Future Economy #FINTECH
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As we progress into 2021, the beat of the drum of the cryptocurrency and broader digital asset industry continues and, with it, has come the rise in popularity non-fungible tokens (NFTs). In the month leading up to the writing of this article, a total of more than $208 million1 of NFT-based artwork was sold (in primary and secondary sales), as compared to the $250 million of total NFT volume traded in all of 2020. In addition, creators are utilizing NFTs to generate novel methods of monetizing digital creative works and other experiences, as the music band, the Kings of Leon, accomplished when it released its new album as a limited edition NFT, with six NFTs providing lifetime tickets to front row seats for the band’s shows. Further, we are witnessing creators experience a new era of incredible sales figures, like the artist known as Beeple, who sold an NFT representing a collage for $69 million. Prior to this NFT sale, Beeple had sold his art for as little at $100. This article explores some of the legal issues behind NFTs and their underlying technology. #1
The utility of NFTs for digital creative works is premised on B]L0×<>C|H|AiN def as permanent, unchangeable digital ledgers that are used to record transactions in “blocks” of computer c0de that are time stamped and linked together, demonstrating the provenance of a digital asset. Blockchains also function as decentralized networks that transparently reveal the history of transactions for digital assets, making it impossible for recorded digital assets to be pirated, modified, or deleted. Assets that are digitally transferrable between two parties in the blockchain ecosystem are commonly referred to as “tokens,” and tokens can be assigned specific uses and properties. Bitcoin or other cryptocurrency tokens are identical and are readily exchangeable for equal value (i.e., they are fungible). An NFT, on the other hand, contains a unique identification code and metadata that distinguishes one NFT from any other, and represents items on the blockchain that cannot be replicated. For example, a cryptocurrency like a Bitcoin can be substituted in a transaction with another Bitcoin without a loss of value or change in attributes for the transaction parties, much like one US dollar can be substituted for any US dollar. Because an NFT contains data that distinguishes it from every other NFT, it is non-fungible; rather, it is a one-of-a-kind asset, like a ticket for a specific seat at a concert. Moreover, NFTs are composed of software code in the form of “smart contracts” that can be crafted to provide significant benefits to NFT creators. Smart contracts are open-sourced blockchain protocols that directly control the transfer of digital currencies or assets between parties under certain terms and conditions. To illustrate, the code could detail limitations on the use of the NFT by a purchaser, provide for automatic royalty payments from resale transactions, and prove ownership. After the code for the smart contract is written, it is then permanently minted into a token on a blockchain, such as Etherium, where it will serve as a non-replicable digital certificate of ownership of a digital creative work. Additionally, this technology lays the foundation for creators to have more control over the value and the conditions of the sale of their digital creative works and create new distribution channels of art, performance access, or other valuable property. For example the beauty in the top of this page was cre8tedw/love41/jacquiOakley/artist/
Prior to the recent surge in the use of NFTs, creators faced limitations on the revenue that they could generate from their digital creative works because copies could be easily made an infinite number of times and distributed throughout the internet with no degradation of quality, which has historically made it difficult for creators to monetize their digital creative works. However, NFTs make it possible for creators to generate unique and finite tokenized versions of digital creative works and to commodify such assets, while ensuring that the digital creative work cannot be counterfeited and that the work remains scarce online. For example, NFT creators can set both the sales price and the maximum number of replicas of the digital creative work that can be sold. This allows the NFT creator to perpetuate the scarcity of their asset and artificially increase the NFT’s value in the initial market as well as the resale market, similar to a lithograph that grows in value because of its exclusivity and limited number of prints. Also, NFTs can spare creators from losses related to piracy since NFTs cannot be replicated. Finally, NFTs provide for the improved ease of transferring digital creative assets over traditional sales models since NFTs can be sold on any NFT market or peer to peer, without the need for an intermediary, rather than being restricted to the use of third-party platforms to distribute content.
