What Are You Buying When You Buy an NFT? | Insights
Non-fungible tokens (NFTs) are having a moment. In March 2021, Beeple sold an NFT of digital art for $69.3 million; in May 2021, The New York Times sold an NFT of a column for $560,000. But what are you really buying when you become the owner of an NFT?
First, some background. NFTs exist on blockchains, the same technology that powers Bitcoin and Ethereum crypto coins. Unlike crypto coins, however, NFTs are “non-fungible” – meaning they cannot be swapped with some similar item. Bitcoins (BTC) and paper money are classic “fungible” goods: You can swap 1 BTC for any other 1 BTC and end up right where you started. Non-fungible goods, on the other hand, are unique and not replaceable: You cannot swap The Scream for another The Scream because there is only one. (The history of The Scream being stolen is worth a read and demonstrates that it is a valuable and unique object.) The most popular form of NFTs coexist with Ethereum coins on the Ethereum blockchain, although other blockchains offer NFT functionality as well.
NFTs can represent any digital asset, which is why digital art and videos are being offered for sale as NFTs. Creative works are historically the domain of copyright law, which protects “original works of authorship fixed in any tangible medium of expression.” This essentially means that copyright law protects creative things that are written down (this post itself counts). Holding a copyright in something gives the owner a whole host of rights, including the rights to display the work, make modifications to the work (called “derivative works”) and, giving the right its name, make copies of the work. Most important, copyright law allows one to enforce these rights by excluding others from exercising them via legal action.
People may be surprised to learn that there is currently no intersection between NFTs and copyright law. In other words, when you buy an NFT, you are not necessarily buying the bundle of rights that accompany copyright ownership. For example, solely buying an NFT does not bestow the rights to display or copy the work. Others, including the NFT’s original author, may maintain those rights. This means that NFT owners may find themselves in the odd position of committing copyright infringement on a work for which they own the NFT.
Buying an NFT gives you only a tokenized representation of the work that cannot be fabricated because of the unique security properties of blockchains. This gives you the ability to prove to the world that the NFT is yours, prevent anyone else from manipulating the NFT and, perhaps most important to the owners, resell the NFT to others. That may be enough for most people, but if you want some or all of the bundle of rights a copyright includes, then those need to be separately negotiated. In a recent example, the owners of the “Charlie Bit My Finger” video on YouTube sold the video as an NFT along with the copyright.
