By Attorney Diane Littlejohn
NFTs are the hot new way to cash in on digital art. NFTs are everywhere. NFTs, or non- Fungible Tokens have proven to be very lucrative for creators. Beeple’s digital art piece “Everydays: The First 5000 Days” recently sold for $69 million during auction. But is all the hype surrounding NFTs warranted?
Let’s discuss NFTs from a legal perspective.
What is an NFT?
An NFT is a digital asset that is issued on a distributed digital ledger such as a blockchain. An NFT typically represents a real-world object, such as a piece of art, music, image, designer sneaker or a video. The object can be tangible or intangible. In short, NFTs are akin to a physical collector’s item, but in a digital format. NFTs are bought and sold online with cryptocurrency like bitcoin and stored in smart contracts. Simply put, a smart contract is a computer program stored on the blockchain that runs when predetermined conditions are met. A smart contract is generally used to automate the execution of an agreement between parties without human intervention. Smart contracts provide a method of provable authenticity and ownership for digital artwork, music, images and other content. Only one person can own the specific token authenticating the content, which contributes to the allure of an NFT, the creation of digital scarcity.
Creators and Collectors
Creators and collectors alike are interested in NFTs. Creators are attracted to NFTs because NFTs are a method to protect their intellectual property rights and to monetize their creations directly to collectors without the need for auction houses or galleries. Creators should work with reputable technology companies that will ensure the issuance of the token is both transparent and secure. Creators should also inquire if they will be paid royalties by the technology company if the tokens are transferred by the purchaser.
Collectors are interested in NFTs because they provide an authentic record of ownership of the creative work and owning an NFT allows the collector to support an artist that they may be a fan of. However, collectors must be aware that they are not likely purchasing a tangible product like a painting that is displayed on a wall. The purchase is a digital asset that will be stored in a digital wallet. Other pitfalls for collectors are that owning the NFT of a creative work does not necessarily include owning a copyright in that work.
So, is all the hype surrounding NFTS warranted? That remains to be seen as the legal landscape surrounding NFTs is constantly evolving.
Do you have more questions about protecting your intellectual property? Contact Littlejohn Law Offices to set up an appointment today!