Non-fungible tokens (NFTs) and copyright.
One of the most high-profile technological stories of 2021 has been the rise in popularity of the non-fungible token (NFT), the newest hype in the world of distributed ledgers and cryptocurrencies. This breakthrough technology has taken the art and tech worlds by storm.
There is widespread confusion surrounding the rights that buyers acquire when they purchase an NFT. Some think they acquire the underlying work of art, and all its accompanying rights, but, in reality, they are simply buying the metadata associated with the work; not the work itself. (Photo: sjscreens / Alamy Stock Photo)
Twitter’s CEO Jack Dorsey sold an NFT of his first tweet for the equivalent of USD 2.5 million. The NBA had been selling NBA Top Shots, "unique" NFTs of NBA moments, the value of which has exploded. An NFT of a collage of works by digital artist Beeple was auctioned at Christie’s and sold to another crypto entrepreneur for the eye-watering sum of almost USD 70 million. Old memes have been selling at auction as well, with the famous meme of Nyan Cat, an animated colourful cat whose body is in the shape of a pop tart, selling for 300 ETH (the cryptocurrency generated by the Ethereum protocol), over USD 1 million at the time of writing. Musician Grimes has also reportedly sold over USD 6 million worth of digital artworks.
What is going on? What are NFTs? And what does copyright have to do with it?
In 2021, NFTs have taken the art and tech worlds by storm.
NFT basics.
First, what is an NFT? One of the most heralded uses of blockchain technology is the tokenization of assets, where a token is a programmable digital unit of value that is recorded on a digital ledger. There are various types of tokens; they can represent anything from commodities and loyalty points, to shares, coins, and more.
While there are many different types of token standards, the most popular is found in the Ethereum infrastructure, which deploys tokens using the ERC20 standard, which sets the rules for fungible tokens. Fungible goods are by definition exchangeable regardless of the specific item you’re selling or buying. Commodities tend to be fungible: silver, gold, oil, grain. Conversely, non-fungible goods are unique one-offs, like a custom-made silver necklace, or golden statuette, or a painting. Non-fungible goods use a different token standard, known as ERC-721.
Any digital work, including physical goods, which can be represented in digital form, such as a photo, video or a scan, can be turned into a non-fungible token.
The first use of the NFT standard in the Ethereum environment was a set of pixelated images of characters called Cryptopunks, and was released in June 2017. In the intervening years, other types of works have been turned into NFTs, including memes, music albums, and digital art.
Anything that can be digitized can be turned into an NFT.
There are various types of NFTs, but the most common is a metadata file containing information encoded with a digital version of the work that is being tokenized. The other type is where the entire work is uploaded to the blockchain; these are less common as it is expensive to upload information to the blockchain.
The most common type of NFT is a piece of code that is written into the blockchain. That code is made up of various bits of information. The ERC-721 standard for NFTs specifies elements that must be present, and some that are optional. The first core element of an NFT is a number known as the tokenID , which is generated upon the creation of the token; the second is the contract address , a blockchain address that can be viewed everywhere in the world using a blockchain scanner. The combination of elements contained in the token make it unique; only one token in the world exists with that combination of tokenID and contract address. At its very core, the NFT is simply these two numbers. However, there are other important elements that can be present in the contract. One is the wallet address of the creator, which helps to identify the NFT with its originator. Most NFTs also commonly include a link to where the original work can be found, this is because the non-fungible token is not the work itself, rather a unique digital signature that is linked in some way to an original work (Find out more in Table 1).
NFT Metadata.
Item Metadata Contract Address Token Metadata 0x8c5aCF6dBD24c66e6FD44d4A4C3d7a2 D955AA ad2 "symbol": "Mintable Gasless store", "image": "
https://d1czm3wxxz9zd.cloudfontnet/ 613b908d 0000000000/861932402826187638543675501608353605 31676033165 "animation_url":"". "royalty_amount":true, "address": "0x8c5aCF6dBD24c66e6FD44d4A4C37a2D955AAad2", "tokened" "86193240282618763854367501608353605316760331 "resellable": true, "original_creator": "0xBe8Fa52a0A28AFE9507186A817813eDC1 "edition_number":1, "description": "
A beautiful bovine in the summer sun "auctionLength": 43200, "title": "The Clearest Light is the Most Blinding", "url": "
https://metadata.mintable.app/mintable_gasless/86193 240.
"file_key":"", "apiURL": "mintable_gasless/", "name": "The Clearest Light is the Most Blinding", "auctionType": "Auction", "category": "Art", "edition_total": 1, "gasless": true >
Image: Moringiello, Juliet M. and Odinet, Christopher K., The Property Law of Tokens (November 1, 2021). U Iowa Legal Studies Research Paper No. 2021-44. Used with permission.
Copyright issues.
From the description of NFTs above, you could be forgiven for not thinking about copyright at all. Most non-fungible tokens are a metadata file that has been encoded using a work that may or may not be subject to copyright protection (you could in principle create an NFT of a trademark), or it could even be a work in the public domain. Anything that can be digitized can be turned into an NFT; the original work is only needed in the first step of the process to create the unique combination of the tokenID and the contract address. So, in principle, NFTs have very little to do with copyright.
However, there is growing interest in NFTs from a copyright perspective, in part because a lot of the works that are being traded as NFTs, such as works of art, are protected by copyright, but also because of a lack of clarity about what it is exactly that you get when you buy an NFT.
Widespread confusion.
One of the key issues is the often widespread confusion surrounding the rights that buyers acquire when they purchase an NFT. Some buyers think they acquire the underlying work of art, and all its accompanying rights. However, in reality, they are simply buying the metadata associated with the work; not the work itself.
Some of the confusion may be caused by the amount of money spent on the tokens. When pixel art can be sold for over USD 1 million, it is easy to assume that the purchaser has acquired more than a string of code.
There is also increasing confusion among the mainstream press when reporting on the sale of NFTs; reporters often assume that it is the work itself that has been sold, which is not the case. Understandably, it is difficult to comprehend that buyers of NFTs are spending such large sums of money on what amounts to a metadata file and a short string of numbers and letters of dubious artistic value, but that’s exactly what most NFTs are.
Nonetheless, copyright may well come into play, at least for some NFTs. For example, one possible use of these tokens might be in some sort of digital rights management scheme. While most NFTs do not involve a transfer of rights, in some instances the seller offers to turn the token into an actual transfer of copyright ownership of the original work.
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