The government's proposed crypto crackdown has been welcomed by creatives who were once excited by what the blockchain technology could offer the art world.

The technology's reputation has suffered months of bruising press since the 2021-22 crypto-hype peak, culminating with the arrest and ongoing fraud trial of former crypto billionaire Sam Bankman-Fried.

This week, Treasurer Jim Chalmers unveiled a paper recommending greater regulation of crypto exchanges in Australia.

Adam Sullivan is a Sydney-based artist who first began using the technology in 2019 through NFTs.

NFT stands for non-fungible token. When an NFT is sold it gives the buyer a one-of-a-kind receipt that authenticates the purchase of a digital asset on the blockchain.

He hopes that, through regulation, the technology can get on "the right path" and allow people to sell music and art as digital assets through the blockchain.

"Trust [in crypto] is absolutely out the window at the moment, and rightfully so," he said.

"A lot of really shady stuff has happened all across the board and I'm glad it's being brought to light.

"I'm excited by proposed regulations, so we can start to build back the trust."

The multifaceted artist — who releases music and art under the pseudonym Made By Tsuki — remembers a brief moment when the blockchain technology seemed to offer genuine "excitement" and utility to the art world.

"I found the blockchain in 2019 [when it was] suggested by a fan who supported my music and wanted to buy and display my digital art," Mr Sullivan said.

"I was trying to find a simple way to sell my digital art in the same way I could sell my paintings. 

"Blockchain enabled me to combine my art and music into one piece.

"The rise was exciting as I started to understand the impact of the tech.

"It was a home and ecosystem for my audio-visual paintings. 

"With clear provenance and automatic collection of royalties, the door was opened."

Then came the 'cryptobros'

Adam says that once NFTs broke into the mainstream, "bad actors" took advantage of the "lack of regulation". 

"There was a time before cryptobros and NFTs were in the news, it felt like this technology really worked and was for digital artists," he said.

"We are years past that now, and it makes up such a small way that the blockchain is being used, that it is just a niche-use case now.

"At the moment, the reputational damage is too big of a hurdle and the blockchain is not working for me personally."

A future for NFTs and artists

Jay Mogis is a specialist in digital media licensing and intellectual property. He suggests it was likely the "transparency" of the blockchain that attracted artists to use NFTs in a traditionally "top-heavy industry".

"The hype of NFTs was born from the dissatisfaction of mostly emerging creators in existing structures," he said.

Dr Mogis suggests NFTs may eventually become a "mainstream technology" that will help artists manage the way their content is attributed and exchanged.

"NFTs very well could function as the tools the traditional licensing copyright industries use to become extremely efficient and transparent," he said.

"File sharing decentralised music audiences, it just took some time for innovators and the copyright interest holders to find a way. And this remains an ever-shifting dynamic."

 

Dr Mogis says NFTs are still in their "early days" and the recent reputational damage can be reversed.

"Some early wins selling NFTs for some then translated into a massive influx of investment in the market," he said.

"But the audience remained quite niche, and this drove the value of the underlying cryptocurrencies down.

"Eventually, NFTs will become quite a mainstream technology, but it will take time. Meaningful products will see cryptocurrency prices regain value.

"Any regulation should be along International lines, similar to copyright under free-trade agreements.

"A unified global regulatory approach could see a best-of-both-worlds [creator/consumer] regulatory scenario, and avoid the duplication of administration by territory and/or region."

Mr Sullivan hopes the next phase of crypto is "more stable", allowing the "right blend of regulation" to be formed.

"The next step is education," he said.

"Let's get people's hands dirty in the technology so that when the time comes, we are prepared.

"Time is a key ingredient to even get back to the trust we had built a year ago.

"It felt like eight steps forward and seven back."

A 'mouldy barrel' 

Cryptologist and cyber expert Shaanan Cohney, from the University of Melbourne, says despite the "careful thought" behind the government's proposed regulation, the technology has a long way to go to reverse its reputational damage.

"The bulk of the excitement of cryptocurrency came from the idea of being able to make money quickly," Dr Cohney said.

"What has happened in the last few years was a perfect storm and political moment for NFTs.

"The pandemic coupled with low interest rates drove people to look into cryptocurrency as well as the allure of new technology.

"We've seen a typical hype cycle, and I can't imagine all of those factors coalescing again anytime soon."

Dr Cohney says there is still contention that the blockchain properly validates the purchase of artwork through NFTs.

"The challenge with purchasing art through the blockchain is how we define legal possession of something online, particularly when the thing on the blockchain is not actually the artwork itself, it is the receipt," he said.

"There's a legal question over, 'Does this receipt actually give you any legal rights?'"

"Those [who are] pro-NFT would argue it's the meaning attached to an artwork, just like having a forged Picasso isn't the same as having a real Picasso."

Dr Cohney co-authored a 2019 research paper that found that the majority of all cryptocurrency projects were either misleading or scams.

He says the government's proposed regulation will offer more security to Australians investing in crypto.

"The proposed regulation is looking to police the people that operate crypto businesses onshore to Australian consumers," he said.

"For organisations to present themselves as reputable they will need to operate onshore or in a jurisdiction where Australia has policing power."

Dr Cohney warns that, even once properly regulated, "most cryptocurrency products are only suitable for investors who have money to lose".

"My fear is that the barrel itself is mouldy, so sorting out the rotten apples from the good ones will only do so much," he said.

"The offerings of cryptocurrencies and cryptocurrency projects to the general public is still going to be inappropriate for the foreseeable future."