COLUMN GPS Art & NFTs
NFT art has been attracting a lot of attention since Beeple’s piece sold for a high price in March 2021.
I have also listed GPS art on the NFT Marketplace. There has been no significant movement in the Japanese GPS art community, but overseas, discussions about GPS art and NFT art have begun.
In keeping with the trend of the times, artists who sell GPS art as NFT art should follow suit, and from the standpoint of the first GPS artist to enter NFT art, I have organized the information from both the seller’s (artist) and buyer’s (collector) perspectives.
Please read this before exhibiting or purchasing.
This column is based on the Japanese system.
NFT ART FEATURES
Most marketplaces accept cryptocurrency payments. Both the seller and the buyer are required to have a cryptocurrency wallet.
* There are exceptions in some marketplaces.
Under the Japanese tax system, profits from the sale and resale of NTF art are considered “miscellaneous income” in the same way as crypto assets. If your income exceeds 200,000 JPY for the year (from the beginning of January to the end of December), you are required to file an income tax return.
However, if you create or sell NFT art on your own, it may be considered “business income” or “transfer income”.
Furthermore, there are various interpretations of the calculation method depending on the timing of the transaction. When filing a tax return, we recommend consulting with the tax office, a certified tax accountant, or other professionals.
* Income from the resale of works of art in kind is considered transfer income. Transfer income tax will be incurred.
* Repeated sales on a business scale are considered business income and subject to business income tax.
JAPAN’S TAX SYSTEM
|Business Income||Gross income – Necessary expenses|
|Transfer Income||Transfer price – (acquisition cost + transfer cost) – special deduction|
|Miscellaneous Income||Gross income – Expenses|
Unlike physical artwork, NFT art also pays royalties to the creator during secondary distribution.
Royalties generated during secondary circulation are considered income. Please be careful not to omit this information when filing your tax return.
LAWS & RULES
NFTs are not financial instruments under Japanese law. Therefore, common sense and regulations of the financial industry do not apply. Please be careful not to purchase them as if they were financial instruments for investment purposes.
The main points to note are as follows.
VAGUE SECURITY STANDARDS
While the financial industry has its own security standards, the security standards for the NFT marketplace in Japan are not set in stone. Especially for marketplaces handled by companies with no knowledge of the financial industry, it is possible that they do not understand the security points to be kept in mind.
Please be careful when selecting a platform.
EASY TO MANIPULATE POPULARITY & MARKET PRICES
In the NFT marketplace, it is easy to create popularity through circular trading and multiple accounts by the same person/group. NFT art allows for techniques that are banned in financial instruments as market manipulation. In other words, even if an artist claims to have sold well, it does not necessarily mean that he or she is really selling well because of the potential risk of self-promotion.
In addition, the NFT marketplace operators are in the business of earning commissions, so the more transactions there are, the more money they get. Unless there is a self-cleansing mechanism and legal regulation, this kind of faking behavior is not likely to stop.
NFT art buyers are encouraged to check sellers for such irregularities and confirm the actual transaction status before making a purchase.
Each platform has its own characteristics, but the points to keep in mind as an exhibitor are “whether there are many genres that are actively traded,” “whether there are many potential target buyers,” “whether sellers are required to register,” and “whether buyers can use the platform.
Whether or not the seller is registered is related to the credibility of the seller. Fake accounts, forgeries, and copies tend to be common, especially of popular works. Such accounts should not exist, but the reality is that they have not been dealt with in time.
As a means of self-protection for artists, it is relatively safe to list on marketplaces, where registration is only possible after passing a screening process. Although there is a screening hurdle, it is directly related to the artist’s brand power. I would recommend this method if possible.
In addition, buyers need to determine whether the seller is the person in question and whether the exhibited work is genuine.
The NFT marketplace buyer demographic tends to differ from the art collectors and GPS art enthusiasts known in the art market. In many cases, large holders of cryptocurrency (especially ETH) are buying in anticipation of further gains in value. They have been holding large amounts of cryptocurrency with small amounts of capital since the early days of the cryptocurrency market, and tend to be highly informed and relatively young in age.
In Japan’s prominent NFT marketplace, the majority of sellers tend to be design professionals such as graphic designers and animators, and artists are few in number. The majority of the submissions are works that are not discussed in the context of art. This may be the reason for the different buyer demographics.
Fine art NFT marketplaces are also beginning to enter the market, and the majority of artists are expected to increase their listings from here. However, registered artists are required to go through a pre-screening process.
For artists, overcoming the screening hurdle will be the first step to advance.
NOTES on GPS ART NFT
Although there are many points that apply to copyrighted works in general, I focused on information specific to GPS art.
CONFIRMATION OF RIGHTS
APPs & MAPs
GPS art shared on social networking sites such as Instagram, Facebook, and Twitter are basically images and videos generated by smartphone apps, and while it is acceptable to share them on social networking sites, in most cases the scope of use is limited to commercial use when selling them.
As with all creative works, care must be taken to ensure that motifs do not violate the rights of others.
Unauthorized NFT of another person’s work for sale is a violation of “reproduction rights,” “automatic public transmission rights,” “transfer rights,” and the like. In addition, rearranging another person’s work and converting it to NFT may violate the “right of adaptation” or the “right of identity preservation”.
SCOPE OF USE BY PURCHASER
Also, this is the same as for physical artwork, but …… artists need to clarify the extent to which the work can be used by the purchaser. Failure to make this clear can lead to trouble depending on how the purchaser uses the product.
On the other hand, please note that the purchaser cannot reproduce, distribute, etc. without permission from the copyright holder (usually the artist).
ESTABLISHING THE ACTUAL FACTS
At the time of writing, March 2022, most of the GPS art NFTs in circulation are “secondary products (images and videos) using GPS data. Since similar products can be produced simply by drawing lines on a map, the rarity of a work cannot be guaranteed without proof of actual travel (e.g., GPS data).
Artists are recommended to prepare evidence that they have actually moved.
PROOF OF VALUE
Because the work is digital data, it is easy to reproduce. Further NFT of the same or similar works carries the risk of obsolescence of value.
While it is of course important to prove that the artist personally created the item, please also take care to manage the number of copies (edition).
Since this system has only just begun for the general public, the industry as a whole is still going through a process of trial and error.
There are many points to be aware of, such as gray zones and fraud, and the quality of works is also mixed. Please carefully scrutinize the items you wish to list and purchase.
I myself want to establish and promote NFT art in the world. Artists should enter the market knowing both the good and the cautionary parts.
While the relative affinity for GPS art is unknown, I predict that as technology develops, it will become a more convenient medium, and I hope that more people will experience GPS art.