Whose Work Is It Anyway? -Non-Fungible Tokens and Its Tryst With Copyrights

The horizons of what could be achieved with technology has stretched farther than we could imagine. When Christopher Torres, the creator of the ‘Nyan Cat’ gif, published its corresponding token through the crypto-art platform foundation, he did not have the slightest idea that it would sell for over 300 ETH (approximately equal to $590,000). Similarly, Jack Dorsey’s first tweet that reads “just setting up my twttr” was sold for a whopping 1630 ETH (approximately 3 million dollars). These instances fuelled discussions around a much-hyped cryptographic tool this year: Non-Fungible Tokens (NFTs). While NFTs have become a trend that is much talked about, there is ambiguity surrounding its interrelationship with copyrights. Through this article, the author aims to provide an overview on NFTs while exploring the relevance of copyrights in NFTs.

What are NFTs?

NFTs and their functionality:

In a broad sense, NFTs can be defined as a digital asset that is used to represent objects such as art, memes, music, collectible videos and in-game items. One of the characteristics of NFTs is that they are not interchangeable. Unlike fungible items that can be exchanged because of its defining value (for instance, $ 10 USD is exchangeable for another $ 10 USD), NFTs come with certain unique properties, thus, making them non interchangeable. Blockchains play a pivotal role in the creation of NFTs. These blockchains use cryptography to link blocks into a growing list of records. This chain of blocks is locked using a ‘cryptographic hash’ which is a string of characters that identifies a set of data to a previous block. All the transaction records that are related to a particular chain of blocks are stored in something called as a ‘Merkle Tree’. Currently, an Ethereum blockchain that supports the ERC-721 token standard is used to facilitate NFT transactions. This blockchain keeps a ledger of every NFT ownership that exists. When a person buys an NFT, a token is transferred to the buyer’s digital wallet. The purpose of this token is to prove that the copy of the digital item that you have purchased is original. Upon buying a digital item, the buyer may receive a private crypto key. This private crypto key implicates the buyer’s proof of owning a particular digital item.

Examples and environmental concerns:

Today, the NFT market is valued at about 250 million dollars. Some of the prominent examples of NFTs include musician Grimes’ digital art being sold for more than $6 million, a video clip of LeBron James’ slam dunk being sold at $2 million and Beeple’s digital art being sold at a whopping $69 million. While discussions surrounding NFTs have been gaining lots of momentum, particularly among budding digital artists, there is a flipside to it that is less acknowledged. NFTs impact the environment in immensely negative ways. Every year, Ethereum consumes about 44.94 terawatt hours of electrical energy which is approximately the yearly power consumption of countries such as Qatar and Hungary. Due to this, several artists are exploring alternate options to make NFTs more sustainable. Recently, Artist Damien Hurst launched his digital artworks on the Palm Sidechain which claims to be 99% more energy efficient and is environmentally friendly.

NFTs and its interrelationship with copyrights

Who owns the digital artifact and its copyrights that is represented by an NFT?

Copyright over a particular digital artifact largely depends on the terms of the smart contracts which are used to govern NFT transactions. In the NFT space, more often than not, a buyer is granted with the ownership over a specific copy of the digital artifact and not a proprietary right over every copy of that digital artifact that exists. For example, a person may buy the NFT that represents the ‘Nyan cat’ gif but that does not mean that the buyer has ownership or a proprietary right over every reproduction of the gif that exists on the internet. Here, the buyer only has ownership over that specific, authentic copy of the gif which is represented by the NFT. Similarly, the copyright that subsists in a digital artifact (which is represented by the NFT) is not transferred to a buyer upon purchase. However, this largely depends on the terms of the smart contract. The smart contract can be altered to also transfer the copyright that subsists in a digital artifact. Altering such terms in a smart contract would pave way to limitless possibilities. For instance, creators could allow NFT buyers to use their digital artifacts for commercial purposes by altering the terms of the smart contract.

Copyfraud and Copyright infringement

Copyfraud is a common phenomenon in the NFT space. Essentially, Copyfraud can be defined as falsification of copyrights over a work that is already in the public domain. For example, certain popular artworks are already in the public domain, however, heritage organizations and cultural institutions may hold copyrights over the artworks. By minting an NFT of a work that is already in the public domain (by falsely claiming that he/she has copyright over the work), a person is not just committing copyfraud, but is also infringing upon the original creator’s moral rights. The NFT space is also a breeding ground for copyright infringement. Copyright infringement in the NFT space occurs when a person misrepresents as the author or the copyright holder of a work and attempts to mint an NFT for the same. For instance, several NFT auctions of collections from the Rijksmuseum were conducted. None of the auctions were originally authorised by the museum. Blockchains foster various anonymity features and thus, it is increasingly difficult to verify the authenticity of a particular digital artifact. This has also made it difficult to track the original owner of a particular digital artifact.

The way ahead:

While NFTs have gained lots of momentum this year, various components pertaining to the NFT space are matters of heated debate. With its rise in the recent months, it is likely that IP laws that are specific to governing the NFT space would come into the picture, thus, providing more clarity with respect to copyright related aspects. So far, no countries have enforced laws that are specific to govern the NFT space. However, there is hope for artists who do not wish to be victims of copyfraud or copyright infringement. International agreements such as the Berne Convention and the WIPO Copyright treaty could be considered as a basis for creating laws that are specific to the NFT space. These agreements provide a standardized copyright protection right at the moment when a work in created in any of its 179 signatory countries. In sum, with efficient legislation to protect copyrights in the NFT space while introducing sustainable alternatives, NFTs could truly be the future for several digital creators.

 Author: Sanjana, a BBA LLB student of  Symbiosis Law School (Hyderabad), currently an intern at Khurana & Khurana, Advocates and IP Attorneys. In case of any queries please contact/write back to us at vidushi@khuranaandkhurana.com.

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