NFTs: A Blockchain Bubble Set to Burst or a Revolution in Digital Art?
25 May 2021
NFTs have exploded in popularity, thanks to the blockchain boom and the rise of digital art. However, akin to blockchain, NFTs are a bit of a mystery to some, with many skeptics wondering whether it’s just a passing phase.
To help, we decided to break down NFTs in simple terms, taking note of the intellectual property issues that arise.
In a nutshell, an NFT is a unit of data stored on a digital ledger, known as a blockchain, which exists on the internet. The NFT acts as certification that a digital asset is unique. Let’s look at this in more detail.
Breaking down the techy terms
‘NFT’ stands for ‘non-fungible token’. If something is ‘fungible’ it can be replaced by another object or item as if they were identical (for example coins and banknotes). By contrast, an NFT is a token that is not mutually interchangeable in this way. Examples of unique, tangible items might include a Van Gogh painting or somebody’s house – the originals are irreplaceable, unique.
Hold up, what is a token?
A token is a bit like a digital container whose attributes change depending on what is placed within it. This is the bit that is held on the blockchain and represents a (digital) unit of value. It is stored on the blockchain.
Put together, an NFT is a bit of code that links the owner to an intangible asset (such as tweets, digital baseball cards real estate or digital art) which can be bought and sold online using cryptocurrency. Crucially, it’s important to note that the buyer of an NFT does not necessarily own the original digital artwork as a whole. The copyright and other associated creative rights in the artwork remain with the creator or owner. The buyer of the NFT receives a record, (in the form of a token) that is associated with the artwork.
NFTs in the news
You may have seen in the news recently that digital artworks are being auctioned and sold for hefty prices on the internet. Most notably, one of the founders of Twitter, Jack Dorsey sold his first tweet for $2.5m (£1.8m), whilst Beeple (aka, digital artist Mike Winkelmann) sold an NFT linked to a digital piece of art at with Christie’s auction house Auction for an eye-watering $69.3m (£50m).
But it’s not just millionaires and celebrities getting involved. At the time of writing, Chancellor Rishi Sunak is considering the introduction of a new, ‘Britcoin’ cryptocurrency backed by the Treasury and Bank of England. A dedicated task force will evaluate whether or not a centralised digital currency can open up further opportunities for the general public to obtain digital tokens and purchase digital assets, such as NFTs.
Why are they so popular right now?
As the rise of blockchain and cryptocurrency continues to gain momentum, NFTs have been hailed as a new way of selling art, making money, and taking ownership of intellectual property rights. All this, from the comfort of your own home, via the virtual world that we know as the internet.
NFTs are also innovative, shiny and new, and do not require transport, storage and other costs incurred with physical sculptures. The inherent creativity and novelty in NFTs is also one of the driving forces of tech investors, as it is opening up the ways in which artists can share and sell their work, without losing the entire piece altogether or the associated IP rights.
NFTs give talent the opportunity to reclaim revenue that has previously been denied to them … but it’s not straightforward and where there are overlapping copyright issues, it will surely lead to litigation.
How do they relate to intellectual property?
The next question you might wish to ask is, how do NFTs interact with intellectual property law? Intellectual property rights are associated with creative artworks in many ways, including through copyright. In the UK, copyright is an unregistered right that arises automatically upon creation of an original artwork, whether this is, for example, music, literature or a painting. The creator of the work can use, copy, perform or communicate that work in public, and anyone who wants to commercially exploit that work in any way must generally acquire a licence from them.
The works linked to NFTs are a form of art, therefore, can acquire copyright, (and potentially other IP rights) in this way. Lawyers are currently navigating through a brave new world of legal tech to distinguish who owns what in relation to the original work, versus the NFT that is linked to that work and how infringement can be tackled once NFTs are sold, and that sale is recorded on the blockchain. One might quickly assume that the creator or owner of the original artwork, and by consequence, the owner of the NFTs associated with that artwork, can protect their right not to be copied obtains equivalent rights to prevent copying of the linked work, to share it publicly or commercially exploit it and that, once purchased, those rights could not be undermined, or equally choose to share their rights through licencing agreements. NFTs have highlighted somewhat unprecedented legal questions which, in the online and tech industries, are difficult to answer under the existing law. As drafters, negotiators, mediators, and settlers of licences and contracts, or in worse cases, litigation and disputes over infringement, lawyers are bound to play a key part in the protection, defence and regulation of these new rights.
Moving forward, the law is constantly evolving, but the question will surely be, can it keep up with new, cutting edge technologies, such as NFTs, and at such a speedy pace?
If you would like to know more about any of the ideas discussed in this article, please contact the firm at firstname.lastname@example.org
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