Since 2021, NFTs have grown more popular with the general public, bridging the gap between art and technology. According to an expert in intellectual property law, when acquiring NFTs, the work itself is not owned, but rather the metadata is.

With the present novelty of NFTs, the concept of copyright seems to be creating uncertainty and grey regions.

The advent of the non-fungible token (NFT), the newest craze in distributed ledgers and cryptocurrencies, has been one of the most high-profile technical stories of 2021. The art and technology sectors are agog over this game-changing innovation.

For the equivalent of USD 2.5 million, Twitter CEO Jack Dorsey sold an NFT of his first tweet. There were NBA Top Shots, “one-of-a-kind” NFTs of NBA moments that the NBA was selling, and their value has skyrocketed. Christie’s auctioned off an NFT of a Beeple collage and sold it to a crypto entrepreneur who paid roughly USD 70 million for it. Nyan Cat, a pop tart-shaped animated cat, has sold for more than $1 million at auction. Grimes has purchased more than six million dollars worth of digital artwork.

What exactly is going on? What are Non-Ferrous Metals (NFTs)? And what role does copyright play in all of this?

Basics of NFT

To begin, what is an NFT? Using blockchain technology, assets may be tokenized, where a token is a digital unit of value that is stored on a digital ledger. Tokens may represent a wide range of things, from commodities and loyalty points to shares and coins, to name just a few.

The most widely used standard for fungible tokens is the Ethereum infrastructure, which uses the ERC20 standard to deploy tokens within. Fungible items may be exchanged independently of the precise object being sold or purchased. Silver, gold, oil, and grain are all examples of commodities that tend to be interchangeable. However, non-fungible products are one-of-a-kind items, such as custom-made silver necklaces, golden sculptures, or a painting. They are not interchangeable with other items. The ERC-721 token standard is used for non-fungible products.

A non-fungible token may be made from any digital work, including tangible objects, that can be represented digitally, such as a photo, video, or scan.

A picture collection dubbed Cryptopunks was launched in June 2017 as the first use of the NFT standard in the Ethereum ecosystem. Memes, music albums, and digital art have all been converted into NFTs in the ensuing years.

Metadata files comprising information encoded with a digital copy of the tokenized work are the most prevalent kind of NFT. It’s rare to see a project where the complete work is uploaded to the blockchain since the process is costly.

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An NFT is a bit of code inserted into the blockchain, which is the most prevalent form. Each element of information in that code is referred to as a code. It is required that some parts be included, while other aspects are optional according to the ERC-721 standard for NFTs. NFTs are composed of two main components: the tokenID, which is produced when the token is created, and a blockchain address, which can be accessed anywhere in the world using a blockchain scanner. Tokens are only as unique as their combination of tokenID and contract address; no other tokens with that combination exist. The NFT is nothing more than these two numbers at its foundation. However, other significant aspects of the contract might be included. One is the wallet address of the developer, which allows identifying the NFT with its source. Because the NFT is not the work itself but rather a unique digital signature connected to an original work, most NFTs also provide a link to where the actual work may be accessed.

• A table containing NFT information
• The NFT’s underlying numbers are known as metadata.

Copyright and NFTs

You might be forgiven for not thinking about copyright at all based on the previous explanation of NFTs. A metadata file encoded with a work that may or may not be protected by copyright (you could theoretically build an NFT of a trademark) or even a work in the public domain is the most common kind of non-fungible token. In the initial phase of the process, the original effort is only required to produce the unique combination of the tokenID and the contract address, which is then used to construct an NFT. As a result, in theory, NFTs have no connection to copyright.

However, an increasing interest in NFTs is due to copyright concerns, partly because many of the works that are exchanged as NFTs, like works of art protected by copyright, and because there is a lack of clarity about what you receive when you receive acquire an NFT.

There is widespread confusion.

Confusion about customers’ rights when they purchase an NFT is a significant concern. Buyers may mistakenly believe they are acquiring the original piece of art and all of its associated rights. In truth, they are just purchasing the information for the work and not the actual piece of art.

The cost of the tokens may be a factor in some misunderstandings. For $1 million, it’s safe to conclude that the buyer has gotten something more than just a bunch of pixels.

