Cutting through the noise around NFTs
If you were going to spend millions of dollars on art, would you rather own a real-life Monet or a digital image? And how would protect yourself against either of them turning out to be fake?
In recent years, there’s been growing excitement around NFTs – non-fungible tokens – and the role they play in defining intellectual property in the digital space. This was something Michael Brunero, Head of Tech, Media and IP at CFC discussed in detail at our recent CFC UK Summit.
The birth of NFTs
NFTs are less that 10 years old and it’s really only in the past five years they’ve gained real traction.
An NFT is a unique digital identifier which is stored on blockchain and certifies ownership of an associated asset. These assets are often digital, such as art, music, memes, and images.
They started as a way for digital artists to monetise their work and allow them to capitalise on their creative endeavour.
In recent years, digital art NFTs have sold for tens of millions of dollars. Last year, an NFT relating to ‘Merge’, a piece by the artist Park, sold for $91.8m. Also in 2021, an NFT relating to ‘Everydays: the First 5000 Days’, by artist Beeple, sold for $69.3m.
The assets might be virtual, but they come with very real and hefty process tags.
Separating fact from fiction in the world of NFTs
The chance to make money from developing new technology has opened the door to all sorts of fraud and fakery.
In 2021, NFT sales totalled almost $25bn and many are traded through online market OpenSea. It’s conceded that 80% of the NFTs on its platform aren’t authentic.
Deviant Art is online social network for artists and art enthusiast. It’s developed image recognition software that scans the internet for potential art infringements in the form of NFTs and seeks to identify those that weren’t minted by the actual owner of the artwork.
In the first five months after it started searching (August 2021) for these NFT transgressions, it sent out 80,000 notices regarding potential infringements.
There’s huge potential for buyers to end up purchasing an NFT that doesn’t relate to an asset actually owned by the seller and in an unregulated market there’s little scope for recompense.
What role do insurers have to play?
From an insurance perspective, there’s an opportunity to offer cover to those involved in the NFT market, whether they’re buyers, sellers or intermediaries.
The market is unregulated and while this means its users are unrestricted, it also means there’s little trust between interacting parties. As an insurer, we can provide that confidence and peace of mind.
There’s a huge opportunity to develop products for the NFT sector and offer cover against exposures such as theft, ransom, and IP infringement.
Underwriters will have to be thorough in how they appraise an NFT’s authenticity and the provenance of the asset to which it relates. Similarly, there are questions around values and sums insured. How are individual assets priced? How reliable is that pricing and what underpins it?
It’s still too early to say if NFTs and digital assets represent the future of the internet. But it’s an exciting area of risk and one we’re keen to support as it develops.