In the last few months, the art world has been rocked by non-fungible tokens (NFTs). They’ve even managed to breach the world of pop culture as Kings of Leon recently released their album via the platform, and Elon Musk has gone so far as to produce a techno track about NFTs that he’s now selling as an NFT. But what is an NFT? And why has the art world specifically really started to sit up and take notice?
What is an NFT
At its root, an NFT is a digital asset that can only be owned and accessed by a single user. Imagine an mp3 file that only you can listen to. These files are encoded similarly to cryptocurrency using blockchain technology (indeed, they are most often bought with cryptocurrency too) and have become an incredibly popular way to sell digital art in the last 12 months.
They have technically been around since 2014 but it’s only in recent months they’ve been making headlines. Think of them as the antithesis of the traditional disposable digital asset. Though they can also be linked to assets in the ‘real world’ too.
NFTs and the art world
Anyone in the art world familiar with the term NFT will have probably heard about it in relation to the digital artist “Beeple” and his “Everydays” digital piece which sold for a shade under $70 million at Christie’s. This set a comfortable record and caused a major buzz, underlining the fact that the art world wasn’t on life support just yet, despite COVID.
NFTs are also supporting the “productization” of digital sporting memorabilia such as media clips. And there are even more inventive ways of using the technology artistically too. For example, they have the potential to completely revolutionize the way profits are distributed and how resale royalties are calculated, and do so with complete transparency. But what are the insurance implications?
NFTs and art insurance
Given the still relative youth of the concept, NFT insurance is still in its infancy. Insurers are understandably wary of “crypto-assets” as potentially fueling cybercrime. They make it easy to move money around the world instantaneously, sidestepping the anti-money laundering systems embedded in the banking system. However, it is something that many specialist insurance firms are exploring. The basic idea is that this insurance will protect digital assets verified using blockchain technology against capital losses from theft or other malicious hacks. It’s very much in the theoretical stage at the moment though, so those looking to either sell or buy NFT art should understand the risk. Despite the robust security of blockchain, which means fraud and theft are going to be highly specialist crimes, there is no real financial protection available from insurance as things stand.
NFT is definitely part of the future of digital art sales, that much is certain. However, until the regulatory systems catches up with crypto technology, you invest at your own risk; art insurers are not ready for this yet.
Meanwhile, if your art collection includes digital art alongside traditional media, we can help with art insurance and advice on pulling it together into a portfolio of protection – just get in touch to talk things through.
Image: mundissima / Shutterstock.com