NFTs and the law

It is important to note that unlike a currency, non-Fungible Tokens, are not made to have equivalent fractional values. An NFT is designed to have a unique exchangeable value. This is important for copyright, intellectual property and digital property rights. It’s the Wild West but laws still exist.

This uniqueness of each NFT has driven the public’s perception of NFT digital scarcity. At the most basic level, this is supply and demand. Will these images represent the earliest assets in Web3 history?

How NFTs impact copyright owners

Both Fungible and Non-Fungible Tokens reside on a blockchain. The downside to this is that, particularly when dealing with larger files like a piece of artwork, the blockchain is unable to store the actual underlying digital asset. The result, as described by one of the original NFT creators, Anil Dash is that, “[t]his means that when someone buys an NFT, they’re not buying the actual digital artwork; they’re buying a link to it”.

This means conceptions of “ownership” are complicated.

Something like a land asset registry?

On the other hand, the ownership history of NFTs is the blockchain equivalent of real property records recorded with the local country’s recorder of deeds or the relevant Land Titles Registry.

So you have a clear proof of title (on chain), but mostly untried ways of winning a legal dispute, or even of the exact nature of the legal asset (the NFT).

Tips for not running afoul of the law

Where there is a unique work of finite number with high demand there will be counterfeit or scam attempts. Despite the protests of the open source community, legal cases involving NFTs are emerging.

For example, on July 1, 2021, one of the most well-known NFT creators, Larva Labs (that created the CryptoPunk project), submitted a Digital Millennium Copyright Act (DMCA) takedown request to NFT platform Foundation for the online display of CryptoPunk work offered by Ryder Ripps as a work of his own.

The ongoing dispute provides evidence that crypto-artists are not immune to copycats, despite NFTs being on a blockchain.

CryptoFUNKS and Sad Frogs District are other two notable examples of copyright claims leading to takedowns of cloned projects. Ironically, OpenSea de-listing the NFT clone CryptoFUNKS in October 2021, probably increased its popularity. OpenSea had received a takedown notice from Larva Labs requesting the delisting due to copyright infringements. It was a similar story with PolygonPunks in August, though they reappeared in September 2021.

Now it’s your turn

What do you think about the statement by Anil Dash that, “when someone buys an NFT, they’re not buying the actual digital artwork; they’re buying a link to it”? Do you agree? Why or why not? Share your thoughts in the comments.