On 11 March 2021 Christie’s sold a purely digital work by Beeple, with an NFT certificate, for $69.3 million. What an NFT is and the risks worth knowing about.
On 11 March 2021 the auction house Christie’s closed, in New York, the online sale of “Everydays: The First 5000 Days”, by the digital artist Beeple. It sold for $69,346,250, which is the hammer price plus the house’s premium; on top of that come, under Christie’s terms, any applicable taxes and possible artist resale royalties. The work is a collage of the first 5,000 images of the “Everydays” series, which Beeple has posted daily since 1 May 2007, and it was sold together with an NFT. Christie’s presented it as the first purely digital artwork offered by a major auction house.
Bidding opened on 25 February with a starting bid of $100. According to the press, 33 active bidders took part, 91% of them new to Christie’s. The house said it would accept payment in Ether, the cryptocurrency of the Ethereum network, although it did not say whether the winner paid in cryptocurrency. At this price Beeple ranks among the three most valuable living artists at auction, and Christie’s called the sale a watershed moment in the development of digital art.
What an NFT is
An NFT (short for “non-fungible token”) is a unique digital record, kept on a blockchain, that is linked to a file, such as an image. Unlike a cryptocurrency, it cannot be swapped for another identical one: each NFT is different. It serves to show publicly who holds that record and to track its history of transfers. Christie’s explained that the technology allows collectors and artists to verify the ownership and authenticity of digital works.
What an NFT does not settle by itself is which rights are being bought. The image can still be viewed and copied on the internet, and copyright and reproduction rights depend on what the contract or the terms of sale provide. Before buying, it is worth reading exactly what is being acquired: the token, the file, a licence to use it or the exploitation rights.
Risks worth knowing about
On 9 February 2021, Spain’s securities regulator (CNMV) and the Bank of Spain published a joint statement on the risk of cryptocurrencies as an investment. NFTs are issued on blockchains like those behind those cryptocurrencies, although the statement does not refer to them specifically. The authorities warned of their extreme volatility, complexity and lack of transparency; that they are not backed by a central bank or covered by the Deposit Guarantee Fund or the Investor Guarantee Fund; and that they can result in the total loss of the amount invested. They also noted that the European Union does not yet have a framework regulating crypto-assets and is negotiating a regulation known as MiCA.
Other risks specific to this market come on top: there may be no buyer when you want to sell, valuations depend heavily on current fashion, and anyone dealing in cryptocurrencies must safeguard their keys and digital wallets, because losing them may be irreversible.
Before buying anything
This note does not recommend buying or selling NFTs or crypto-assets: it explains what they are and what is known about them. Anyone considering taking part in this market should know what they are buying and which rights it includes, which platform they are using, what custody it offers and how the transaction will be taxed; on the last point, consult your tax adviser.
A record price tells you what one buyer paid, not what the work will be worth tomorrow.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
