What are NFTs, and are they worth millions?
NFTs have been around for a few years and are receiving a lot of press lately. You may have seen that a piece of art by an artist named Beeple recently sold as an NFT for US$69.3 million. Sport cards and other collectables have sold for significant amounts as well. Twitter CEO Jack Dorsey sold an NFT of his very first tweet to the highest bidder for US$2,915,835.47 after two weeks on the market.
So, what is an NFT? NFTs, or non-fungible tokens, are an entry in a blockchain ledger. Basically, it provides proof of ownership of a digital asset. Several online marketplaces are available to buy and sell them. Some are aimed at specific markets like trading cards, while some are more general.
The NFT market is totally artificial. But then again, so is the market for anything tangible that has a non-practical value because of rareness or perceived desirability — diamonds, rare and exotic cars, sports trading cards, paintings, limited edition books, antiques, and the list goes on.
Copyright rules
Take my image above this post as an example. You can look at it on the post, and lower resolution thumbnails of it will appear in search engines and social media posts that refer to it. If you want to keep a copy of the image yourself, you can copy it off the post. What you can do with it is limited by copyright laws. You certainly can’t resell it to anyone or use it in a commercial way.
If I was to sell that image as an NFT, the mere fact that you bought my picture as an NFT doesn’t, however, mean that you own the copyright in it. Your use is subject to the terms I sell it with. It might be full copyright so you can do what you want with it, or it might be a limited license to use it for certain things.
The copyright issue might sound odd at first. But, if you look at it with the same lens as a baseball card, it makes sense. Owning a baseball card doesn't give you the right to make more of them — just to hold onto it and sell it.
Author benefits from resales
If you buy this image as an NFT, then you get the full resolution digital version. The key point is that you also get proof of authenticity, and proof of ownership. It's sort of like buying a limited-edition print. An interesting aspect is that, unlike resales of tangible products, it can be set up so that every time the NFT is resold, the original author gets a percentage of the sales price.
There are a whole host of potential IP and legal issues around NFTs. For a deeper dive into that topic, read this post by New York lawyer Jeremy Goldman. For example, what happens if someone sells as an NFT something they don’t have the right to sell? How do tax laws apply?
Futurist Jim Carroll says in this short video that NFTs are a “fad trend”.
Shelly Palmer asks in this short video whether NFTs are a parlor trick, or a paradigm shift, or just another crypto scam?
It is not unusual for innovative technologies to be head scratchers. Sometimes the tech dies. Anyone remember the CueCat? Sometimes it settles into a model that ultimately makes sense. If I had to hazard a guess, I’d say NFTs will do the latter.
David Canton is a business lawyer and trade-mark agent with a practice focusing on technology issues and technology companies. Connect with David on Twitter and LinkedIn. He is also willing to sell you the image above as an NFT at an exorbitant price.