, and blockchain who stand out as uniquely qualified to address this question. Kevin McCoy is a new media artist and creator of the world’s first NFT, Quantum, in 2014 as well as founder of the Monegraph art registry. Rhea Myers is an artist, hacker, and writer whose works interrogate the cultural, legal, and technical underpinnings of blockchain. And finally, Primavera de Filippi is the artist behind Plantoid (2014-ongoing), an autonomous blockchain-based life form, as well as co-author of Blockchain and the Law (2018), which considers the challenges posed by decentralized technology for today’s legal architecture. 

‍Kevin McCoy: My art practice has always been based in media and technology. Starting off with video, with internet-based projects, code-based projects and always working in a collaborative framework. I always saw the art world, for better or worse, as the kind of primary site of the work that I was doing in the nineties and 2000s. That was a very small world because the digital art scene was tiny and even in a place like New York, which is, you know, certainly a center of the art world in a traditional context, the digital arts community was really on the margins. And one of the main issues because of that was an inability to really create and participate in markets. 

And so there were two things that emerged that I think are important to talk about right at the beginning from that fact. One is that the community really bonded together in the absence of a market, there was at least a community. And so there was a strong group of people talking and working together. And then, the extent to which we did participate in the traditional art market that surrounded us was by converting our digital works into some kind of physical analog of some form, you know, some kind of installation or sculptural computer work or some sort of thing, making these kind of hybrid objects. And that’s the background from which I began thinking about this problem of digital ownership, way back, and it led to things that are now called NFTs.

Rhea Myers: So that’s an interesting one, because when NFT enthusiasts — and I think you and I are both more critically engaged with the medium than simply cheerleaders for it — say, “oh, you couldn’t sell digital art before NFTs,” there is someone who assigned a CD of a video loop from the 1990s who is very offended by this [...] prior to the existence of the blockchain. 

The thing that NFTs operationalize is a digital sale of a digital work paid for digitally.

Without a physical intermediary, the NFT is still a proxy. The reason I got so interested in NFTs is precisely because they look very much like conceptual art certificates of authenticity, and that’s now a relatively well-understood model for selling something that you can’t otherwise sell. And for me, the art historical and creative possibilities of it just cascaded out from there.

But you and I did that after some initial experiments on Ethereum in its pre-release state. Ethereum is a blockchain that allows you to create arbitrary code on the blockchain and send transactions to that and execute it in updated states and do things remarkably like NFTs and also remarkably unlike NFTs. But you were more practical than me because I was using a system that wasn’t actually ready yet, and you used, I think, the NameCoin [blockchain] for your NFT experiments. 

‍KM: Bitcoin was my entry into trying to understand this new framework, this new system, and like most people from that time, that was a common entry point. And there was a real struggle or moment of understanding that you would undergo in trying to understand this system to get your mind around this kind of alchemy that Satoshi [Nakamoto, the creator of Bitcoin] proposes where everything is available and transparent. The network is there, the source code is there, the database is there, everything is available, everything is present. Yet, somehow, something can still be uniquely owned by an individual.

That dichotomy of ubiquity and scarcity is what Satoshi created in a meaningful way. And so for me, that seemed like it could be useful for digital artists, both conceptually and experimentally, but it was based on a perceived use value. [...] And the implementation that I came up with was very measured: Like if you take this thing and this thing and this thing and put it all together in the context of a blockchain tradable asset or transaction, then you have something that sure looks like digital ownership and provenance for an artwork. And it was proposed as a kind of social experiment, and I presented it as such in an art museum, in a fine art context.

I think it’s important to recognize that these experiments that Rhea and I are talking about come directly from the art world.

And so in a very meaningful way, this NFT concept — although we certainly didn’t use that term at the time — used art world conventions. Our creations were more artistic and creative inventions than technical inventions.

‍RM: Yes, It’s very interesting for me that you can tie this specific expression of the technology back to these social needs around art-making and a school of art which was marginalized from the market. For me that’s why the technology has worked so well for people who are not already included in art-world economic activity. I’m not saying that’s the only effect it’s had, but the fact that this comes from the art world, that you created this template to answer needs from lived experience, is very powerful. 

