NFTs and Copyright: Everything You Need To Know

NFTs started in 2012-13 as "colored coins" on the Bitcoin blockchain. Similar to NFTs, colored coins also represent real-world assets. In 2016, Jason Rosenstein and Louis Parker hosted the first-ever Rare Digital Art Festival where NFTs were auctioned for the first time. This event gave birth to CryptoArt with creators able to submit and sell their artwork for the first time. In turn, this was the first-time digital art demonstrated that it has an intrinsic value.

Today, the NFT market capitalization is estimated to be worth about 1.4 billion US dollars, according to Statista. The highest selling NFT, recorded to date, is an NFT by CryptoPunk dubbed Crypto Punk 9998. The NFT sold for a staggering 124,457.07 Ether which was worth about $530 million at the time of the sale. NFT 9998 beat the record previously set by the Beeples’ digital artwork which sold for about $69 million earlier this year (March 2021).

The unique nature of NFTs means there is a need for creators to gatekeep their collections from copycats by using intellectual property protection. However, this protection is limited due to the lack of regulatory clarity for digital assets and cryptocurrency specifically.

Despite the lack of regulation, NFTs offer a few advantages in comparison to more traditional assets. For instance, NFTs are more liquid and easier to transfer in comparison to their real-world counterparts. With the recent rise in NFT adoption, even more, digital marketplaces have sprung up catering to a diverse user base and ready market. In addition, new NFT platforms launch daily with the main consensus being making the digital assets more accessible, enhancing user experience, and reducing transaction costs. However, NFT ownership still does not automatically mean copyright ownership like with a real-world asset.

Copyright ownership grants the holder exclusive rights to the use, reproduction, distribution, public display, and performance of the underlying creative asset. For example, US copyright laws grant that only the copyright holder has the exclusive right to turn original work into an NFT. CryptoPunk, an NFT project with 10,000 unique NFTs by Larva Labs, submitted a copyright claim against an NFT platform called Foundation.

CryptoPunk claims that Foundation is displaying NFTs that are part of its collection. The NFTs in question were submitted to Foundation by Ryder Ripple who in turn claims to be their creator. While the claim is still ongoing, it does point to the challenge posed by the lack of clear copyright guidelines in the NFT space. The challenge extends to reproductions and derivative works which substantially increase the scope of potential infringement.

At the same time, NFTs enable creators to claim royalties on the subsequent resale of their work, something that does not have widespread acceptance under traditional market conditions. In addition, marginalized creators like meme creators are able to cash in on their viral memes through NFTs. Meme creators that have benefited from NFTs include Zoe Roth, popularly known for her ‘Disaster Girl’ meme. The meme NFT sold for US$500,000 in May 2021.

However, meme NFTs do not limit the use or distribution of the meme itself. It simply means that meme creators sell the ‘original meme’. 

NFTs, like blockchain and cryptocurrency, do not neatly fit into traditional laws and regulations, including copyright. This is partly because blockchain technology was created with the intention of disrupting traditional systems. The other reason is that blockchain technology and NFTs still lack mainstream adoption. As more and more people begin owning and using NFTs, regulatory authorities will be forced to take a more active approach to protect creator or ownership rights through copyrights and other intellectual property protection.

In the meantime, legal counsel from intellectual property experts like Abou Naja Intellectual Property will help you ensure that you are adequately protected. To learn more about intellectual property protection and copyrights, please contact us at [email protected].