Minting, distributing and selling NFTs must respect copyright law

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Everyone is crazy about non-fungible tokens (NFTs). In the first half of 2021 alone there were NFTs from Andy Warhol, NFTs of the code for the World Wide Web, the very first tweet and of course the famous $ 69 million NFT sale of Beeples “Everydays”. Whether this explosive rise of NFTs is a flash in the pan or the future of the arts and beyond is a hot topic of conversation. One emerging topic from this conversation is whether NFTs have a copyright problem. Copyright is used throughout the NFT process, but there is nothing in an NFT itself to ensure that copyright rules are upheld (or even respected).

The story of blockchain development in the cryptocurrency space is a story of the struggle against centralization and regulation. Cryptocurrency maximalists envision a “democratized” financial system that is free from legislative scrutiny. NTFs emerged from this space and share part of this tendency to disconnect from established institutions. This decoupling of NFTs and copyright creates significant problems that affect both the buyers of NFTs and the artists who create them.

Related: Non-fungible tokens from a legal point of view

Copyright problems

The first problem is property. The transfer of an NFT does not, by itself, transfer any ownership rights to the digital file linked in the NFT or to any intangible rights associated with the artwork. Just as owning a painting does not give the owner the right to make copies of the painting, the owner of an NFT does not have any of the exclusive rights that belong to the owner of the copyright in the associated work.

In many cases, owning the NFT does not even guarantee ownership of the digital file covered by the NFT (like Beeples’ JPG “Everydays”), which is not normally included in the NFT. Instead, the NFT contains a link to the location of the digital file on an internet server. To mint an NFT, the minter stores a copy of the digital file on a server and then creates a blockchain token that contains a link to that file. When the hosting service closes its doors, the NFT will point out a dead link.

Second, the process of minting NFTs presents copyright problems for both copyright owners and NFT buyers. Buyers see the NFT as an imprimatur of authenticity, but anyone can mint an NFT from any digital file. Embossing an NFT usually involves storing a copy of the digital file on a server, but only the copyright owner of the underlying work can make copies of that work. Unless an NFT is coined by the copyright owner (or someone who operates with its permission), coining the NFT is a copyright infringement. The promotion and sale of this NFT would likely result in additional violations.

Unauthorized NFT minting isn’t just the result of malicious actors, either. A misunderstanding about copyright law can result in NFTs being coined without the proper permissions. As an example, the owners of a physical drawing by Jean-Michel Basquiat had intended to mint an NFT of the drawing until the Basquiat Estate stepped in to indicate that the owners of the drawing did not own the underlying copyright.

Larger auction houses like Christie’s and Sotheby’s offer the certainty of the provenance of an NFT, backed by their history and expertise. But most people don’t buy their NFTs from established auction houses. Online NFT marketplaces like Rarible and OpenSea cannot verify that every NFT offered for sale has been minted with the appropriate permit.

Related: Hot July at Christie’s: Over $ 93 million in NFT sales and Art + Tech Summit 2021

The widespread use of unauthorized NFTs also weakens trust in them in general. If NFTs are to realize their potential as a new vehicle for building and sharing the inherent value of creative work, the worlds of NFTs and copyright must work together.

Potential solutions

The solution to these problems is to bring together non-crypto expertise with NFT development. Combining copyright knowledge with NFT development results in NFT solutions that understand, respect, and use copyright law. One of the long-term potentials for NFTs is the form of copyright law, and some companies are working to unite the worlds of copyright law and cryptocurrency.

Related: Non-Fungible Tokens: A New Paradigm for Intellectual Property?

One solution is to limit NFT sales to specialized auctions that deal with a limited number of NFTs. Companies operating on this model restrict NFT sales to auctions they control. These NFTs are curated and reviewed in advance by experts. This solution solves the provenance problem with special expertise, but at the expense of accessibility for artists and buyers.

Validating and reviewing copyright must be part of the NFT coining process – for example, by involving people in the coining process to gather evidence and support that will serve as a package of evidence that the person coining the NFT has the required permissions has to do this. This evidence package is then stored online and the NFT provides a link to the evidence. NFTs embossed in this way are portable and can be sold and exchanged on any Ethereum-compatible NFT marketplace. This protects artists from unauthorized coinage, and buyers can rest assured that they are purchasing an NFT that has been responsibly minted by the authorized copyright owner.

Related: NFTs are a game changer for independent artists and musicians

Bring NFTs and copyright

NFTs were designed as digital assets, unique pieces of code that, due to their scarcity, could have value. As the uses of NFTs expanded to include the arts and creativity, the ambitions for NFTs outperformed considerations of legal ramifications.

The technical process for the minting, distribution and sale of NFTs has copyright implications that have not yet been fully addressed. Without proper consideration of the application of copyright law, NFTs become problematic for both authors and consumers. In response to this, new companies with solutions are already emerging. Bringing copyright expertise to the creation and sale of NFTs will resolve these copyright issues and pave the way for NFTs to realize their full potential.

This article does not provide investment advice or recommendations. Every step of investing and trading involves risk, and readers should do their research when making a decision.

The views, thoughts, and opinions expressed herein are those of the author alone and do not necessarily reflect the views and opinions of Cointelegraph.

Harsch Khandelwal is CEO of Ureeqa, a blockchain-based platform for protecting, managing and monetizing creative work. Harsch is a gold medalist from the University of Waterloo and an Ivey Fellow from the Richard Ivey School of Business. Over the past 20 years, he has built and led companies in a variety of industries including technology, real estate, and private equity.