Mainstream reporting on NFT sales is becoming more muddled, with reporters typically assuming that the work has been sold, which is not the case. It’s hard to fathom why people purchase NFTs for so much money when most of what they get is a metadata file and a short string of numbers and letters with uncertain aesthetic merit.

There is a possibility that certain NFTs may fall under copyright law. Tokens might, for example, be used in a digital rights management system. This is rare when a merchant promises to change a token into a real copyright transfer of ownership of the original work. However, it’s hard to tell whether this is to the legal requirements for transferring copyright. According to the UK’s Copyright Designs and Patents Act 1988 (CDPA), a copyright assignment must be “in writing and signed by or on behalf of the assignor” to transfer rights. It’s hard to see how an NFT might meet those conditions.

Other forms of digital rights management might benefit from NFTs. NFTs may be seen in some ways as forms of registration. The blockchain serves as an immutable record of ownership claims and serves to confirm or assess validity. Because anybody with adequate technical expertise and the necessary tools may manufacture their own tokens, and this token includes whatever information that the creator chooses to add, the notion immediately runs into practical difficulties. As a result, anybody may create false claims of ownership of a cryptocurrency and then record them on the blockchain.

What about authorizations? In principle, a smart contract may implement any form of agreement. Smart agreements established in code between parties are kept on a blockchain and cannot be modified, known as smart agreements. Using an NFT, we can get permission to do something that would otherwise be illegal due to copyright restrictions if we define a license in this way. According to our research, no NFT-based cryptographic smart contract licenses are available in this writing. Even when they give licensing, many platforms and collecting projects do so with ambiguous or nonexistent terms and conditions.

A copyright infringement problem might also arise. An NFT that does not belong to you may be generated by someone else. This is more than simply a speculative exercise. There have already been several reports of possible copyright violations. Many pirated listings may be found on NFT markets with a basic search. Several artists have used social media who claim that their NFTs have been minted without their consent. Dutch public domain artworks have also been used in NFTs. The withdrawal of the token from the auction site has been the most common method of resolving violation cases.

One of these instances will be tested, and then the issue of whether or not the NFT violates a copyright holder’s rights will be raised.

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There are still five major obstacles that NFTs must overcome.

There are a few reasons why you don’t own an NFT when you purchase one:

There are just three of them in the NFT gallery.

Some NFTs have sold for more than $2 million on the open market.

Image courtesy of WIPO/Alamy Stock Photo/UPI

An NFT’s nature makes the question more difficult to answer than it first seems. Copyright may not apply to most tokens since, as previously said, they are not the work itself but rather its information. As explained above, a grasp of the technical phrase “non-fungible token” is essential for this discussion.

Even without authorization, it is difficult to understand how the minting of an NFT could be regarded as copyright infringement from a legal standpoint. The resultant file could not be deemed a replica or even an adaptation since the NFT is not the work itself but rather a series of numbers formed in response to a work.

In order for an infringement to occur, there are usually three conditions that must be satisfied. In the first place, the infringement will have violated one of the author’s exclusive rights. Second, the allegedly infringing work must have been derived directly from the original to establish a causal link between the NFT and it. It’s also likely that the whole work, or at least a significant portion of it, has been reproduced. It’s hard to see how an NFT might achieve these standards, but this will be a contentious issue in the years to come. We’ve already seen copyright infringement lawsuits filed. Film producer Miramax is suing Pulp Fiction filmmaker Quentin Tarantino over his intention to produce and market NFTs using the Pulp Fiction film’s name, copyright, and contract, among other things.

This includes the right to reproduce, publish, lend, and rent the work and the right to perform the work in public, as well as to authorize others to do so. A link in an NFT may violate only the right to communicate to the public since the token and the work are causally linked in such a circumstance. Because NFTs are code, they do not infringe on the creators’ copyrights of the work.

Even while writers may have redress for unlawful use by bringing an NFT claim against an NFT platform, it is not apparent that the author truly has the legal right to do so.

Finally

NFTs and copyright will inevitably come into contact, although most issues will be resolved at the platform level. By supporting the development of a marketplace where tokens may be sold, the market acts as a gatekeeper, preventing any violation. Despite this, there is a possibility that the NFT market may produce a significant number of copyright issues due to the structure of the market and the motivation for high profits. It will be fascinating to observe how dispute and ownership claims arise in the early days of potentially revolutionary technology.