Non-fungible tokens (NFT) are suddenly in the spotlight after millions of sales of digital artwork. How are these blockchain watermarks actually related to copyright?
March 11, collage of images Every day: the first 5000 days by digital artist Beeple suddenly became the world’s third most expensive work of art by a living artist. The sculpture Rabbit (1986) by Jeff Koons is still at #1 with $91.1 million, but with 42,329 Ether ($69.3 million) at Christie’s auction house for an NFT on his artwork, Beeple shot third Market Stall† Mike Winkelmann (Beeple’s real name) immediately called the multibillion-dollar NFT prices a bubble, comparable to the times of the dot-com crash, and immediately traded most of his Ethers for dollars. The buyer Vignesh Sundaresan (aka Metakovan), a programmer from Singapore bought only the right to display the artwork. Copyright remained with Beeple.
Non-fungible tokens (NFT) are now offered in all shapes and sizes. From movies of famous basketball dunks (NBA ‘Moments’) to hackers, including zero-days (leaks still unpublished in software) put on sale like NFTs. At the moment, NFTs raise many questions. What can they be used for? How are NFTs related to copyright? And what do you actually own as an NFT owner?
Precursor ‘Coloured Coins’
To start with that last question. An NFT is a digital claim to a unique piece of the blockchain. Ethereum is the most widely used blockchain for this, but other blockchains are also suitable. The first precursor to today’s non-tradable claim was the colored coins on the Bitcoin blockchain in 2012: blockchains of small denominations down to a single satoshi, the smallest unit Bitcoin can be divided into. If the blockchain your NFT is ‘pointed’ to ceases to exist, or if the file referenced by an NFT is deleted, you will likely be left empty-handed. An NFT is compared to the purchase deed of a house. That is a document, but it is not the house itself. The deed of purchase is recorded in a public register, with which you can assert your claim in court. If the registry (the block chain) disappears, it will be difficult. It is also questionable how a judge will read the claim made in an NFT.
Earlier this month, California-based comic book publisher Marvel threatened legal action against cartoonists who sold NFTs on their own creations. Marvel owns the copyright to the characters, which were traded on the Rarible platform. Rarible then decided to make all relevant NFTs invisible. Owners can still view them on other platforms, but not on Rarible, which is one of the largest NFT exchanges along with OpenSea.
Whether an NFT includes a copyright transfer depends on what is recorded in the metadata. Handelshuis Christie’s and, for example, the American Basketball Association exclude the transfer of intellectual property in the conditions. Attorney Catalina Goanta points out that Decentraland (a virtual world where NFTs represent the earth) makes contradictory intellectual property claims. On the one hand, the virtual world is fully owned by the users, on the other hand, the parent company Metaverse Holdings Ltd retains all ownership and intellectual property of the site.
But it can also be different. Canadian company Dapper Labs, which sparked the first big NFT craze in 2017 (the CryptoKitties game with virtual cats that can be fixed, traded, and even played, became so popular that Ethereum almost clogs up) has put together a clear NFT license that serves as a model for the sector. For example, you can make a maximum profit of $100,000 from the exploitation of an NFT, which is under the license.
The Bluebox platform offers musicians the opportunity to sell an NFT of their songs through a smart contract. The copyright for each track is divided into 100 parts and sold. In this way, enthusiasts can also benefit if an unknown artist grows up. Artists Big Zulu and Taylor Bennett have already sold 75% of the rights to their new album in this way. According to Lee Parsons, director of parent company Ditto Music, smart contracts can also collect royalties automatically. “What we’ve created here is ultimately a way for thousands of fans to invest in music as an investment.”
Addition to the watermark
Peter Blok, Professor of Intellectual Property at Utrecht University, sees opportunities for artists to strengthen their copyright position through NFTs: “NFTs are interesting for copyright because they make it easier to register what what is ‘real’ and what is a copy, for example already best possible in the analog art world. This was much more difficult with digital artworks. Copyright owners have been trying to find ways to make this possible, like copy protection or digital watermarking. The main difference is that NFTs make an instance unique. So you can see not only that it’s authentic and legitimately traded, but also that it’s of a specific copy. As before, limited edition editions. A watermark and an NFT solve the same problem with copyright: you can see that it is a copy made with the permission of the owner. copyright age.
Blok immediately corrects a misunderstanding: in the Netherlands it is not necessary to register a creation to obtain copyright: ‘Copyright arises by operation of law when a work is created. You don’t have to register it anywhere for that. When an NFT is used to mark a collector’s item, it is used in parallel to the copyright system. “At least, from what I can see, it’s not at odds with that.”
Theoretically, a creator could register the same item across different blockchains. How bad is that? Block: ‘That’s right. But of course now you also have that problem with ‘limited editions’. One manufacturer can make another contrary to the agreement. Your lithograph may suddenly turn out to be not number 2, but number 23 or something.
In general, Blok is positive about the ultimate possibilities of NFTs for artists: “This allows artists to access new sources of income.” However, some teething problems still need to be ironed out. The references must be stored neatly in the “public cash book”, which is a chain of blocks. British web architect Jonty Wareing he is very worried about this for owners of early NFTs. If the NFT contains a simple link to a startup server, which is not protected on a decentralized blockchain, your NFT will be “empty” if the startup goes bankrupt. ‘Many NFTs are built like houses of cards by vendors. All NFTs sold so far are likely to go bust within ten years. Does that make them useless? Hard to say.’
An NFT for each photo
Once such flaws have been ironed out, the future may well get brighter. Sheila Warren, head of blockchain and data policy at the World Economic Forum, expects NFTs to be inextricably linked to every digital creation within a decade or so. ‘If you take a photo, it will immediately have an NFT attached to it. For younger generations, ‘digital first’ has been around for some time and there is no such thing as an analogue original.’ According to Warren, we will soon find it normal for each creation to be traceable to its source with a corresponding reward for its use.
Meanwhile, questions remain. For example, under which legal system are NFTs found? There are big differences in copyright between different countries. In addition to programmers and artists, NFTs can also provide a lot of work for intellectual property lawyers.