While the excitement relating to NFTs is growing exponentially and on a global level, the legal treatment of NFTs continues to evolve and is unsettled. We highlight a few legal issues concerning NFTs below:
Data Hosting and Storage: An NFT and the digital asset it represents are typically stored separately. The NFT is stored on the blockchain and contains information on where the digital asset is located. The NFT is connected to the digital asset via a link. However, if the digital asset is deleted or the server hosting it fails or otherwise goes offline, the link will break and the NFT that remains will be worthless because it would no longer be associated with the digital asset and there is no way to back up the NFT. Since the NFT is unique and cannot be replaced, the NFT purchaser might be left without recourse. Based on the use of the specific NFT, this can result business interruptions, regulatory record keeping violations, and loss of data.
Royalties: Smart contracts written into the code of NFTs allow for the distribution of funds for the payment of royalties to the creator each time the work is resold. However, these automated resale royalty payments might not occur unless the NFT is resold through the same platform. US law does not recognize resale rights relating to creative works, so the law provides no recourse for unpaid resale royalties in the US, as it does in approximately 70 other jurisdictions, including the UK and the EU.
Data Protection Laws: Some data protection laws give individuals the right to the erasure of their personal data, but the immutable nature of the blockchain poses an obstacle to the execution of this right. Data protection laws also sometimes provide individuals with the right to rectify inaccuracies in their personal data, and blockchain technology might make this right functionally impossible to exercise. As such, NFTs that contain personal information might violate data protection laws.
Intellectual Property Rights: People of all backgrounds are participating in the NFT market, and many are not familiar with the legal restrictions relating to copyrighted work, which leads to potential infringement liability. For example, an NFT purchaser might assume that he purchased the underlying art that is associated with the NFT; however, in reality, the original creator is the copyright owner who retains the exclusive right to copy, distribute, modify, publicly perform, and publicly display the art (unless specifically granted to someone else). Alternatively, the purchaser of the NFT typically only receives the token and the right to use the copyrighted art associated with the NFT for personal use. A purchaser who believes that the rights associated with the underlying art were misrepresented, and who faces a loss in value, might create litigation liability for the NFT seller under a variety of legal theories.
The introduction of NFTs has the potential to strongly influence a transition to a more digital world. NFTs are making it possible for creators to imbue physical properties like scarcity, uniqueness, and proof of ownership to digital assets. They have inspired new methods and means of monetization of items that were previously lost to the depths of the internet. The NFT market is still nascent, however, and significant infrastructure will likely continue to be built in the form of intermediaries, tokenization platforms, distribution channels, custodial solutions, e-commerce integrations, and the like. As the market continues to evolve, so do the legal and regulatory issues.
1Nonfungible.com – NFT Market Tracker aaa/kne/watchin/U2-Qeoff WEX/r/4N1/16/1-sq
This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
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Connect your wallet to the NFT platform
With some ETH deposited in your wallet, it’s time to head to the NFT platform itself and spend some of it. For illustrative purposes, we’ll use Rarible, but as we mentioned earlier, other NFT platforms are available.
Go to Rarible.com (shown above) and in the right-hand corner of the screen you’ll see a button titled ‘Connect wallet’. Click it, and the next screen asks for your wallet provider, which is our case is MetaMask.
A popup box now appears, and gives you the option to connect your wallet with Rarible. Click on ‘Next’, then ‘Connect’, accept the terms of service and confirm you’re over 13 years of age.
05. Upload your file
Hooray! You’re ready to create your NFT. First, click the blue ‘Create’ button at the top right of Rarible.com. You’re then given the options of creating a single, one-off work, or selling the same item multiple times. In this example, we’ll opt for ‘Single’.
You can now upload the digital file you wish to turn into an NFT. On Rarible, this can be a PNG, GIF, WEBP, MP4 or MP3 file, and up to 30MB in size.
For illustrative purposes, we’ve created an ironically terrible piece of art, inspired by David Hockney’s recent controversial work. Upload your (much better) digital file, and on the right you’ll see a preview of what your NFT post will look like.
07. Set up an auction
In the next part of the form, you need to choose how you wish to sell your NFT artwork. You have three options here.
