NFT Ownership: A Comprehensive Analysis
Economists use the term “fungible good” to describe things that are essentially interchangeable in the real world. For instance, one bushel of apples is the same as another, and one copper coin is indistinguishable from another. However, the moment you digitize these apples with certain variations and put them up for auction as NFTs, things start to get intriguing, don’t they?
On the other hand, non-fungible tokens are in high demand in the digital world. The conversation about what is real and what is not has been a persistent topic throughout history, left to the contemplation of great minds. One can’t help but wonder what Socrates, Plato, and Aristotle would think of NFTs if they were alive today. Surely, their NFTs would fetch astronomical prices, and perhaps a deeper exploration of Plato’s Theory of Forms in relation to NFTs would be fitting in this technological age, where the Technium, the Seventh Kingdom of Life, mediates our existence. Maybe such a comparison would warrant commentary from Newton as well. Alas, if only wishes were apples, Newton could calculate them.
An NFT is a blockchain-encoded cryptographic record of ownership for a one-of-a-kind item. It keeps track of who owns what, but it is not the same as the item itself. Think of it as similar to a house deed.
The most common form of an NFT is a piece of code inserted into the blockchain, consisting of various pieces of data. NFTs can take various forms, but the most typical is a metadata file containing encapsulated information about the tokenized work. Another option is uploading the entire work to the blockchain, but this is less common due to the cost.
The NFT’s foundation is built upon two fundamental components: the tokenID, generated upon its creation, and the contract address, a blockchain address accessible worldwide using a blockchain scanner. The unique combination of these parts makes the NFT distinct, with only one token of that specific tokenID and contract address existing in the world.
However, the NFT consists of more than just these two numbers. Other crucial elements can be included in the contract, such as the creator’s wallet address, linking the NFT to its creator. Since the NFT is not the actual work but rather a unique digital signature linked to an original work, most NFTs also provide a link to access the original piece. Yet, therein lies the challenge.
What is NFT Ownership?
This question is more complex than it appears, mainly due to the nature of NFTs. As previously mentioned, most tokens represent metadata of the work rather than the work itself, which may not infringe copyright when creating such a token. Hence, having a clear and accurate understanding of what a non-fungible token is in technical terms becomes essential.
Regarding the rights in an NFT, the Owner/Creator of the NFT determines the rights that are transferrable after the acquisition. Depending on the asset’s nature, the owner may choose to transfer absolute rights of ownership, occupation, and copyright to the buyer. On popular NFT marketplaces, each item for sale is accompanied by an attached NFT license that clearly outlines the rights the buyer owns upon purchase. These terms and conditions, predetermined by the creator, may include benefits such as outright ownership of the asset, exclusive access to the digital location where it is hosted (e.g., poems, pictures, and audio), resale rights, and the ability to receive a percentage of the bounty from further sales.
Determining copyright infringement in the minting of an NFT, even without authorization, can be challenging from a copyright standpoint. The resulting file cannot be considered a reproduction or adaptation of the work since the NFT is not the work itself, but rather a string of numbers related to the work.
When someone buys an NFT from the creator, they gain ownership of the NFT as their property. An NFT serves as a blockchain-traceable digital certificate of ownership representing the acquisition of a digital asset. However, it’s important to note that the NFT holder does not acquire further rights to the work, including copyright-related rights such as the right of public communication, adaptation, and reproduction. Similar to owning physical memorabilia, owning an NFT does not automatically grant the right to publicly display or sue for copyright infringement if someone copies the underlying work without consent. To obtain such rights, one must either be the copyright owner of the work or have the creator assign the copyright to them through a written agreement.
NFT buyers should be aware that engaging in activities related to the underlying work without the authorization of the right holder constitutes copyright infringement. Only through provisions included in the NFT, in the form of a license, can such rights be legally transferred.
Though NFTs are primarily metadata files and not directly tied to copyright principles, there is a growing interest in NFTs from a copyright standpoint, especially when dealing with copyright-protected works like art. The ambiguity surrounding what buyers actually acquire when purchasing an NFT has spurred discussions and considerations about copyright implications.
Navigating NFT Confusion: Is an NFT Consubstantial With the Original Creation?
It’s not every day that an obscure word like “consubstantial” becomes a topic of contention in the Roman Catholic Church. However, this was the case when The New York Times reported that its use in liturgy was causing confusion, as it was introduced in an effort to adhere closely to the original intent of the Latin Mass. The argument was that it could befuddle the average Roman Catholic and lead to a “pastoral disaster.”
The translation referred to Jesus Christ as “one in Being with the Father,” but the new translation rendered it as “consubstantial with the Father” (translating the Latin phrase “consubstantiálem Patri”).
Interestingly, this liturgical obscurity finds a fitting analogy in the current confusion surrounding all things blockchain, particularly Non-Fungible Tokens (NFTs). This raises the question: is an NFT consubstantial with the original creation? We must explore various angles to understand this digital-liturgical enigma.
The considerable amounts of money spent on NFT tokens have contributed to some of the confusion. When pixelated art sells for millions of dollars, it’s not unreasonable to assume that buyers perceive NFTs as more than just pieces of code.
The mainstream press reporting on NFT sales is also perplexed; reporters often misconstrue that the actual work has been sold, which is not the case. Understandably, buyers are willing to pay exorbitant prices for what essentially amounts to a metadata file and a sequence of numbers and letters with questionable artistic merit.
Copyright considerations come into play, especially for certain NFTs. While most NFTs do not entail a transfer of rights, some sellers may offer to convert the token into a copyright ownership transfer of the original work. However, determining whether this complies with the legal requirements for copyright transfer presents challenges. For instance, the Copyright Designs and Patents Act 1988 in the United Kingdom mandates a copyright assignment “in writing signed by or on behalf of the assignor.” Additionally, the Principle of Exhaustion in the US states that once a copyrighted work is placed in circulation with the copyright holder’s consent, the holder can no longer object to that copy residing with the person who owns it. It’s hard to envision how an NFT could meet these criteria.
The blockchain serves as an immutable record of ownership claims, which might be viewed as a form of registration for all NFTs. However, this concept encounters practical issues, as anyone with technical expertise can create their own token with any information they desire, potentially leading to false ownership rights recorded in the blockchain.
The concept of licensing and agreements can theoretically be coded into smart contracts. NFT platforms could offer cryptographic smart contract licenses in the form of NFTs, but many platforms lack consistent terms and restrictions.
Another concern is copyright infringement. Cases of alleged copyright violation have already been discovered in NFT markets, where infringing entries exist. Artists have expressed their displeasure on social media about their works being minted as NFTs without their consent.
While many infringement cases have been resolved outside the courts, one can anticipate a future legal dispute questioning whether an NFT infringes on a copyright holder’s rights.
When it comes to the current international situation of artists’ resale rights, the minting of an NFT by the author of a creative work may have broader ramifications. The production and selling of NFTs is mostly uncontrolled, although they are widely available to a global audience.
While there have been decades of litigation in the United States over artists’ resale royalty rights, usually known as droit de suite, NFTs provide artists with viable remedies in this regard. The United States as a whole has long opposed the idea. NFT platforms, on the other extreme, allow artists to claim resale royalties on subsequent sales of their work that aren’t normally available in specific regions. Even though it is unclear what impact NFTs may have in the long run on both domestic and international copyright rules, it appears that the traditional barriers to copyright owners still persist, albeit with some extra benefits.