The regulatory issues of crypto-assets, these hybrid works that impose themselves on the art market? The example of the frescoes transformed into NFTs of Ivry-sur-Seine

Avenues for legal and tax reform 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 town of Ivry-sur-Seine (94). In this commune of Val-de-Marne, a department known for its proactive policy in terms of urban art, the French artist, Pascal Boyart has erected a monumental work, a fresco which required no less than 5 months of work. Its subject: a modern revisitation of the Sistine Chapel. The work extends over almost 100 m² and is made up 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 Val-de-Marne, in which the big names of the street art left their mark on the departmental landscape, 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 from the crypto community for this modern chapel,” the artist clarified. This patronage operation entitled donors to non fungible token (NTF) these crypto-assets which 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 their authenticity and traceability. The NFTs attributed to the twelve patrons represent parts of the work in digital version. These patrons, including the founder of the tricolor start-up Ledger, Thomas France or the great collector of NFT WhaleShark, therefore have digital versions of the fresco, the physical version of which is not intended for sale. The Sistine Chapel Underground also corresponds to 404 NFTs, all unique editions and representing one of the characters of the last judgment.

NFTs, 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 digital collectibles. unique and lasting over time,” he explains. Born illegally, urban art has a somewhat special status, since in the absence of the agreement of the owner of the walls, the works that appear there are in reality constitutive of the offense of degradation of the property. Under the terms of article 322-1 of the Penal Code, these inscriptions, signs and drawings are punishable by a fine of 3,750 euros and a penalty of community service when the result is only slight damage. If urban art appears in the biggest contemporary art fairs, if its greatest artists enjoy worldwide fame, this part of illegality remains. Consequently, high quality frescoes can be erased without the artist being able to oppose it. “My murals are often erased, ironed, tagged after a few weeks. Or even worse: censored! This was particularly the case of Liberty leading the people 2019 which was erased after three weeks at the request of the Paris police headquarters and the Mayor of the 19th centurye arrondissement”, summarizes Pascal Boyart.

The new possibilities offered by cryptocurrencies

The artist first imagined monetizing his frescoes painted in the street by using the new possibilities offered by cryptocurrencies. Thanks to QR codes affixed to his frescoes, 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 encouraged him to continue on this path. In January 2019, the artist organized a treasure 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 from the Ethereum ERC721 standard. “These NFTs make it possible to introduce scarcity into the digital world, which gives real value to the virtual,” he summarizes. But he is faced with a major problem, in addition to the potentially ephemeral nature of his physical works, the artist then does not see how to “associate a physical work of art with a digital collector’s item. These two objects not being connected in any way, one could take 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 lifespan, while the digital collectible object is imperishable! This allows all those who support me (donors, collectors, patrons, etc.) to be able to collect my mural works even if they no longer exist physically 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 named Dad, what is money?, the first real and ephemeral work to be tokenized into a digital collector’s item… In addition, this work has a symbolic value because it is the first mural featuring a Bitcoin QR code to receive donations. The original fresco was made in November 2017 in the XIXe arrondissement of Paris, at the intersection of rue Riquet and rue d’Aubervilliers. It is still visible, even if the QR code has been erased. This fresco was followed by many others, such as Rembrandt back to the wallin 2018, on the rue Riquet bridge, 75019 Paris Where Delacroix vs ECB. Realized in August 2018 at L’Aérosol, 75018 Paris, today, the fresco no longer exists, etc. Same observation for the desperate realized in 2019 rue Ordener in Paris. The fresco of Thoughts of the Scarlet Goblin was produced in 2019 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 art 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 represents 24% of market share, with 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, sales prices are reaching unprecedented heights. Recall that in March 2021, the work of an American graphic designer known as Beeple soared 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 surprised and revealed the importance taken by these little-known assets in a market made sluggish by the cancellations of fairs and international exhibitions, under the influence of the health crisis. However, digital assets in the field of art raise a number of specific questions, particularly with regard to 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 begun a mission intended to identify, analyze and evaluate this phenomenon in its various legal aspects under the prism of literary and artistic property and in the interest of the various actors concerned and of its market. The mission delivered its conclusions last July. Concretely, 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 with precision. It is neither quite similar to a token as defined by the Monetary and Financial Code, although certain characteristics justify its assimilation for the application of fiscal or financial rules, nor, except in exceptional cases, , to a work of art within the meaning of the Intellectual Property Code, its smart contract not being able, in the state of observable technical capacities, to contain the underlying file in the blockchain at a reasonable cost, nor to a certificate of authenticity, in the absence of any third party verifier of the authenticity of the associated file or of his paternity”, considers the mission. It proposes to consider it as a title deed on the token registered in the blockchain, to which can be associated other rights on the digital file to which it points, whose object, nature, and extent vary according to the will of its issuer expressed by the technical and possibly legal choices associated with the smart contracts.

NTFs 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, it is necessary to clarify a certain number of delicate legal and technical points, particularly in the field of intellectual property. From a legal point of view, the phenomenon of NFTs indeed raises new questions relating to intellectual property, the ownership of rights, their mode of management, 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. With regard to intellectual property, it clearly appears that the purchaser of an NFT is not necessarily the holder of the economic rights attached to the digital file associated with it, except for the contractual transfer or license of the rights. This means that he cannot a priori not make any act of exploitation of this work or prohibit a third party 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. JNFs do not operate in a legal vacuum. By default, the protected files to which they point remain subject to copyright and related rights. Barring exceptions, the JNFs are therefore not automatically transferred with all the rights associated with these files.