Luti Fagbenle may be the luckiest man alive, what with being young, handsome and the owner of a film company in Notting Hill. Oh, and the recipient of £208,100 for doing nothing. One Sunday morning last autumn, scaffolding appeared on Fagbenle's office wall as Portobello Road market was in full swing.

When it came down a few hours later, the wall had been sprayed with graffiti. Being streetwise, Fagbenle did not dance with rage. Instead, he called in an expert, who confirmed that the stencilled figure of a painter at his easel was by Banksy, the artist once described as a cross between Michelangelo and the Scarlet Pimpernel. In April, Banksy's Space Girl and Bird sold at auction for £288,000, 20 times its estimate. Accordingly, Fagbenle put the work on his wall up for sale on eBay, where, last month, it fetched slightly less. But then, as its seller wisely noted, whoever bought the piece was also buying a wall, and walls are tricky to take home.

A happy ending – though it might not have been. Before Fagbenle had had time to confirm his work's provenance, it had been dogged. For those of you over 19, dogging is not what you're thinking. In the context of graffiti – or street, cult or urban art – to dog is to add to, or re-graffitise. (This may be the moment for a short graffitist's glossary. A writer = a graffiti artist; a burner = a masterpiece. To buff = to paint over, usually by enraged local councils. To bite = to imitate, or possibly rip off. Thus, from a blog: "All graffiti is born from biting, someone creates a style and others copy it.")

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Now, Banksy has always been good about dogging. One of his works – a mural of two characters from Pulp Fiction on an air shaft at Old Street Tube station – was once dogged by a 19-year-old writer called Ozone, who added insult to injury with the tart line, "If it's better next time, I'll leave it." When Ozone was run down and killed by a train he was trying to spray-paint not long afterwards, Banksy's website ' mourned him thus: "When we lost Ozone we lost a fearless writer and, as it turns out, a pretty perceptive art critic. Rest in piece (sic)." The dogged mural was later buffed (see above) by Transport for London, then re-dogged by Banksy as a memento mori in Ozone's honour: it now depicts a putto in a flak jacket, contemplating a baseball-capped skull. But would Banksy's collectors – and these include Brad Pitt and Angelina Jolie, who recently spent £1m on his work – be as broad-minded about dogging as the artist himself? In other words, is a dogged Banksy as good a buy as an undogged one?

It's the kind of question that taxes art dealers mightily. On Tuesday, a sale of urban art – a term about which more later – will be held at the Bond Street auction rooms of Bonhams, the house that sold Space Girl and Bird. Along with a number of Banksys, this sale will include works by Paul Insect, D*Face, Invader, Toxic and Cyclops. There will be no walls for sale, though, nor Tube carriages or ventilation shafts. The auction is billed as the "first devoted solely to urban art", a term notable for its avoidance of the words "street" and "graffiti". In terms of technique, the works in Bonhams' sale are no different from those in most art auctions. For all the grunge of their imagery – spray-painted policemen with smiley faces, stencilled Churchills with green mohicans, HM The Queen sticking out her tongue – these are not things of the street. They are canvases, drawings and small-run screenprints, signed and numbered.

Bonhams' Gareth Williams, in charge of the sale, suggests its logic. "In 2003," he says, "you could have picked up a Banksy print for £300. Last year, we sold one for just under £300,000." Will Brad and Angelina be there? "We very much hope so." The figures are compelling, but why are there no walls? Williams picks his words with care. "What we're selling isn't street art," he says. "People have seen art in the street and liked its aesthetic, but the market has moved on. The Banksys in our sale are on a different level from the one in Portobello Road. We're very conscious of not wanting to get involved in the whole question of ownership, nor of encouraging people to go out and damage private property."

It's an interesting point. Whatever else Banksy's Portobello Road stencil may have been, it was an offence under the Criminal Damage Act 1971. To sell it at public auction might be to incite crime. This, presumably, accounts for the caginess of the Lazarides Gallery in London's Soho, which represents Banksy, Paul Insect, Invader and various other artists in Bonhams' sale. It was at Lazarides that Brangelina splashed out their £1m on Banksy; in July, an entire show of works by Paul Insect was bought off the wall for a knockdown £500,000 by one Damien Hirst. Yet, according to the gallery's PR company, Lazarides had forbidden its artists to talk to the press in the run-up to the Bonhams sale, so that my phone calls and emails were left unreturned. (So, too, was my call to Luti Fagbenle.)

This caution also explains the curious shifts in name of the thing that Lazarides and Bonhams are selling. Lazarides goes for cult art, Bonhams prefers urban art. Both terms put space between themselves and the legally troublesome street art, which in turn distances itself from the downright criminal graffiti art. "Naming is a tricky issue," agrees Tate Modern's Cedar Lewinsohn, who has just finished writing a book on the subject. "I went for 'street art'. Some artists like it, some don't, but it was the easiest in the long run," he admits.