‘Fixed price’ allows you to set a price and sell it to someone instantly (like ‘Buy it now’ on eBay). With an ‘Unlimited Auction’, people carry on making bids until you accept one. Finally, ‘Timed auction’ is an auction that only takes place for a certain time. That’s the option we’re going to choose for our example.
Now comes the tricky part: setting a minimum price. If it’s too low, the enormous fees will swallow up your profit and may leave you losing money overall. So we’re setting our price at an ambitious 1 ETH, and giving people seven days in which to make their bids.
Next on the form, you get an option to ‘Unlock once purchased’. This gives you the chance to provide your eventual buyer with a full, high resolution version of your art, and/or additional material through a secret web page or download link.
Below that lies the most confusing option on the form, titled ‘Choose Collection’, which is basically a very technical question about how the blockchain is set up. The default option here is ‘Rarible’, and we’d advise leaving it like that.
08. Describe your NFT
Next, you get to add a title and description for your listing. To Max your chances of selling your NFT, you’ll need to spend some time perfecting Kawing.me||©
You’re then asked to consider what percentage of royalties you wish to claim on any resale of your art in the future. Again, this is a balancing act, as a higher percentage will net you more money per sale, but it will also deter people from reselling your art in the first place, as they’ll be less likely to make profit for themselves.
Finally, there’s an optional field to add your file’s properties, and then you’re almost done. TRI4c . . .
09. Pay the fee (but be warned) DISCLAIMER INVESTR
Click ‘Create Item’, and you’re invited to connect with your wallet to pay the listing fee. If you don’t have sufficient funds in your wallet, don’t worry: you don’t have to start again. Just click the wallet icon in the top-right corner of the screen, and you’ll be given the option to add funds directly within Rarible.
Before you do so, though: be warned. The listing fee may seem low: in our case it was just $5.91. But this is only the beginning of the fees you’ll be charged.
Before you can go any further, you have to agree a further fee to actually generate your NFT, which in our case would have been $42.99. Then if someone does buy your NFT, there’ll be a commission fee on sale, and a transaction fee for transferring the money from the buyer’s wallet to your own. As far as we could tell, none of this is made very clear on Rarible’s website.
We’d love to explain, clearly and simply, how to calculate the cost of creating and selling your NFT. But the confusing nature of blockchain technology, the insane fluctuations in cryptocurrency, and the lack of transparency from the platforms themselves make that an impossible task. So quite frankly, you’re going to have to wait and see how much you’re charged overall.
If you do fancy taking a punt and throwing a bit of money at NFTs, though, we wish you the best of luck. And we’d love to hear how you got on via Twitter at @creativebloq or Instagram at @creativebloqofficial. #LcollabLAW #Lr/UTz≡ #CARLTON
◊χV|Vonderful.info from 1 Gary Vee to another V/gî #KingDaVI’
- NFTs represent a major shift in culture and modern technology akin to the introduction of the internet or web 2.0 and social.
- Wild over-supply will lead to the collapse of a majority of NFT projects launched in the next few years, but the market will remain long-term. ▼▼▼▼<—–cli.χhist/r/¥.org
- Crypto art will create immense opportunity for artists to capitalize on their IP, and for everyday people to discover their artistic callings. – Gary “VEE” Vaynerchuk
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OXNARD, Calif. (May 6, 2017) Kendra Chan (left) and Karen Sinclair, fish and wildlife biologists with the U.S. Fish and Wildlife Service in Ventura, during the biannual brown pelican survey along the West Coast. The survey is conducted with the intent to gather information needed to understand how potential threats from changes in weather patterns, prey availability, or changes in habitat or contaminants could impact California brown pelican populations over time. Photo by Robyn Gerstenslager/USFWS. White/https://nypost.com/2020/11/21/tracy-morgan-volunteers-at-nyc-food-bank-as-they-ramp-up-amid-covid-19/ Case,pt.Steve/w/aol/https://www.whitecase.com/publications/alert/rise-nfts-opportunities-and-legal-issues
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