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The creation, distribution and sale of NFTs must be covered by copyright law

Everyone is concerned about non-fungible tokens (NFTs). The first half of 2021 alone saw the famous $69 million NFT sale of Andy Warhol’s NFTs, Code for the World Wide Web’s NFTs, tweets for the first time and, of course, Beeple’s “Everydays”. Whether this explosive rise of NFTs is a flash in the pan or the future of art and beyond is a hot topic of conversation. An emerging topic of that conversation is whether NFTs have copyright issues. Copyright is embedded in the entire NFT process, but nothing contained in NFT ensures that copyright rules are respected (or even assumed).

The development story of blockchain in the cryptocurrency sector is one of struggle against centralization and regulation. Cryptocurrency maximalists envision a “democratic” financial system free from legislative control. NTFs evolved from this space and share some of this tendency to diverge from established institutions. With this dissolution of NFTs and copyright law, significant problems arise that affect both the buyers of NFTs and the artists who create them.

related: non-fungible tokens from a legal point of view

Copyright Issues

The first problem is ownership. Transferring the NFT does not – in itself – connote any property rights in the digital file attached to the NFT or any intangible right associated with the artwork. Just as the owner of a painting does not get the right to make copies of the painting, the owner of the NFT does not share in any exclusive rights that belong to the owner of the copyright in the work concerned.

In many cases, ownership of the NFT does not even guarantee the ownership of the digital file covered by the NFT (such as the JPG of Beeple’s “every day”), which is usually not contained in the NFT. Instead, the NFT contains a link to the location where the digital file resides on an Internet server. For gaze NFTs, Minter stores a copy of the digital file on a server and then creates a blockchain token that contains a link to that file. If the hosting service closes its doors, NFTs will point to a dead link.

Second, the process of creating NFTs presents copyright problems for both copyright owners as well as NFT buyers. Buyers view NFTs as a mark of authenticity, but anyone can shield the NFTs of any digital file. Casting of NFTs usually involves storing a copy of a digital file on a server, but only the copyright owner in the underlying work can make copies of that work. Therefore, unless NFTs are mined by the copyright owner (or someone operating with their permission), the act of minting NFTs is copyright infringement. The promotion and sale of that NFT would potentially involve additional infringements.

Unauthorized NFT mining is not just the result of malicious actors. Due to misunderstandings about copyright, NFTs can be mined without proper permission. As an example, the owners of a physical drawing by Jean-Michel Basquiat intended to mint an NFT of the drawing, until the Basquiat estate took steps to indicate that the owner of the drawing was not entitled to the underlying copyright. was not the owner.

Big auction houses like Christie’s and Sotheby’s will assure the emergence of NFTs which is backed by their history and expertise. But most of the people are not buying their NFTs from established auction houses. Online NFT marketplaces such as Rarible and OpenSea cannot verify that each NFT offered for sale was minted with the appropriate permissions.

related: Hot July at Christie’s: Over $93 Million in NFT Sales and Art+Tech Summit 2021

The wide distribution of unauthorized NFTs also weakens trust in them in general. If NFTs are to fulfill their potential as a new vehicle for the creation and exchange of the inherent value of creative works, then the world of NFTs and copyright must begin to work together.

possible solutions

The solution to these problems lies in bringing together non-crypto expertise with NFT development. Combining copyright knowledge with NFT development will yield NFT solutions that understand, respect and take advantage of copyright law. One of the long-term prospects for NFTs is in the form of copyright ownership, and some companies are working towards marrying the worlds of copyright and crypto.

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

One solution is to limit NFT sales to specialized auctions that deal with a limited number of NFTs. Firms operating under this model limit NFT sales to the auctions they control. These NFTs are pre-prepared and tested by experts. This solution solves the origination problem with specialized expertise, but at the cost of accessibility for both artists and buyers.

Validating and verifying copyright ownership should be a part of the NFT-minting process – for example, bringing humans into the mining process to gather evidence and support that acts as a package of evidence that the NFTs are mined. The person with the required permissions. Do this This package of evidence is then stored online, and the NFT provides a link to supporting documents. NFTs created in this way are portable and can be sold and exchanged on any Ethereum-compatible NFT marketplace. In this way, artists are protected from unauthorized mining and buyers can be sure that they are receiving an NFT that has been responsibly minted by the authorized owner of the copyright.

related: NFTs are a game-changer for independent artists and musicians

Bringing NFTs and Copyright Law

NFTs were conceived as digital assets, unique pieces of code that could hold value as a result of their scarcity. As the uses of NFTs expanded into the world of art and creativity, the ambitions of NFTs transcended the idea of ​​legal consequences.

The technical process of creating, distributing and selling NFTs involves copyright law implications that have not been fully addressed. Without due consideration of how copyright law applies, NFTs become problematic for both creators and consumers. In response, new firms are already emerging with solutions. Bringing copyright law expertise to the manufacture and sale of NFTs will begin to address these copyright problems and pave the way for NFTs to reach their full potential.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.

The views, opinions and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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

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