Lewinsohn's own interest in the subject began on trawls of the East End art scene, where he "kept seeing better art between galleries than in them". He points out that what ' is happening in London now happened in New York in the 1980s with the crossover from graffiti to fine art by people such as Jean-Michel Basquiat and Keith Haring. (Bonhams has included Haring prints in its sale, giving some historical legitimacy to the current generation.) "Street art and graffiti art are two different things, and the artists are hyper-aware of that," says Lewinsohn. "But if the best ones want to make some money out of what they do, then why not?"

One answer to this comes from an artist known in the graffiti world as Aroe. The difference between the graffiti Lewinsohn sees on East End walls and work by the same artists in West End sale rooms is that the former is illegal, the latter not. Put another way, urban art is to graffiti what Cliff is to Elvis: a derivation, but a distant one. Illegality is part of the aesthetic of graffiti art, what it is about. Lawful graffiti art is a contradiction in terms, as are screenprints and numbered editions that claim graffiti credentials.

The latter irritate Aroe, who has faced continuous brushes with the law over his 20-year career. (His spelling of "arrow" was chosen because double letters and w's don't look good in spray-paint). "I've just had a prosecution against me fail, in spite of house raids," he says. Having hung up his spray can, it was, he hopes, his last. "The three ways you can end your career as a graffiti artist are to be caught, injured or quit," he says. "The last is the most difficult, and I chose it."

All of which is to say that graffiti art is a genre with strict rules. To write well is not enough. Respect is earned through a combination of skill and notoriety, the last – pace Ozone – based on a daredevil disregard for personal safety. Aroe once pulled the emergency cord on a packed Madrid metro and sprayed the train while it stood in the tunnel: "That," he says, flatly, "got me my name." This willingness to risk death is part of graffiti's aesthetic, visible to other writers and "the roughnecks in the street" – you and me – who see the end product. We're not talking conventional art appreciation here. "The point," Aroe says, "is to annoy the greatest number of people you can."

As you might expect, his views on street art are robust. "Real graffiti artists couldn't give a shit about selling a canvas for £20,000," he says. "If people want that, good luck to them. What irritates me is when they piggyback on what we do, claiming a credibility they haven't earned. There's a world of difference between sitting in a studio making screenprints and spending 20 years evading guards to paint trains."

As you will read in the interviews on these pages, this is not a view shared by the artists whose work is in Bonhams' auction. Yet Aroe raises a compelling question: can grit be bought and sold? Urban art is the new hot collectible, and not just for Hollywood stars and the ubiquitous Russians. There will also be institutional investors at Bonhams' sale, buying Banksys for their market potential. But will they be getting blue-chip stock, or mere derivatives? *

The Urban Art sale, including works by D*Face, Cyclops, Adam Neate, Nick Walker and Andrew McAttee, will take place at Bonhams, London W1 (020 7393 3900) on Tuesday. 'Street Art' by Cedar Lewinsohn (Tate Publishing, £18.99) is out in May. Interviews by Hannah Duguid. With thanks to Steve at www.artofthestate.co.uk

Sickboy: The all-rounder

Sickboy has a slogan that he sprays on surfaces across London: "Save the Youth".

"It's not that I'm trying to 'save the youth'. It's just a line from a Northern Soul tune," he says. "I like the sentiment of it and the lettering – and it's a bit more interesting than "Stop the War". People are jumping on the political bandwagon, because work with that sort of message has a niche, but most of my work is not political."

The 28-year-old sees himself as neither a street nor a graffiti artist, but as somewhere between. "If anything I'd rather be seen as a graffiti artist, as I come from a graffiti background. Graffiti has a stronger subculture; anyone can be a street artist."

Now his paintings and prints sell in galleries and online. He makes a comfortable living although, he insists, he has never compromised his art for commercial reasons. When a print run is released, it sells out in minutes.

He continues to work on the streets, picking the right spot, which is ideally a large wall near a main road and close to traffic lights where drivers can stop to admire his craft. "Most of the time," he says, "I just want to make people smile."

Adam Neate: The maverick

Neate, 30, roams the streets of London salvaging scraps of cardboard or wood, on which he paints tense, angst-ridden human forms. He then leaves the work hanging from a nail or attached to a lamppost for passers-by to pick up.

"I put it out for people to enjoy," says the 30-year-old. "I never went to a fancy art college; I just enjoy painting. I didn't get any feedback for years as I never saw where the paintings ended up."

Neate wasn't interested in the commercial art world until a gallery unexpectedly approached him, at which point he gave up his day job as a graphic designer and took to painting full-time on canvas, with an astonishing degree of success. A recent painting sold at auction for £78,500.

Now, he divides his time between producing highly finished paintings for the gallery, and his street paintings, which are rough and made quickly.

Success has an inevitable price; he's had trouble with stalkers. "An old man on a bicycle with a basket used to follow me around picking up my paintings. I had to change my route to avoid him."

These street paintings now go for £2,000 on eBay. Not that Neate minds: "Of course some people sell them; it's human nature," he says. "It doesn't bother me what happens to them once they're gone."

Andrew McAttee: The fine artist

Before studying fine art at Central St Martins in London, McAttee was a graffiti artist, spray-painting large, colourful pieces on walls at night.

