What just happened?
Since the start of 2021, there has been an insurgence of NFT based art-work sales, with the $250 million of total NFT volume traded in 2020, being surpassed by March of 2021[1]. Most significantly, on March 11, 2021, the artist Mike Winkelmann (‘Beeple’), sold an NFT of his work, at Christie’s auction house for a record breaking $69.3 million[2]. This sale is the third-highest price achieved by a living artist to date[3]. But what are NFT’s, and how do they impact the legal industry?
What does this mean?
Let’s begin with the very basics- an NFT is a ‘Non-Fungible Token’[4]. If something is non-fungible, it means that it is unique and cannot be replaced by another value or item. NFT’s are unique assets that live on a blockchain, in which a network of computers record transactions and give buyers certification of authenticity and ownership[5]. This technology makes it possible to create real-world scarcity of digital objects, and Mike Winkelmann is just one of the many artists that has seized this opportunity. The recent surge in NFT’s has been centralised mostly on images, GIFs, songs or videos and has had a significant impact on the art world. This is by no means a limitation however, as Twitter CEO Jack Dorsey recently sold his first tweet at auction for $2.9 million[6].
Some argue that NFT’s also provide a useful form of authenticity to digital art. With respect to digital art, infinite copies can be made with no compromise on quality. As such, digital creators lose out when it comes to monetizing their work. NFT’s offer a solution to this problem. Through generating unique and limited tokenized versions, a digital artist can commodify their work and protect it from counterfeiting[7]. As stated above, NFT’s can create a real-world scarcity of digital assets, which also works to artificially increase the NFT’s value in the market.
What does this mean for the legal sector?
The legal implications of NFT’s are vast and are still being discovered, which is what makes them so fascinating. NFT’s affect laws surrounding data protection, royalties and intellectual property. Even if an original artwork is subject to copyright, an NFT is not. It is just a digital receipt showing that the holder owns a version of a work. An NFT is not patentable and is also not a trademark[8]. NFT’s are therefore unsettling when it comes to IP law. This is because owning an NFT does not mean you also own the underlying original work. This could lead to infringement liability, if the owner of an NFT assumes that they purchased the original art associated with said NFT[9].
The NFT market is constantly evolving on a global scale and as it does, the surrounding legal and regulatory issues will too. It will be interesting to see whether the legal sector will effectively facilitate, and even benefit from, their use.
Written by Tatiana Hepher
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References
[1] Adam Chernichaw, Pratin Vallabhaneni and Shobha Lizaso, The Rise of NFTs – Opportunities and Legal Issues (White & Case , 20 April 2021) <https://www.whitecase.com/publications/alert/rise-nfts-opportunities-and-legal-issues>
[2] Josie Thaddeus-Johns: ‘What Are NFTs, Anyway? One Just Sold for $69 Million’ (The New York Times, 11 March 2021) <https://www.nytimes.com/2021/03/11/arts/design/what-is-an-nft.html>
[3] Scott Reyburn ‘JPG File Sells for $69 Million, as ‘NFT Mania’ Gathers Pace’ (The New York Times, 11 March 2021) <https://www.nytimes.com/2021/03/11/arts/design/nft-auction-christies-beeple.html>
[4] Mitchell Clark ‘NFTs, explained’ (The Verge, 11 March 2021) <https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-art-faq>
[5] Rakesh Sharma ‘Non-Fungible Token (NFT) Definition’ (Investopedia, 8 March 2021) <https://www.investopedia.com/non-fungible-tokens-nft-5115211>
[6] Kevin Shalvey ‘Twitter CEO Jack Dorsey's first tweet sold for $2.9 million on Sunday. The buyer said it's the Mona Lisa of tweets.’ (Business Insider 24 March 2021) <https://www.businessinsider.com/twitter-ceo-jack-dorsey-sell-first-tweet-nft-sunday-2021-3?r=DE&IR=T#:~:text=Twitter%20CEO%20Jack%20Dorsey's%20first,the%20Mona%20Lisa%20of%20tweets.&text=An%20NFT%20version%20of%20Twitter,Mona%20Lisa%2C%20said%20the%20buyer.>
[7] Adam Chernichaw, Pratin Vallabhaneni and Shobha Lizaso, The Rise of NFTs – Opportunities and Legal Issues (White & Case , 20 April 2021) <https://www.whitecase.com/publications/alert/rise-nfts-opportunities-and-legal-issues>
[8] Are Non-Fungible Tokens (NFT) Intellectual Property? (Chip Law Group, 21 March 2021) <https://www.chiplawgroup.com/are-nfts-intellectual-property/ >
[9] Adam Chernichaw, Pratin Vallabhaneni and Shobha Lizaso, The Rise of NFTs – Opportunities and Legal Issues (White & Case , 20 April 2021) <https://www.whitecase.com/publications/alert/rise-nfts-opportunities-and-legal-issues>
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.