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Booming NFT art market plagued by 'mind-blowing' fraud

Humanoid robot Sophia, developed by Hanson Robotics, holds a brush during a demonstration before her non-fungible token (NFT) artwork is auctioned, in Hong Kong, China March 16, 2021. REUTERS/Tyrone Siu/File Photo

Humanoid robot Sophia, developed by Hanson Robotics, holds a brush during a demonstration before her non-fungible token (NFT) artwork is auctioned, in Hong Kong, China March 16, 2021. REUTERS/Tyrone Siu/File Photo

What’s the context?

As the NFT market explodes into a $25 billion industry, artists worry that lax oversight is leading to a digital art world flooded with fakes.

  • NFT market surpassed $25 billion in 2021
  • One platform flagged 90,000 potential NFT fakes in three months
  • Art world is divided on whether NFTs help or hurt artists

By Avi Asher-Schapiro

LOS ANGELES - Before he passed away in 2019, Dan Howard was a concept artist, working with major video game companies and posting his drawings online, where he had amassed a loyal fan base.

In late 2021, an anonymous account online started auctioning off Howard's work as non-fungible tokens (NFTs), a kind of digital asset often linked to an image or piece of artwork.

Howard's family only found out about the sales when a fan alerted them.

"We felt like we'd been the victim of a high-tech grave robbery," his brother Donovan, told the Thomson Reuters Foundation in a phone interview.

Donovan emailed OpenSea, the NFT marketplace where his brother's work was posted, and the platform removed the auction a few days later - but within weeks, more images were up for sale.

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"We felt helpless," said Donovan, who is still waiting for OpenSea to take down the latest forgeries.

A spokesperson from OpenSea said "it is against our policy to sell NFTs using plagiarized content, which we regularly enforce in various ways, including delisting and, in some instances, banning accounts."

OpenSea did not respond to requests for comment on Howard's case, specifically.

The NFT market has exploded over the past year, with NFT sales soaring past $24.9 billion in 2021, compared to just under $95 million the year before, according to market tracker DappRadar.

That boom has coincided with a massive uptick in fraud, said Moti Levy, chief operations officer at DeviantArt, an online platform with 61 million registered users where artists can display digital art and sell physical prints.

Usually bought with cryptocurrencies, NFTs represent a digital item - often an image or video.

The transaction is recorded on a blockchain - a public digital ledger - with a unique digital signature, giving NFT art owners a kind of digital "bragging rights".

On some NFT marketplaces anyone can upload any image, create an NFT linked to that art and put it up for sale, all without having to show any proof they own the original image.

DeviantArt is now scanning various blockchains for potential instances of that kind of fraud.

It has flagged more than 90,000 since it started scanning in September, with its alerts for NFT infringements jumping more than tenfold in the first three months alone.

While Levy thinks NFTs can be a useful tool for artists to sell and exchange their work, the technology is also driving art theft on a "mind-blowing" scale, he said.

Artists divided

The NFT boom has divided visual artists. Some see selling NFTs as a way to exert more control over their art and find new audiences, while others say the industry is too saturated by scammers and too often rewards viral art of low quality.

"Anyone can take someone else's image and upload it as an NFT, hoping it'll sell," said RJ Palmer, an artist in California whose work is regularly turned into NFTs without his permission.

"The art never matters - it's just gambling."

Aaron Ferguson, an artist in Canada, disagrees, saying that selling NFTs of his work has jump-started his career - he was recently given a grant by Obscura, an artist collective that supports photographers in the NFT scene.

The issues blamed on NFTs - fraud and the perfusion of low-quality art - have always existed in the art world, he said.

"You can't scapegoat NFTs," he said, adding that he much prefers the NFT scene to posting images for free on websites like Facebook or Instagram.

NFT sales are proving quite lucrative for some artists, and the tokens can be coded in such a way that the original artist can be paid a royalty each time the NFT changes hands.

In 2021, an NFT of a collage of 5,000 images and drawings by the artist Beeple sold for nearly $70 million at Christie's, with a 10% royalty encoded in it.

NFT marketplaces are required to have a process for copyright owners to submit requests for takedowns, and the user who originally posted the art for sale is given an opportunity to respond if they claim to be the legitimate owner of the work.

Aggrieved artists can also theoretically contact whoever posted their work for sale, explained Moish Peltz, a Florida-based lawyer who specializes in NFTs and blockchains.

But dealing with fraud through the marketplace can be a lengthy and complicated process, and sellers' accounts can be anonymous cryptocurrency wallet addresses that are hard to link to a real person.

Levy at DeviantArt says their scanning software has detected bots that are programmed to scrape the internet, copy artists' work and automatically post it on NFT auction blocks.

"It can turn into a real cat and mouse game," Peltz said.

The levels of gatekeeping vary among NFT marketplaces. Some, such as Foundation, require an invite to post a sale. Others, like OpenSea, allow anyone with a cryptocurrency wallet to use the platform.

While it's easy to create a non-fungible token of someone else's work, one advantage of the NFT market is that the blockchains that store the tokens are easily scanned and inspected, making it more likely to catch out art thieves, said Ferguson, the Canadian photographer.

That's little consolation for Donovan Howard, who has been emailing back and forth with OpenSea for more than two weeks to get his brother's pirated work taken down. "It's incredibly painful," he said.

'I've given up'

Palmer, the California artist, says sometimes he gets dozens of alerts a day from DeviantArt that his work is being sold without his permission on OpenSea.

Last year, he successfully petitioned OpenSea by email to take down some auctions of his work.

But, in recent weeks the platform has been requiring artists submit a Digital Millennium Copyright request, the formal legal mechanism for copyright owners to ask that their work be taken off a hosting platform, Palmer said.

"I've given up submitting these requests, it's just too time consuming," he said.

Artists like Palmer want platforms like OpenSea, which was recently valued at $13 billion, to invest more in proactively ensuring artists' work isn't ripped off.

Some have given up petitioning OpenSea and have started submitting their complaints directly to Google, which hosts the images on OpenSea's auctions.

The OpenSea spokesperson said in a statement that the company is scaling its efforts "across customer support, trust and safety, and site integrity so we can move faster to protect and empower our community and creators."

James Grimmelmann, a professor of digital law at Cornell Law School, said as long as the NFT platforms are responding to complaints from copyright holders, they are operating within the law - even if scammers are running rampant.

Grimmelmann said NFT marketplaces are facing the same thorny issue that the older generation of internet platforms is still grappling with: how to fairly moderate online content at a massive scale.

"NFTs don't solve this problem," he said. "These platforms are just the latest to discover how hard that really is."


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Cryptocurrency
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