69,346,250 US$. This is the price for which the work “EVERYDAYS: THE FIRST 5000 DAYS” by the artist Beeple was sold. Beyond the enormous sum of money, what is the peculiarity of this sale? 1) it is a JPG, that is to say, it is a digital work; 2) it is the third most expensive object bought at auction by a living artist; 3) it’s an NFT.
But What NFT stands for? NFT is the acronym for Non Fungible Token. To better understand the concept of NFTs, we shall break down the terms.
1. Token: is an individual unit created by some organisations in order to provide their users with a product of value for interacting with the company. Therefore, a token can represent a currency, a share, a property, a financial asset.
2. Non-fungible: it is a unique thing that cannot be replaced by any other.
In this context, NFTs can be defined as unique, encrypted, blockchain-linked digital assets. In short, blockchain is nothing more than a ledger in which records are linked and encrypted to protect the security and privacy of transactions. While generally associated with cryptocurrencies, a blockchain network is nothing more than a secure, distributed database that can be applied to any type of transaction.
So, NFTs are a form of digital asset. The difference between NFTs and cryptocurrencies such as Bitcoin is that the former represent works of art, music, videos, images, among others. Like any asset, their value is determined by their market demand. Unlike cryptocurrencies that are fungible, i.e. interchangeable one for another, each NFT is non-fungible, and therefore unique and limited in quantity. For this reason, they are also called crypto-collectibles or collector cryptocurrencies. In plain English, a bitcoin will always be exchangeable for another bitcoin, but an album signed by Madonna cannot be exchanged for a song by Elon Musk, as they do not have the same value.
To make it simpler, we could think of NFTs as the first edition of a book signed by the author, a print of a work signed by the artist, or a vinyl album signed by the whole band. There may be thousands of copies of the aforementioned works, but the signed editions, being limited, will be more valuable.
Many celebrities and artists have joined this new trend, such as Kings Of Leon who will sell a limited amount of copies of their album as NFTs, Lindsay Lohan who has sold copies of her single “Lullaby” as NFTs, Canadian DJ Deadmau5 has sold collectibles, as well as artist Tory Larenz who will share three unreleased tracks from his brand new album PLAYBOY as NFTs. Although this phenomenon makes the news when it is carried out by big-name artists, this by no means implies that it is only reserved for the industry’s biggest names.
However, there are three aspects of NFTs that are beneficial to artists:
1. Authenticity of the works: the identity and other essential information of the work can be easily tracked thanks to blockchain verification. So, whenever someone wants to resell your piece, it is easy for buyers to check if the piece is original. Moreover, thanks to blockchain it can always be confirmed who the current owner is.
2. Cutting out the intermediaries: NFTs offer the opportunity for digital artists to sell directly to the marketplace.
3. Royalty income: A royalty function can be programmed into the work so that, in case of resale, a certain percentage is received.
It should also be noted that the acquisition of an NFT does not in any way confer ownership of the intellectual property rights over the work. As determined by the Law on Intellectual Property, the intellectual property of an artistic work belongs to the author by the mere fact of its creation. As noted above, ownership of an NFT is nothing more than proof that one has a unique digital version of a work. The exception would be if there is an express transfer of the intellectual property of the work with the sale of the NFT.
While we have mentioned the benefits that the commercialisation of NFTs could bring, from the intellectual property rights protection perspective there are some – not minor – issues that deserve to be pointed out:
While the general rule would be that the creator of the NFT is the copyright owner of the work, as is often the case on the internet, there have started to be cases where “pirated NTFs” are created, i.e. works copied without permission and offered for sale. So the benefits of the blockchain can quickly become an impediment to identifying the copyright holder, due to the characteristics of the blockchain network itself.
Let us explain: while at first it may seem that by acquiring an NFT you are acquiring a copy of the work, what you are really acquiring is a unique receipt registered on the blockchain, which is nothing more than a certificate of ownership linked to a work that already exists in the world. In most cases this certificate is linked to the work by a URL (a link to a website). And here comes the problem, anyone can create an NFT on any work without having the authorisation to do so; this circumstance, added to the anonymity of creators and buyers of NFTs, could result in great difficulty in enforcing intellectual property rights against possible infringers.
In conclusion, as has always been the case in recent history, technology is advancing by leaps and bounds compared to the law. So while NFTs are new to the market and are attracting a great deal of attention, it is still advisable to approach them with caution.
Nicolás Matías Mansilla
Legal & Licensing Assistant at Unison