"I didn't take my graffiti painting into art school," says the 35-year-old. "I separated the two and just did graffiti in the holidays.

"I never use my street tag in my canvases, but I think describing me as a sellout for working on canvas is a weak argument. They're completely different things.

"It's frustrating that people try to pigeonhole me as a street artist or graffiti writer. It's all very tenuous."

After leaving St Martins, McAttee worked on canvas for five years, then went through a crisis about his work and decided to go back to painting on the streets full-time. "It was a kind of breakdown," he says. "From making grey canvases I went to spray-painting large pieces that were colour assaults. It was a release of frustration."

Influenced by Pop Art, comics and, of course, graffiti, he uses spray-paint and acrylic in acid candy colours – lilac, pink and blue – to make images that burst from the canvas in a psychedelic explosion. It's happy art, with not a hint of grim reality. "I call it 'poptimism'," he says. "I know it's not for everyone."

D*Face: The player

"D" still works on the streets, using humble stickers as his tag, yet he is one of the more ambitious and professional street artists around.

From his well-organised studio, with a full-time assistant, he is putting together a museum exhibition of his work in Hamburg and gallery shows in New York and London – as well as continuing large-scale street work.

Recently he took over three billboards on the A3, painting "Call in Sick" in giant letters for people driving past on their first day back to work after the New Year.

"I don't see myself as a sellout [for selling through galleries]," he says."It's about integrity. I work with museums and on the street — the two can co-exist. I would rather live as an artist and make money from it than be a pure graffiti writer and have to take a second job in order to live."

His works on paper and canvas, often featuring death and destruction, have a political anger against the injustices of consumerism and war. His aesthetic is influenced by comics, skateboarding and punk.

Now in his mid-thirties, he started out as an illustrator who, frustrated with the creative constraints of his industry, took to graffiti in his spare time. "It was just a way to fill a gap," he says. "It wasn't such a big deal back then; we just enjoyed it."

Aroe: The purist

A graffiti writer since the age of 13, Aroe makes a strong distinction between what he does and "Hoxton trendy" street artists.

"Street art and graffiti are completely different," he says. I do graffiti just for the fame and for respect from peers within my sub-culture. For those so-called street artists, it's all about money. They would be laughed off by proper graffiti artists. It's not about their work, it's their attitude. I'm not interested in galleries.

"I'm not a trained artist and I don't look at it as something noble; I'm just writing my name – although I would never damage a private house."

Aroe makes huge pieces the world over: he has covered buildings in San Francisco and Brighton and his tag adorns trains in India and Eastern Europe. This year a music festival is inviting him to Senegal, to put on a graffiti showcase and give a masterclass.

While his attitude to his art may seem radical, his life is anything but. In his late thirties, he lives in Brighton, where he has a house, a full-time job, long-term girlfriend and four children. "Me and my girlfriend have a car each," he says. "I suppose you could say it's a middle-class life, although I don't really see myself as middle class."

Cyclops and Sweet Toof: The tag team

Cylops and Sweet Toof blend easily into the young artistic crowd that hangs around Brick Lane, east London – which is fortunate, as the pair wish to remain anonymous. (They were recently arrested for some graffiti that looked similar to, but was not, their work: "The police kept us until 5am, then let us go.")

The distinguishing feature of their graffiti, which is all over east London, is a tooth, a skull and a character called Lenny.

"We do large-scale stuff," says Sweet Toof, an affable type in his early thirties. "We want to stop people in their tracks, or make them chuckle on their way to work. It's about reclaiming space. We have to put up with advertising, that can take up the whole side of a building. We have no say in that." Cyclops, a little angrier, adds: "Your opinion doesn't count if you have no money."

Both are trained artists: Sweet Toof graduated from the Royal College a few years ago; Cyclops, in his late twenties, is still studying fine art. Their gallery paintings sell for thousands, yet they have not abandoned the spirit of their work. "With the gallery stuff," says Sweet Toof, "it's a disciplined approach for the canvas. With the street stuff, it's the other side where we can go out and paint the town red."

Nick Walker: The existentialist

The late, great director Stanley Kubrick employed Walker for his final film, Eyes Wide Shut, to recreate graffiti along the streets of New York. "It was the worst style of graffiti; it had to look as if it had been done by crack-heads," says the 39-year-old.

Walker never trained at art college. He started his career as a graffiti painter, writing on the streets of Bristol. It was when he moved to London that he started to work on feature films.

For Judge Dredd, the Sylvester Stallone vehicle, he studied Hebrew and Japanese letters to come up with a futuristic style.

He still works on the street but does not consider himself a graffiti artist. "I'm just an artist," he says. "That's how I make my living."

There is an existential flavour to his art. "The whole thing with graffiti is that it's about making your mark, leaving something behind," he says. "We are here to create."

He uses images of butterflies, because they live for only a week, to depict the fragility of life. "These butterflies shed their colour before they die," he says, mournfully.

Not that his work is always so serious. His Moona Lisa, for example, is an image of the Mona Lisa showing her bare behind to the viewer.