NFTs can be used to create artificial scarcity by creating only one NFT to represent a work, bringing “ownership” of a digital work of art more in line with ownership of a physical work of art.
The crypto craze about non-fungible tokens (“NFTs”) has been on an upswing and has opened many doors for digital artists. NFTs truly hit the mainstream in 2017 with CryptoPunks, the first ever non-fungible digital art, and CryptoKitties, a game on Ethereum blockchain where users can adopt and raise virtual cats.
Recently, some NFTs selling for jaw-dropping sums have been hard to miss. Nyan Cat, an iconic GIF of a cat with a Pop-Tart for a torso flying through space, sold for roughly $600,000. Twitter CEO Jack Dorsey’s first tweet sold for around $3,000,000. And an NFT representing digital artist Beeple’s Everydays: the First 5000 Days collage auctioned at Christie’s for a whooping $69,000,000 setting the record of being the third most expensive artwork ever sold from a living artist.
While NFTs offer a fresh avenue for creators to get paid for digital assets, many have raised questions about what precisely an NFT holder “owns” with regard to the digital commodity and whether that ownership includes copyrights. This post tries to explain these concepts and how they relate to ownership of physical commodities.
NFTs are unique cryptographic assets that exist on a blockchain. NFTs provide digital asset owners with a registration record to track and verify ownership of a digital file thereby facilitating the sale of digital items. Because NFTs can be used to represent unique digital items, they provide a way for individuals to own and collect “authentic” versions of digitally native assets.
Since digital art can be readily copied and shared online in its original form, digital artists have struggled to monetize their creations . NFTs don’t change this: digital files represented by NFTs can still be copied and shared (setting aside the copyright implications of doing so). However, NFTs represent something that cannot be copied: the right to claim ownership of the underlying digital work. In this respect, NFTs can be used to create artificial scarcity by creating only one NFT to represent a work, bringing “ownership” of a digital work of art more in line with ownership of a physical work of art.
Like physical art, the NFT itself can be sold. The record keeping function of the blockchain, allows artists to get a percentage of the sales proceeds every time the ownership changes hands on the secondary market, somewhat akin to an artist resale, or droit de suite, existing in many European countries and where the artists receive royalties for their works when they are resold.
An NFT does not transfer intellectual property rights to the NFT holder by itself. This means without an additional license or transfer of copyrights, the NFT holder does not acquire the rights to make and sell copies of the digital artwork. While this may seem disconcerting, this is comparable to how ownership works in the physical world: the ownership of a physical object is distinct from the ownership of copyright. The owner of a painting may do whatever she wants with the physical copy—sell it, give it away, etc.—but she does not acquire the copyrights of the painting simply by purchasing the physical copy. Without further authorization, the owner of a copyrighted painting typically cannot, for example, make and sell greeting cards with copies of the painting on them, which would be unauthorized reproductions of the work. In this manner, ownership of the NFT is similar to owning a physical copy of any creative work, even though the NFT owner simply has the token recording ownership rather than a physical manifestation of the object.
That said, a digital artist can elect to transfer or license some or all or of her copyrights to the NFT holder. For example, when MetaKoven bought the NFT representing Beeple’s Everydays at auction, he also acquired some rights to display the artwork online. While it is not yet clear what MetaKoven will do with these rights with respect to Everydays, in December he purchased a different collection of digital artworks by Beeple, which he is displaying in a digital museum (where he is also selling fractionalized ownership of the collection). Whether art lovers will find the virtual gallery experience approachable, let alone a satisfactory parallel to the analog world—and whether collectors and investors will continue to find appeal in ownership of NFTs—is yet to be determined.
Authors of written works looking for opportunities to take advantage of the NFT craze may consider looking at the recent sale of a New York Times column about NFTs by Kevin Roose that was itself turned into an NFT. Pitched as “the first article in the almost 170-year history of The Times to be distributed as an NFT,” it recently sold for $560,000 in a charity auction. Illustrating the concept that ownership of the NFT does not itself transfer any copyrights, Roose’s article clearly mentions “the NFT does not include the copyright to the article or any reproduction or syndication rights.” The NFT holder acquires no more rights to copy and share the article than someone who accesses the column through their New York Times digital subscription or who has a copy of the Times delivered each morning.
Unsurprisingly, commentators disagree as to whether the NFT hype is here to stay or will soon die down. In the meantime, NFTs offer a novel way for tech savvy creators to bring attention to and potentially monetize their digital works.
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