Written by Sebastian Marcu
Non-Fungible Tokens (NFTs) are rapidly becoming a dominant – and legitimate – pathway to ownership and trading in the arts world. A formerly marginal technology, they’ve become mainstream and made news headlines around the globe thanks to extraordinary, eight-figure sales of digital works.
In March, the digital artist known as Beeple, real name Mike Winkelmann, sold an NFT attached to a work of art, “Everydays: The First 5000 Days”, for more than $69 million through international auction house Christie’s.
This explosive sale cemented what arts and media commentators were already coming to realise; that NFTs represent a revolutionary new avenue for the marketing, trading and ownership of digital art.
What is an NFT?
An NFT is a digital token that signifies ownership of a work of digital art or media, even if that work is already readily available for free online. The authenticity of ownership of the NFT is encrypted in a blockchain, a searchable digital ledger of all NFT transactions made, so ownership cannot be forged or fabricated.
Ownership of a digital work of art can thus be transferred and validated, opening up new doors for digital artists to market their output.
NFTs therefore present a unique offering to the arts sector, with significant emancipatory potential. An artist can market and sell their work – for potentially huge sums of money – without the need for an agent or a consultant. It could allow creators to bypass the often-rigid hierarchies that can prevent them from climbing the ladder and becoming profitable in the mainstream art world.
However, owning an NFT attached to a work of art does not necessarily confer all the privileges that owning the actual work itself would; as in the real world, arts ownership in the digital space can be tricky to navigate.
As Winkelmann said to CNBC, “I think that people don’t understand that when you buy, you have the token [or NFT]. You can display the token and show you own the token, but, you don’t own the copyright.”
What do you actually own?
When you purchase an NFT, you have the right to claim ownership of the NFT and dispute any other claims of ownership. But your rights over the actual work the NFT is attached to – its reproduction and communication, for example – will vary depending on the terms of each individual NFT.
NFTs have in-built smart contracts that specify particular rights. An artist may transfer ownership of the copyright of the work with the NFT, thus allowing the purchaser to exercise reproduction and communication rights – but this is currently the exception and not the rule.
The NFT that Winkelmann sold via Christie’s did not contain any copyright ownership, and Winkelmann can (and has) sold individual segments of the overarching work via other NFTs.
The attachment of additional rights has occurred more frequently in the music space, where artists have attached publishing rights to NFTs. This provides the purchaser of the NFT with additional opportunities to derive income from the underlying work, besides the speculative hope of the NFT itself appreciating over time.
Emerging legal issues with NFTs
Like any new technology, especially in unregulated cryptocurrency spaces, NFTs can raise novel legal issues. For example, artists have already reported having their work encoded into NFTs and sold without their permission.
To circumvent this risk, some platforms require old-fashioned, manual artist verification before an NFT can be traded, while others have accompanying warning notices encouraging potential buyers to do their own research into artists and collections.
Additionally, the variable rights and privileges associated with different NFTs risk misleading purchasers, leading to regrets and potentially claims of misrepresentation. Given the vast sums of money transacted, this is no small issue, and may lead to high-profile legal battles in the near future. The purchase of an NFT should only be undertaken when all the rights conferred with the token are fully understood.
Written by Sebastian Marcu
This is a developing and exciting space that we will be watching closely. If you have an NFT related legal questions please contact us through our online form or via email at email@example.com.
The information in this article is of a general nature. It does not constitute formal legal advice, and should not be relied on as such. Please see the full disclaimer in our website terms. Please contact Studio Legal if you are seeking advice about a specific legal matter.
Photo by Pawel Czerwinski on Unsplash