NFT’s, Blockchain & Copyright

Non-Fungible Tokens, or NFT’s are unique digital asset that is verified and stored on a blockchain network. While cryptocurrencies are interchangeable and can be divided into smaller units, NFTs are one-of-a-kind and cannot be divided, thus non-fungible. They can represent ownership of a specific asset, such as digital art, music, or other collectibles. More on this later.

I think NFT’s are pretty dumb. The majority are forms of useless artwork, some no bigger than the icons on a windows desktop that sell for hundreds of $’s. The “Pudgy Penguin #4066” shown to the right is priced at $8000. I don’t know anyone who would pay that for a digital cartoon, but obviously there must be many who will. Nor do I know what one would do with it since, unlike “Starry Night” and all “real” art that can hang on a wall, it exists as only bits. (My kids would point out that I am not the right demographic.)

`But then I considered that there may be other uses for NFT’s as an alternative, or adjunct to copyright, so I decided to give it a bit more study. Indeed, many NFT’s can be designed to transfer copyrights, but it turns out “ownership” it is not so simple. Here’s why.`

There is a big difference between NFT’s and on-chain fungible token assets. Bitcoin and contract tokens are on-chain assets because they exist entirely on the blockchain. If you have the token or coin, you own the asset and you can exchange it for money in the bank if you choose. NFT’s are tokens on a blockchain containing a digital asset, or represent something in the real world. My favorite example is the NFT that represents the 15” cube of tungsten weighing 2000 pounds (located at Midwest Tungsten Service of Willowbrook, Illinois). The NFT for the cube sold in 2021 for $250,000. The buyers own the NFT, but the cube is still in the warehouse in Illinois. The two are connected but are not the same. The assumption is that whoever owns the NFT of a physical asset controls the asset. However, this is not exactly true. Midwest Tungsten Service still controls the cube, and only allows the owner of the NFT to “visit” it once a year! ¹You can buy your own 4″ tungsten cube from Midwest Tungsten Service for $4,000 and it will be delivered to your front door. Be advised it weighs nearly 50 pounds.

Then there is the case of the folks that bought a copy of the highly detailed and lavishly illustrated pitch book that director Alejandro Jodorowsky made for a proposed but never-filmed version of Dune. Their plan was to buy the pitch book NFT and bring Jodorowsky’s vision to the screen. But even though they own the pitch book, the Dune copyright legally remained with the Frank Herbert estate, and the film rights remained with Legendary Entertainment, thus without owning the pitch book the estate and studio retained control of everything in the book – and banked $250K. Somebody paid a lot of money for a worthless NFT asset.

So you can see, when you consider non-physical assets like artwork or music, it gets complicated.

Copyrights give the creator a set of exclusive rights, which they can license freely in whole or in part. By contract sale, the creator can transfer ownership of the work in its entirety. ²Consider all the musicians in the 60’s and 70’s who transferred all their rights to unscrupulous producers and receive no compensation for their former intellectual property.

Books work similarly – The author licenses a publisher to print the book under specific terms and conditions. The publisher owns the printed books, but the author owns the words. The author can then license other publishers to create a paperback, an ebook, and an audiobook. And (if he is lucky or good) he can license another company to make a movie or TV series. He never lost ownership of the words and control of how they can be used. ³Movie option contracts can be written so the author no longer has little control of his words, and the movie looks nothing like the book. Read the Lee Child book “One Shot” and then watch the 2012 Tom Cruise movie!

Because of the explosion of digital assets, traditional copyright law, which has always focused on physical things, has yet to fully understand what counts as a copy. For example, an audiobook on CD is copy protected by DRM, but the version of the audiobook I downloaded from my library’s Overdrive account to my MP3 player is a different thing because MP3 audio files have no DRM capability. I am really not sure of what kind of “license” I have that allows me to listen to it.

So without careful research of what your NFT is, as well as a thorough legal review by someone who understands both blockchain and copyright, you cannot rely on an NFT to protect any non-physical work you consider truly valuable. So the NFT as equivalent to copyright will require changes in the governing law.

There are other uses for NFT’s that may be well-founded, and I will address some of them in IPFS, WEB 3 & Decentralization – Part 3

Notes:

• 1
  You can buy your own 4″ tungsten cube from Midwest Tungsten Service for $4,000 and it will be delivered to your front door. Be advised it weighs nearly 50 pounds.
• 2
  Consider all the musicians in the 60’s and 70’s who transferred all their rights to unscrupulous producers and receive no compensation for their former intellectual property.
• 3
  Movie option contracts can be written so the author no longer has little control of his words, and the movie looks nothing like the book. Read the Lee Child book “One Shot” and then watch the 2012 Tom Cruise movie!