From my perspective, it was an interesting creative medium, and I was fantastically surprised when other people thought the same. And then, when real money started changing hands, I felt incredibly guilty and responsible for things that I had done with a sense of play, or, at the very least a sense of irony, several years previously.

The bits of code that NFTs are modelled with are called smart contracts. I do not mean legal contracts. I am not a lawyer. So when you hear me say “contract,” think of a bit of code on the blockchain that you can poke with transactions. And then when people started using NFTs as something that was already there for them to use and to ask people for money, that blew my mind. Because I remember Rare Pepe as a controversial character appropriated by the alt-right but with a much bigger history as a very jokey, very ironic project — making little baseball card-style images of this cartoon character on Counterparty, on the Bitcoin blockchain.

[...] You know, we both watched this drift from play and experiment, answering either real art historical or social and economic questions. And, if I may ask you a question, as someone who had an NFT platform in 2014, what’s changed? 

‍KM: In my case, I presented this notion publicly from the start in a somewhat more utopian era of startup culture. Then my team and I created a platform called Monegraph that was free to use, and another platform arrived soon after out of Berlin, called Ascribe. The only problem was that there were no transactions, no interest at all. And so, I think it’s important to recognize that just an NFT on its own, or the idea of “build it and they will come,” is not true. 

So the phenomenon that we have all experienced over the past 12 months is more than just the technology. It’s a version that was invented and developed independently on the Ethereum blockchain and has benefited from a lot of cultural and community decisions in terms of interoperability of tools and thinking about all of the links in the chain that are necessary from a software standpoint for a functioning ecosystem. This was really the emphasis of the Ethereum community — creating standards and standardization. But the thing that really bootstrapped it, and I imagine you’ll probably agree with me, was the presence of money.

It was the success of decentralized finance in the previous years, 2018 and 2019, which created a large amount of crypto wealth that didn’t have a lot of places to go. That community eventually started channeling it into NFTs because it matched their world view and their technology stack. 

RM: [...] People on Twitter are either true crypto believers or people who thought, “I’ve got a spare hundred bucks, I’ll buy some of this Ether stuff. Wow, it’s now a thousand bucks of Ether, I can’t buy a car with it, but there’s a fun picture of something I recognize and like — I’ll buy that.” And since then it’s grown and grown, and as with anything that grows in the technological world there come growing pains. There was a report recently that people were copying art from DeviantArt to mint and sell. If you’re thinking of doing that, please don’t. Bringing money into anything kind of ruins it for people who view it as a clean space of pure creativity.

‍KM: [...] I think it might be interesting to take a step back and try to define in the most simple terms what you and I think an NFT is in its first iteration. Because maybe there are people who still don’t quite have a model for what that is.

For me, an NFT is metadata. And in the same sense that an image in your camera roll has metadata that is appropriate and important and adds value to the image, an NFT is a metadata record that you’ve constructed that can add utility and value and ownership, perhaps to an image. That’s the foundation that this ecosystem in my mind has been built on. 

‍RM: Yes. I think that’s an excellent point because a lot of people are familiar with the right-clicker meme where people say, “Hey, I can right-click on your NFT and download it, haha, now I own it.” It's like, “No, you don’t. But I understand why you think that.”

I almost reverse your description of an NFT, which, for me, is a meaningless identifying number that you can hang things on. And the thing that everyone hangs on it is metadata.

And because the metadata is hung on this meaningless serial number, or addition number, the number can be moved between accounts using cryptographic signatures. Let’s take William Gibson’s description of cyberspace as a “consensual hallucination.” We can all agree that if you move this identifier from one account to another, using the right cryptographic keys, it actually does represent some sort of transfer of ownership and the metadata associated indicates what you have some sort of ownership of. As artists, we love playing with that until it becomes ambiguous and then the lawyers get involved and we have very strange conversations, [...] with people confusing copyright with ownership of art. 

