- NFTs can be divided into visible assets and blockchain data.
- Visible assets are secondary to metadata/blockchain addresses, as the latter represents ownership.
- Visible assets, represented by NFTs, can be legally covered from exploitation.
- Each web3 company has its own way of setting the NFT usage limits.
Non-fungible tokens represent a major evolutionary step in private ownership. It has never been easier to create a digital asset — art, e-book, music, gaming asset — and then tokenize it with set royalties pouring in. No auction houses, accountants, and other gatekeepers needed.
However, what happens when other people copy that asset and tokenize it as their own? Moreover, what happens when you buy a blue-chip NFT and try to commercially take advantage of it? Between these two scenarios lies the answer to the question of true NFT ownership.
Understanding Tokens — Asset vs. Address
To provide a pathway to understanding, it bears disassembling the NFT acronym once again — non-fungible token. In common use, “token” means representation of a value. For example, one could say, “He put up a show of resistance, but in the end, he gave in to what we wanted.”
The value in that token example could’ve been one’s pride or a greater negotiation maneuvering. In the blockchain world, the token is a blockchain address — another data block added to the network as a public ledger.
Because one has their wallet access to that data block, it is then easy to prove ownership of the asset itself.
That is, unless one loses a private key to the wallet. In either case, the blockchain address works as a proof of ownership, even though no organization is actually giving it out. But, this begs the question.
If NFT only shows who owns a digital asset, which can be copied an infinite number of times. What stops other people from just copyminting that digital asset as new NFTs?
RELATED TOPIC: How NFT Copyright Is Being Revolutionized by CC0s
Owning NFTs Examined
With all things equal, the dynamic of NFT ownership is set by its digital nature. Case in point, both digital and physical artworks could be 100% replicated to the point that they are indistinguishable from the original. Nonetheless, it is more difficult to copy physical assets.
At the end of the ownership line, very specialized experts could be called in to look at it and follow the ownership line to figure out if it is original. In other words, physical assets aren’t easy to copy, which is something that digital assets don’t have.
This is both an advantage and a disadvantage. On the one hand, NFTs are streamlined as already having ownership blockchain-stamped. On the other hand, the asset itself(not the address on the blockchain) could be copied instantly and endlessly.
The remedy is to protect the digital asset itself before anyone sees it — before it is tokenized as NFT. For example, one could visit the electronic Copyright Office (eCO), as a part of the Library of Congress, and file a certificate application for a small fee.
With the application approved, the original creator can then use the certificate to remove copymints from NFT marketplaces.
Other countries have their own equivalent of that office. This is on top of existing preventative measures against copymints and plagiarism that NFT marketplaces have implemented on their own.
What About NFT Ownership That Someone Else Created?
This is the situation most people find themselves in. Someone else created a digital asset and then tokenized it as NFT on a particular blockchain. That network then serves as a public ledger to verify ownership.
This puts the owner in a position where two questions have to be answered:
- What is the extent to which you can use that digital asset?
- What happens if the blockchain network goes down?
To answer the first question, it all depends on what limits did the NFT publisher put in place. In other words, web3 companies issuing new NFT collections will create NFT licenses. Case in point, CryptoKitties issued an NFT license by which their NFTs can only be used for personal, non-commercial use.
Otherwise, if one were to use CryptoKitties artwork to sell their own merchandise, and earn more than $100k annually, Dapper Labs could file a legal copyright action. The same would apply for using CryptoKitties to sell third-party products.
Does Yuga Labs Restrict Their NFTs?
Yuga Labs, the creators of Bored Ape Yacht Club, Otherdeed, and other NFT derivatives, handles “licensing” a bit differently than CryptoKitties. Under their terms and conditions, they grant their NFT holders “worldwide, royalty-free license to use, copy, and display the purchased Art”.
However, you will notice there is no mention of giving NFT holders an “exclusive” license. This is an important legal distinction because only entities with exclusive license rights can file DMCA takedowns and sue for copyright violations.
It appears then that Yuga Labs granted users “sole” licenses. After exclusive and non-exclusive licenses under IP (Intellectual Property) law, sole licenses represent the third category. Unlike an exclusive license, sole licensors reserve the right to use that IP, but not to the exclusion of the exclusive license holder.
Does that mean that you can use BAYC NFTs for commercial enterprises? Yes, judging by the virtual music band Kingship, which had, under Universal Music Group, used Apes as web3 avatars. Since that announcement last year, there has been no mention from Yuga Labs of any IP wrongdoings.
(1/2) The outpouring of support from our community today has been overwhelming. We will continue to be transparent with our community as we fight these slanderous claims. In order to put a stop to the continuous infringement, and other illegal attempts to bring harm to…— Yuga Labs (@yugalabs) June 25, 2022
However, this shouldn’t be conflated with plagiarism. When artist Ryder Ripps and others allegedly faked BAYC NFTs’ origin, Yuga Labs filed a trademark lawsuit last month.
The lawsuit centers around classic trademark law — “false designation of origin.” Meaning, the artists have been allegedly using Yuga Labs logo to promote and sell authentic BAYC NFTs.
What About a Network Shutdown?
Blockchain networks are designed to be resilient, as they are composed of thousands of distributed validation nodes. Nonetheless, some networks are more decentralized than others.
Bitcoin (15,377 nodes) and Ethereum (4927 nodes) are the most decentralized networks, which are least likely to go offline.
In fact, both have a near-perfect uptime record, only marred by high traffic loads that resulted in high transfer fees, not actual shutdowns.
However, the same cannot be said of more centralized blockchain networks. For instance, Solana has gone offline at least seven times during its short two-year existence.
Needless to say, if a blockchain permanently goes down, it means that the public ledger for viewing NFT ownership is no longer in service. Fortunately, most NFTs (their metadata) are actually stored on IPFS — InterPlanetary File System — a P2P storage network.
Others’ metadata is stored on the platform that handles the transaction. For example, Beeple’s NFTs’ metadata is stored on Nifty servers. Meaning, if for some reason Nifty servers burn in a fire, those multi-billion NFTs would become worthless as there is no longer any reference data.
However, this is not the case with the Beeple’s record holder, EVERYDAYS: THE FIRST 5000 DAYS, which sold for $69.3 million. That one is hosted on IPFS, with much greater network redundancy, consisting of over 200,000 nodes.
With that said, there is another problem arising. If the web3 startups that published NFTs go down, there is no guarantee that IPFS will hold those hash references. Likewise, the marketplace servers themselves can be spotty in their performance.
The largest NFT marketplace, OpenSea, hosts their NFT offerings on IPFS as well. With all that said, these hiccups are to be expected in an emerging industry. Neither IPFS nor Ethereum are likely to go offline in the foreseeable future.
It is more likely that the Internet itself would go down first, which would overshadow NFT access problems entirely.
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