Blockchain, cryptocurrency and NFTs can be divisive. For some they are a flash in the pan that haven’t quite lived up to the hype. For others, they are the future. Either way, there is no denying that recent sales of some NFTs (non-fungible tokens) have generated significant returns for sellers, but some confusion still remains about what NFTs are and what you actually get when you buy one.
Like most creative works, buying the original work does not necessarily grant the owner any right to the copyright in the work. Buying an original artwork that is protected by copyright may allow the owner to hang it on their wall, but it will not entitle the owner to reproduce that work and offer copies for sale.
Works which are protected by copyright (which usually runs for the lifetime of the creator and 70 years after their death) cannot be reproduced without assignation of the copyright or consent of the copyright owner. As the crypto group Spice DAO found out to their cost (€2.66m to be precise), purchasing an original book detailing the attempts to adapt the novel Dune, did not transfer the copyright in the underlying work.
The same principle applies to NFTs. While NFTs have been in existence for several years, their popularity has only really taken off over the last couple of years. While vast numbers of NFTs are exchanged for little or no value, some have been sold for eyewatering sums at auction. Last year, the NFT associated with a work by the digital artist Beeple, sold at Christie’s for $69.3m. When sums like that are paid for some NFTs, unwitting purchasers can assume they are purchasing something more than metadata.
Unlike traditional works of art, purchasing an NFT, doesn’t actually give ownership of the underlying work of art to the purchaser. Most NFTs are essentially a piece of code which represents a digital asset such as an image or video. Ownership of the NFT associated with that image, will not grant any ownership rights to that image.
What if the underlying copyright is sold?
While the purchaser may have the right to access a copy of the artwork, they won’t necessarily have any rights in the work itself or rights to copy that work. Those limitations could cause difficulties for purchasers who use the NFT image on their social media profile pictures. It also begs the question, what if the underlying copyright is sold? In theory, the new copyright owner could sue the NFT owner for copyright infringement is the NFT image is used.
Purchasers, therefore, need to be clear about what they are purchasing before parting with their hard-earned cash. Some NFT terms and conditions purport to grant rights which go beyond ownership of the NFT alone. However, it is worth bearing in mind that there are certain legal requirements for the effective transfer of ownership of copyright and the exclusive licensing of copyright. When making any significant purchase it’s therefore advisable to make sure that the paperwork entitles the purchaser to the rights they think they are acquiring.
But that’s not to say that NFTs have no value. Debate has long raged about the intrinsic value of works of art which may be constituted only of paint and canvas but command vast sums. In short, they are worth what the highest bidder is willing to pay.
Many NFTs are purchased because they mean something to the purchaser or perhaps record an historic moment – the first tweet or the invention of the internet. But others are using NFTs as a way of generating income in the way that a new line of merchandise or a share offering might be used. For example, the NBA Top Shot is a platform which allows users to trade NFTs associated with video clips of iconic basketball moments – a modern version of trading cards. The platform has proved successful with over a million registered users.
While NFTs can be a valuable source of income and valuable assets, buyers must remain wary of what they are actually buying before parting with their cash.