The past several years have seen the eruption of digital assets in the global and American economies. Digital assets like Bitcoin and Ethereum have established a market of cryptocurrency that has already begun to change the legal landscape around intellectual property and securities. However, a new digital asset has gained popularity over the last year which has distinguished itself as a unique advantage to independent artists with unique works.
What Are NFTs & Why Do They Matter?
Non-fungible tokens (NFTs), which differ from fungible cryptocurrencies, are blockchain-certified, purchasable digital assets which hold unique, individual value. While NFTs can be purchased like other digital assets, they cannot be traded equally for another NFT because each NFT holds its own unique individual value. Essentially, there are no NFTs of the same kind. While many trade NFTs for their novelty, rhese emerging digital assets have two, more tangible uses which present unique opportunities to both businesses and individual artists.
First, NFTs can be used to authenticate real-world collectibles. Companies can use NFTs to authenticate tangible goods by creating a non-fungible token for each collectible, effectively attaching a “digital certificate of authenticity” to the collectible. This use could have a significant effect on reducing the existing counterfeit markets and present a plethora of unique authentication opportunities to businesses dealing in custom or collectible goods.1
Second, NFTs can be used to represent ownership of a digital asset. Attaching an NFT to a unique work of art, a photo, or even music can offer artists a unique opportunity to authenticate their digital assets by having a digital “key” to track and record transactions. Through NFTs, artists have an opportunity to attach a unique digital asset to their work which can essentially authenticate the work as original and links back to the creator. The online art community has already begun its immersion into crypto-art and NFT attachment to their works. One popular online creator community, The Foundation App (simply known as “Foundation”), is just one platform that allows members to create NFTs, attach them to their art, and sell their digital art at auction using the Ethereum cryptocurrency and blockchain. The app states that its creators have collectively earned over $52 million in Ethereum since the platform’s launch in February of 2021. Further, NFTs track transactions on the blockchain and can even track the value of the goods over time. NFT’s can also direct select portions of secondhand sale proceeds back to the original creator.
NFTs & Copyrights Are Not the Same.
While the potential upside to NFT usage is significant, the technology is new and there are a few basics that prospective NFT users should be aware of from a legal standpoint. Primarily, having an NFT does not, of itself, offer copyright protection to digital works. An Intellectual Property professor at Harvard Law School, Rebecca Tushnet, stated in an interview that “[i]f the sale or memorialization of an NFT involve[s] reproducing and distributing a work that is under copyright…then copyright will cover those reproductions unless a limitation or exception like fair use applies.” Attaching an NFT to a digital work will not offer the owner any greater legal rights in terms of ownership. If the creator of an NFT does not own the copyright to a digital work attached to the NFT, they will not gain any legal right to the work through the NFT. The owner of the digital work would still have to explicitly transfer their copyright ownership.
Tushnet further explains that the law already has protections in place for NFTs. Existing copyright law applies to the ownership of the works attached to NFTs, allowing owners of the original work to sue for copyright infringement over their works which are associated with NFTs in the same fashion as those which are not. An NFT does not offer any other protection for users other than simply creating its own, unique chain of title on the blockchain, which has no more bearing on copyright than offering a secondary form of authenticating the work so long as the creator of the NFT is the creator of the work it is attached to.
In short, NFTs do not and cannot change an artist’s copyright to their original works.
Ultimately, NFTs present a unique opportunity to artists, businesses, and others interested in the crypto market. However, the future of NFTs is somewhat uncertain as to whether this presents a rise in value for creators or if the market is simply another bubble ready to burst. The greatest, and seemingly most concrete, advantage to this new technology is the authentication value and potential NFTs have to decrease counterfeit markets. However, NFTs still operate under existing copyright law, and creators or potential NFT users should contact an attorney with any concerns they have over copyright protection of their works.
If you are interested in obtaining copyright protection or are considering NFTs as an alternative, contact Darkhorse Attorneys today to schedule a consult.
