## CURRENCY NOTES

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**Canonical URL:** [CURRENCY NOTES](https://www.imf.org/-/media/files/publications/fandd/article/2022/june/currency-notes.pdf)

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### Background and context
- NFTs (nonfungible tokens) are digital, non-interchangeable items representing artwork, videos, music, and in-game purchases.
- For many artists, NFTs solved a long-standing problem of how to monetize digital artwork, enabling direct online sales without traditional gallery intermediaries.
- Marketplaces mentioned: OpenSea, Nifty Gateway; metaverse referenced as a virtual or augmented reality accessed via special headsets, game consoles, etc.

### How NFTs work
- When creators “mint” an NFT, they execute code stored in smart contracts that assign ownership through a unique ID and metadata.
- Ownership information is recorded in the blockchain—a public distributed ledger—so ownership of the metadata can be verified even though the digital work can be copied.
- NFTs enable self-executing agreements that ensure artist royalties on future sales.

### Market scale and notable prices
- Trading in NFTs hit $17.6 billion last year, according to Nonfungible.com.
- Chainalysis puts the figure at more than $40 billion.
- One Larva Labs’ CryptoPunks sale: $23.7 million to the CEO of Chain.
- CryptoPunks cheapest available: ETH 60.95 (about $128,000 as of May 14).
- Typical creator royalties on blockchain sales: often between 10 and 30 percent.

### Economic impacts on creators
- NFTs enable artists to trade directly online, typically cutting out gallery commissions (contrast noted: galleries traditionally take 40 to 50 percent).
- Flipping is rampant in NFT markets; unlike the traditional art world where flipping is discouraged, NFTs facilitate quick resale—often anonymously.
- Artists receive royalties in real time as resales occur, providing ongoing income streams that can persist beyond an artist’s lifetime if relatives have access to the wallet.
- Example: Nairobi-based photographer Rich Allela credited NFTs with enabling him “to have the freedom to create work again” after pandemic income losses.
- Allela now runs a company working with 157 artists across Africa and projects: “We’re looking at generating $2–$5 million from sales this year. Just to show people it’s possible.”

### Risks, challenges, and barriers
- Crypto’s environmental track record is described as “dismal.”
- Scams and cybercrime are prevalent:
  - “Rug pull” scams: creators launch projects and then abscond with investors’ funds; crypto investors lost over $2.8 billion to rug pulls last year, according to Chainalysis.
  - Other risks: account takeovers, fake marketplaces.
- Specific barriers for artists in developing economies: complexity of the space, difficulties building a following, and gas fees (the cost of a transaction on the blockchain).

### Case notes and perspectives
- Osinachi (Nigeria’s most bankable digital artist) creates work using Microsoft Word and values real-time royalties: “For artists, ‘that is really big,’ … ‘Even when you pass on, if someone who is a relative has access to your wallet, they get royalties that would come through your work.’”
- Allela advises those entering NFTs to do their own research and seek out a community due to security concerns.

*Source: Finance & Development, June 2022, “Currency Notes”*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2022/june/currency-notes.pdf_