‍Primavera De Filippi: Back in 2015, we did this pilot where we enabled artists coming to our website in order to collect the metadata that they could add onto. We enabled them to register the work on Skype as a way of enshrining the fact that this work is indeed licensed under a Creative Commons license. The interesting thing is that, when discussing with people who have been involved in the open culture and others who’ve just joined the movement, they initially see the NFT as something that is against the values of the Creative Commons because it’s creating this kind of exclusive property right over a particular digital copy. I always find this very interesting because not only are you creating intellectual property, but actual property — a digital instantiation of a work.

I see this double-click problem as fantastic, because people can click and download works, and yet they are not impacting the economic incentives for people to create works. And so to me, in some way, the NFT is almost like the most beautiful present, a beautiful gift that the blockchain community has given to the Creative Commons communities because it’s actually providing a business model for artists that does not rely on the restriction of copyright. 

Until now, as a digital artist, licensing your work was how you could attempt to monetize it. Whereas now you can actually release your work via the complete, extremely permissive Creative Commons license, and yet you can monetize the sale of the copies so that anyone can freely reproduce those works. So I think that there is still this kind of cultural thing, where people think: “Oh, NFTs cannot work because I don’t own the work and the work is still available on the internet.” 

But actually, the benefit of NFTs is that we can now freely communicate content and the monetization happens simply because some people want to own the authentic original, rather than by restricting anyone from ever seeing a work because the owner needs to retain copyright in that work.

I think NFTs, if properly used, can both promote the dissemination of content and encourage remixes. We can create specific protocols or platforms that provide greater remuneration when a work is being used as the basis for others to make work. So NFTs, in a sense, solve two of the biggest problems of the Creative Commons without having to create a centralized database: First, the business model, and second, the tracking and attribution, which can now be done simply by looking at the blockchain and the metadata installed on it.

My artistic practice is a way of illustrating and representing my research, which used to be on copyright law but now focuses on the legal and governance questions around blockchain technology. I’m still waiting to see more artists using that technology as the medium of expression, rather than simply a new transaction layer. It’s as if we are still in the phase when physical painters started to use the internet to sell their physical paintings. All of sudden, we call them digital artists, when actually they’re just selling paintings via an electronic device. I think we are still a little bit in this frame of mind in the NFT world, in which the majority of digital artists are using the blockchain as an auctioning system. Very few are actually integrating the blockchain and its new possibilities within the artistic expression. 

Before all this NFT hype, my approach was always to create works that can live on their own and produce themselves independently — flipping the principle of copyright. What blockchain enables is that an NFT or smart contract can actually be the artist by implementing a particular governance structure or reproductive capability. With the Plantoid, the idea was to create physical sculptures that are connected to the blockchain and fed with cryptocurrency. When you feed them, you receive an NFT in exchange which becomes the seed that travels around. And as it travels around, it funds the original artwork, controlling its own governance and evolution. 

‍KM: [...] There are all kinds of really interesting possibilities being explored around financial models and financial distribution. And so artworks that can pool money and route it to different destinations are really exciting and interesting. The way that a certain kind of voting can happen, and the way certain kinds of commitment can happen through a concept called “staking.” These are all really interesting social and creative models with financial and economic implications. And really, for the first time, we’re seeing those things come together in a functional way, which is really pretty great. 

‍RM: One of the reasons Primavera’s project, Plantoid, worked so well is it avoids the problem Kevin mentioned, which is the “oracle problem.”

The blockchain has been described as a truth machine. And this is provably true in the mathematical sense. As soon as you try to introduce truth from the outside world, from our world, from the world of provenance and attribution and ownership off-chain into that record of events, you cannot prove it mathematically.

If we could prove claims about human truths mathematically, then the world would be a very different place. This means that one of the best ways of avoiding the problems of people trying to bring off-chain truth on-chain is to start on-chain and Plantoid starts on-chain with the sculpture that you can tip with money, which it gathers and then, through on-chain governance, commissions someone else to work with.

I think it’s a really good model, and I think that the current emergence of DAOs (decentralized autonomous organizations) as artist collectives where people can pool what little money they have, pool tokens, and then work out how to go forward: Making, curating, exhibiting, and selling art. This is a really interesting answer to people’s concerns about hyper-financialization, and about simply selling NFTs for as much money as they can.